Global markets maintained a positive tone overnight (US S&P 500 index +0.3%) as investors were soothed by a slightly lower-than-expected rise of the US inflation (consumer price index numbers).
The consumer price index rose +0.5% for the month of July (as expected) and +5.4% for the year to July, which provided reassurance to the market that interest rates could remain relatively stable.
Kansas City Fed President Esther George said the central bank needs to move ahead with reducing monetary stimulus, citing expectations for continued labour-market gains. The next key events for the bond market to focus on will be Fed Chair Powell’s keynote speech at the Jackson Hole symposium later this month.
Cyclical sectors remained in favour. Europe was up (STOXX 600 index +0.4%) following some favourable earnings results and M&A activity, while Asia was mixed.
Crown Resorts (CWN:ASX)
CWN shares have been beaten down after a wave of unfortunate updates.
The recent sell off has been driven by Star Entertainment Group withdrawing its merger proposal given issues raised at Victoria’s Royal Commission into Crown Melbourne have the potential to materially impact the value of Crown. However Star added that they are still open to “value enhancing opportunities” – but most likely only if CWN are able to secure their gaming license.
We have generally maintained a positive view on CWN’s business with quality assets and growth potential from its Sydney project. However, licencing issues are creating a huge drag which will adversely affect valuation and fundamentals of the business – with the tail risk that Crown aren’t able to get their gaming licence renewed
We would prefer to avoid the stock, as the new licence could be restrictive given Crown's troublesome past. COVID related lockdowns are also creating a temporary setback given the Aussie government's plan to reopen borders once the population reaches 80% vaccination levels.
Given the large scale of the risk, we would say it would be a 'gamble' to BUY into Crown and we remain HOLD rated.
Australia & New Zealand Market Movers
The Australian market progressed on Wednesday (ASX 200 index +0.3%) with the major financials, materials, and energy sectors all up.
A strong result from Commonwealth Bank propelled shares in Australia’s biggest bank to a record high, helping push the local sharemarket to its highest-ever close.
Commonwealth Bank led the day’s gains on the local market, climbing 1.5% as it announced plans to return almost $10 billion to shareholders through buybacks and dividends; it said its cash profit soared 19.8% increase to $8.65 billion in the year ended June 30. National Australia Bank (+0.9%), Westpac (+0.7%) and Macquarie (+0.6) also increased.
Major miners BHP (+1.5%) and Rio Tinto (+1.3%) rose despite weak iron prices. The lithium miners were also stronger, for another session with demand for battery materials remaining strong. Pilbara Minerals advanced 5.2% and Orocobre firmed 6.3%.
The New Zealand market slipped yesterday (NZX 50 index -0.1%) as Fisher & Paykel Healthcare tumbled -3.5% while Mercury NZ (+2.5%) and Genesis Energy (+2.1%) gained.
Port of Tauranga posted the day's biggest gain, climbing 3% back to $7.15 where it was in July. Some 110 workers at the port have tested negative for covid-19 after a potential exposure earlier in the week.
A number of analysts are suggesting an acquisition of Z Energy by Ampol could be “very logical and synergistic” for Ampol although clearance from the NZ Commerce Commission may be challenging.
On the economic news front, REINZ house price index +30.6% in year to July, +2.4% for the month. The last 2 months have shown early indications of growth rates easing, which makes sense with interest rate cycle backdrop, however the supply side remains very thin.
3 Things Markets will be Watching this Week
- Highlights this week include the latest inflation prints in the US and China.
- Earnings season across Australasia kicks into gear. Key names reporting this week include Aurizon, Suncorp, Transurban, Challenger, CBA, Computershare, James Hardie, IAG, Mineral Resources, Orica, ANZ Q1, AGL Energy, AMP, Downer, Goodman Group, Mirvac, QBE, Telstra and Precinct Properties.
- Ongoing commentary and reactions to the COVID delta variant remain in the headlines.