Global markets were mixed overnight (S&P 500 index -0.5%) as stocks poised to benefit from an economic rebound outperformed again with financials being the best performing sector. The heavyweight tech sector swung back into losses (Nasdaq -2.4%) on fears of increased government spending increasing inflation sending the benchmark 10-year Treasury yield to near one-year highs.
European markets were up as the Stoxx 600 gained +2.1% and Germany's DAX added +3.3% io fresh record highs, as we start to see a massive rotation back into cyclical stocks.
Technology stocks are particularly sensitive to rising yields because their value rests heavily on earnings in the future, which are discounted more deeply when interest rates go up, with a similar effect on defensive income stocks – which dominate the NZ market (Spark, Gentailers, etc).
Closer to home, analysis from CBA estimates households have put aside $120bn more than what is normally saved in the June, Sept and Dec quarters – equivalent to 6% of Australia's GDP as overseas travel and social activities were curtailed. We expect there is significant pent-up demand for travel.
Treasury Wines Estate (TWE:ASX)
Treasury Wines (TWE) shares were up +6.4% yesterday after UK press reporting Pernod Ricard has approached Treasury Wine with a rumoured A$15.67/share bid for some or all of the company while the AFR reported chatter about potential private equity buyout proposals pitched as high as $16/share several weeks ago. Meanwhile, TWE is understood to be part way through a formal sale process for its lower-end wine brands, which is set to potentially halve the volumes of its US wine business, in a strategy to shift further upmarket to the premium end in an effort to lift profit margins.
We continue to remain HOLD rated on the company as they struggle with trade tensions in their key China market.
Australia & New Zealand Market Movers
The Australian market was higher on Monday (ASX 200 index +0.3%) as miners banks and energy companies carried the market higher.
Australia's growth forecasts have been revised higher as optimism over economic rebound heightens with Westpac Chief economist expecting GDP growth of 4.5% this year, instead of 4%.
NAB's CEO was also in the press highlighting the economic recovery is on track. NAB’s business customers are telling his bankers that expectations for spending on capital – be it machinery, equipment, trucks or sheds – across a wide range of industries is well above average and “It is very clear that businesses are starting to invest again and they are seeing lots of opportunity.”
The 'overvalued' Tech sector continues to sell off again with Afterpay and Zip both shedding -3.6% and -6.7% yesterday.
The New Zealand market continued its slide on yesterday (NZX 50 index -0.8%) dragged down by heavy falls by Fisher and Paykel Healthcare on no significant news – as the NZ market starts to reprice itself over rising interest rates.
Meridian Energy fell -3%, while Contact fell -0.5% weighed down by the higher interest rates but also by further changes to the S&P’s clean energy index rules which may see the stock sold heavily if they are implemented.
3 Things Markets will be Watching this Week
- Unfortunately, COVID related news-flow continues to dominate headlines, both in terms of lock-down and vaccine news – with the US now expecting vaccinations to be rolled out across the country by the end of May.
- The European Central Bank makes an interest rate call on Thursday.
- In terms of economic data, we will see the latest US inflation data, and the latest business confidence readings in Australia and NZ.
Team
