Global markets were lower overnight, as US Markets (S&P 500 index -2.4%) were down sharply with investors focused on growth concerns after Europe’s Central bank signaled restrictive policies to combat inflation. Investors are also nervous as we await key US Inflation (CPI) data due out tonight.
European markets (Stoxx 600 index -1.3%) were lower after the ECB confirmed it would raise its key interest rates by 25 basis points at its July meeting, and that it expects further hikes at the September meeting.
Additionally, the ECB also downgraded its growth forecast for the global economy and lifted its inflation projections – joining the OECD and World bank with a grim outlook.
Tower Insurance (TWR:NZX)
Tower (TWR) shares have slipped with broader market moves. Its 2022 half year result didn’t contain many surprises and large events that were indicated earlier were the major driver to a weak reported net profit after tax of $3m – due to booking $17.6m in significant events.
However, management guidance remains stable as operations improve, and the company benefits from rising gross written premiums (especially in the current inflationary environment).
Assuming a normalised level of significant events, Tower gave upbeat guidance for the 2022 full year dividend of 5.5 cents per share. This implies TWR is now trading at a 8.2% dividend yield which is still attractive in the current market – even when adjusting for upcoming rate hikes.
We remain BUY rated on Tower rated at current levels and are encouraged by how well it has held up amidst the volatility.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX200 index -1.4%), reaching a monthly low as investors fret over a slowdown in the economy, triggering a broad-based sell off as all sectors traded lower except for energy.
Banking shares extended their losses following the RBA’s surprise rate hike on concerns of a rise in default risk.
The New Zealand market (NZX 50 Index, -0.5%) was down yesterday, following a weak lead in Australia and downgrade of the economic outlook from the World Bank and OECD.
Selling was broad based, with retirement villages hit hard given risks to the property market. Fonterra was select few bucking the trend and rose +2.6% extending its gains after its share buyback announcement.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Macro level data this week includes Inflation (CPI) data from the US and China, and an interest rate decision from the ECB.
- Locally, the RBA interest rate decision is also due.