ECB, BoE, Facebook Falls | Westpac

8 February 2022

Global markets were lower overnight, with US markets (S&P 500 index -2.4%) snapping a four-day winning streak as Meta’s (Facebook) earnings miss prompted a sharp tech sell-off, with most sectors trading weaker. The US Technology index NASDAQ hit especially hard down -3.7%. Central Banks were also in focus with the European Central Bank and Bank of England making hawkish announcements. 

Meta’s shares slumped -26%, after its quarterly earnings miss expectations, and as the company guided for weaker guidance due to increased competition for attention from the likes of TikTok and Youtube, while Apples operating system made it harder for brands to target and measure their ads on Facebook. The result sent other social media companies lower – Snap down -23.5%, and Twitter dropping -5.5%. Spotify fell -16.7% after reporting a slowdown in premium subscriber growth. 

The sell-off is spreading across the broader market, and Amazon was down -7.8% prior to its earnings result. However, it reported after the bell and its earnings beat has the stock trading up +18% in after-hours trade, recovering most of its January sell-off.  

Just looking at current earnings is not good enough to support stock prices currently, companies need to lay out a good plan going forward with optimism to build shareholder and market confidence within the volatility markets are experiencing. A theme of this earnings season so far is that strong fundamentals and tangible growth plan are still crucial and rewarded while anything less is harshly punished.

European Markets (Stoxx 600 index -1.8%) were down with Central banks dominating the focus overnight as European rates spiked with the ECB's hawkish pivot as Lagarde refused to rule out a rate increase this year. The ECB’s pandemic bond buying will stop in March. The Bank of England raised it cash rate from 0.25% to 0.5% as expected but the surprise came that 4 committee members dissented in favour of a 0.5% increase. The Bank of England made its first back-to-back rate hike since 2004, stating that inflationary pressure still persists, and could top 7% in April as energy prices climb. 

Closer to home, The NZ Government announced easing of international travel restrictions in a 5-stage system, firstly allowing NZ citizens in Australia to arrive back without MIQ, from 28 February. Then on March 14 opening that up to NZ citizens and high demand NZ work visa holders across the world, with all individuals required to self-isolate for 7-days. Then an aim to open up to the rest of the world by October providing a light for Tourism.

Westpac (WBC:ASX / WBC:NZX)

Westpac shares climbed +2.3% yesterday after delivering cash profit of $1.58 billion for the first quarter of 2022. The headline result was supported by better markets income and better than expected progress on its cost out program. Net Interest margin continue to tighten and are expected to remain challenging for remainder of 2022 but expected to stabilise by 2023.

We remain BUY rated on Westpac as the most attractively priced amongst its banking peers and is expected to benefit from its cost out program and improving net interest margin outlook over the medium-term as interest rates in start in rise (in Australia).



Australia & New Zealand Market Movers

The Australian market was down on Thursday (ASX200 index -0.1%) weighed down by the tech sectors largest sell-off since early January, sparked by Meta’s (Facebook) earnings miss.

Afterpay’s parent company Square slumped -9.8% as well as other buy now pay later stocks as fintech stocks that were hit especially hard following Paypal’s weak result stating slower e-commerce spend. Healthcare stocks were also under pressure given their high growth and valuation nature.  

The major miners helped offset the brunt of the damage, given their larger weighted to the Index BHP up +3.1%, Rio Tinto advancing +2.4% and Fortescue Metals climbing +3.3%.

Nufarm was the best performer on the day up +20.2% after stating its December quarter revenue jumped +36% from last year and on track to deliver earnings growth. 

The New Zealand market (NZX 50 index +0.4%) edged higher yesterday.

Travel stocks performed well as the government confirmed easing boarder travel for NZ citizens and in demand work visa holders, and eventual full reopening by October 2022, Tourism Holdings rising +4.4%, Air NZ up +3.3%, while Auckland International Airport slipped -.3% after having a much stronger rise the day before (likely in anticipation). 

The rest of the market was mixed given a few positive trading sessions recently, with Mercury leading the market higher rising +5.2%. Skellerup shares jumped +4.8% after upgrading its first half earnings guidance to be $23m, up +18% from the previous year.

3 Things Markets will be Watching this Week

  1. A big week of data, with US employment numbers (nonfarm payrolls), Bank of England and ECB meetings due this week 
  2. US earnings from Alphabet, Meta Platforms (Facebook), and Amazon are set to be reported this week
  3. Locally, the RBA announcement on the cash rate will be made today and NZ employment data will be closely watched. 
Global markets were lower overnight, with US markets (S&P 500 index -2.4%) snapping a four-day winning streak as Meta’s (Facebook) earnings miss prompted a sharp tech sell-off, with most sectors trading weaker

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