Global markets traded in a tight range overnight, with the Tech sector being the standout as Netflix surged 11% to a record high and surpassed $US100 billion in market value. The video-streaming pioneer beat Wall Street targets for new subscribers (adding +24 million users) in the fourth quarter. An upgraded view on global growth from the IMF (International Monetary Fund) also lifted sentiment.
More broadly the rally in global stocks also continues to run. Japan's Nikkei share average on Tuesday ended at its highest in more than 26 years, while Germany's DAX reset its record high and bulls set an even higher target.
Optimism is high and amazingly the US S&P 500 Index has now gone a record 395 trading days in a row closing within 5% of its all-time high—just topping the 394 days seen during the mid-1990s. As we mentioned last week, the current corporate earnings season as important as ever in terms of supporting stock prices. We will be watching developments closely
Stock in Focus: QBE Insurance (QBE:AX)
ASX-listed global insurer QBE has announced yet another profit downgrade, preparing the market for a $US1.2 billion (A$1.5 billion) after tax loss ahead of its full-year to December results. The announcement saw its shares initially tumble before recovering over the day to end more or less flat.
QBE further downgraded its combined operating ratio guidance to 104%, above its target range of 100 to 102% as was outlined in October. A COR over 100 indicates an underwriting business is unprofitable. QBE said significant weather catastrophes including Californian wildfires and December storms in Australia during the fourth quarter, coupled with some adverse development of Hurricane Maria, added around $US130 million to the net cost of catastrophes. This comes after company in October said it would take a $US600 million hit to its annual earnings following the impact of Hurricanes Harvey, Irma and Maria and the earthquakes in Mexico. New QBE CEO Pat Regan said it had been a "challenging year" for the company and that he is conducting a detailed review of operations.
While the company is no doubt facing issues in terms of the profitability of its operations following successive downgrade announcements, we continue to believe QBE will benefit from tailwinds of higher interest rates and a weaker Australian dollar over the medium term.
We currently have a BUY rating on QBE and believe the medium-term investment case remains sound.
Members should look out for a full update report on QBE to be released in today’s weekly report.
Australia & New Zealand Market Movers
The Australian share market rallied yesterday (ASX 200 index +0.75%) snapping a five-session losing streak to close firmly higher on Tuesday, as investors keyed into an upbeat forecast for global economic growth and after a US government shutdown ended almost as quickly as it began. In stock news, ResMed shares (a key competitor for Fisher & Paykel Healthcare) jumped 8.4% with investors rewarding the respiratory device maker for lifting its second-quarter sales revenue by 13% to $US601.3 million.
The New Zealand market was lower on Tuesday (NZX 50 index -0.33%) as shares were mixed with with Z Energy dropping on an earnings downgrade while Air New Zealand bounced back from recent selling. Z Energy cut its annual guidance range by $20 million following a weaker-than-expected performance in the December quarter, due to a shutdown of the New Zealand Refining fuel pipeline to Auckland and the rising price of crude oil. Both factors were out of Z Energy’s control.
3 Things Markets Will be Watching this Week
1. US earnings season continues – with a particular focus on company comments around the impact of US tax cuts.
2. The US political deadlock which has resulted in a government shutdown.
3. The European Central Bank makes an interest rate decision Friday.
Have a Great Day,
Team