Global equity markets were mixed overnight (S&P500 index +0.1%) with US markets ending a touch higher, as markets wait for a fresh set of economic data to set the tone – with key monthly US payroll data due on Friday.
Energy and Real Estate were the best performing sectors, the former up as investors snapped up shares of oil and gas companies in recent sessions as optimism about economic rebound in the US foster's demand for crude, airfare and other travel related assets. Oil prices have made further gains as US West Texas crude hit its highest level since 2018 (+1% overnight) – following this week’s announcement from OPEC+ that it intends to only gradually increase supply going forward.
Reddit meme (joke) stocks AMC and Bed Bath & Beyond both soared +95.8% and +62.1% respectively and were the flavour of the day amongst the retail trading community as they use their influence to target short-sellers.
European markets (Stoxx 600 index +0.3%) were higher as energy sector led the gains.
Closer to home, Australian economic growrh (GDP) rose +1.8% (in real terms) for the first quarter of 2021, coming in better than expected by consensus. As unemployment continues to fall it is creating a labour shortage particularly skilled labour and wage inflation likely follow. Both these factors if they were to continue as expected through the remainder of the year, could force the RBA to revise their interest rate track and begin interest rate hikes ahead of their 2024 guidance.
We are wary of interest rates rising over the medium-term and maintain a conservative view amongst overvalued growth stocks and low yielding defensive "bond like '' stocks – which are most sensitive to a rate hike.
Metro Performance Glass (MPG:NZX)
Metro Performance Glass (MPG) shares have been trading higher recently after delivering a solid result for the 2021 financial year. The result was helped by a supportive market with consents at elevated levels amidst operating earnings (EBIT) coming in at $17.9m, on the top end of guidance ($21m to $24m). Most importantly, MPG have managed to remain cashflow positive and have lowered their net debt by $18.9m. Management feel comfortable they will reach their debt targets soon and anticipate to be paying a dividend for the 2022 financial year.
Looking ahead, the risks facing MPG's business has tailed off, helped by a stronger than anticipated boost in construction activity on both sides of the Tasman, helping offset a competitive glass market. While the return of a dividend 6-months from now looks attractive, we remain HOLD rated as business dynamics are likely to be extremely difficult especially if demand starts to tail off – and due to this risk we feel uncomfortable upgrading our rating, despite improving market conditions.
Australia & New Zealand Market Movers
The Australian market rose to a new record yesterday (ASX 200 index +1.1%), following the full economic recovery from covid-19.
Mining and Energy stocks did most of the heavy lifting, as their respective commodity prices rose as well as growing optimism for the global economy.
Energy stocks being the best performer Woodside petroleum rose +4.6%, Santos firmed +6.5% and Origin Energy up +5.8% on favourable price moves for crude oil. Iron Ore crept back over US$200 a tonne after China said it might remove output restrictions, this saw BHP rise +3.1%, Rio Tinto climb +1.9% and Fortescue Metals gain 2%. %.
Losses were limited to growth end of the market saw big tech and healthcare companies pulling back as the market tested their 'expensive' valuations.
The New Zealand market fell on Wednesday (NZX 50 index -0.2%) on a relatively quiet day of trade.
Fisher and Paykel Healthcare fell -2.7%, as investors try to revalue the stock, with concerns that the NZD is expected to strengthen further over the year due to NZ's tightening monetary policy not helping the cause.
Another Heavy-weight Ryman fell -1.9% as it loses popularity following its result with the market favouring smaller retirement villages with similar exposure and at more attractive valuations.
Kathmandu was one of the top performers in the market up +3.1% yesterday, and is now up +31.5% since the start of the year.
3 Things Markets will be Watching this Week
- Highlights this week include US Nonfarm payrolls (monthly employment data), and the latest ISM Manufacturing print in the US.
- Central bank rhetoric globally remains in focus for investors.
- Locally, the RBA takes centre stage on Tuesday along with Q1 GDP in Australia.