Global markets were slightly lower overnight on thin trading as the US market was closed for Independence Day. Closer to home, the Australian market rebounded strongly yesterday experiencing its best daily gain for 2017, while the NZ market also traded higher.
The Reserve Bank of Australia kept interest rates at 1.50%, and were reluctant to flag an end to ultra-low rates as several global central banks did last week. As we highlighted last month, continue to believe the RBA will keep interest rates unchanged in the near term. The RBA’s decision didn’t have a large impact on the share market, but did weigh on the Australian Dollar.
The interest rate decision did appear to help provide some share price relief across the retail stocks (lower interest rates generally result in increased consumer spend), as well as the release of stronger than expected retail sales data. The retail sector has been harshly treated in recent times following concerns around the entry of Amazon into the Australian market and as wage growth remains subdued.
Stock in Focus: Myer (MYR.AX)
While we hold a cautious outlook on the Retail sector generally (given points highlighted above), we remain relatively positive on Myer shares.
The Myer share price has been beaten over the last few months, but appears to have bottomed out. The key factor for holding a positive view on Myer at the current juncture is the possibility of a corporate transaction/takeover. We think it should be kept in mind that only a few months’ back shares in Myer surged on speculation of a takeover. Given the share price is now trading at 86 cents, the chance of a full-blown takeover from Premier Investments (who currently own 11% of Myer) has clearly increased in our view.
Investor sentiment remains extremely negative towards Myer and the retail sector general at present and could present a turnaround opportunity. In saying that, investment in Myer it is not without risks.
We are currently rate Myer as a HIGH-RISK BUY, primarily given the risk of a take-over. Members can login to read our full reports on Myer.
Australia & New Zealand Market Movers
The Australian share market rebounded strongly yesterday experiencing its best daily gain for 2017 (ASX 200 index +1.75%). The Banks and Consumer Discretionary plays led the market higher. Investors piled back into the Banks after a few weeks of selling, aided by news that the South Australian Liberals will block the state’s bank levy.
The New Zealand market traded higher on Tuesday (NZX 50 index +0.42%) led by Spark as blue-chip stocks joined the rally across the Tasman. On the flipside, Z Energy declined amidst uncertainty about increased regulation in the petrol sector. A government-commissioned study released yesterday found that New Zealand's fuel market "may not be consistent with a workably competitive market”, which saw Z Energy shares come under some selling pressure.
3 Things Markets Will be Watching this Week
1. How the US Technology sector trades following the recent pullback.
2. Minutes from the US Federal Reserve’s June meeting will be released on Wednesday.
3. Important US employment data is released end of the week.
Have a Great Day,
Team