Global markets were mixed overnight, with US Markets (S&P 500 Index +0.4%) starting the session weaker but managed to finish in positive territory, following two straight days off losses sparked by incrementally negative Fed related news.
Defensive names like consumer staples, consumer staples led gains – being more immune to rising rates while energy stocks were stronger. Tech shares were mixed across the board but managed to end the session marginally higher, with real estate leading losses.
European markets (Stoxx 600 index -0.3%) dipped after the ECB revealed that despite uncertainty created by the ongoing invasion in Ukraine, will continue to move into a more hawkish direction.
ECB meeting minutes showed that after intensive back and forth, a middle ground was agreed to accelerate tapering: “a large number of members viewed that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalisation ”- changing from a “wait and see” approach.
In response to the minutes, European rates pushed higher, with the 10-year German rate rising 3 basis points to 0.68%, nearing its recent four-year highs.
Aristocrat Leisure (ALL:ASX)
Aristocrat shares have had a tough year like many other tech shares down -26% for the year nearing 12-month lows again. Fundamentally nothing has changed other than shareholders voting to not go ahead with the $5 billion takeover of Playtech. While the Playtech takeover may have collapsed and was viewed as disappointing by Aristocrat’s CEO, they remain committed to expanding in the online real money gaming (RMG) market.
We are BUY rated on Aristocrat as a quality gaming stock, with double-digit growth forecasted from its underlying business, partly helped by reopening plays for its casino facing business. While market may still be volatile over the near-term we believe the market is nearing the bottom for some quality tech stocks like Aristocrat. We feel comfortable with the stock as it is ‘reasonably’ priced given it is highly profitable and pays a growing dividend and has ample cash reserves.
Australia & New Zealand Market Movers
The Australian market was lower yesterday (ASX200 index -0.6%), as rising rates prompt a sharp tech sell-off following Wall Street’s lead.
Most sectors traded lower, except for Consumer staples, Utilities, and Real Estate as investors sort out for stability.
Tech shares as a whole have now fallen 6% over the last two days. Ardent leisure rose +6.2% after announcing it a deal to sell its Main Event US business for US$835m. Magellan Financial jumped +11.4% after its latest fund outflow was less than expected.
The New Zealand market was flat on Thursday (NZX 50 index -0.03%), avoiding sell off globally from rising global rates.
Air NZ continues to lead heavy moves falling -8.1% as investors grapple with the current capital raise. Tech and growth stocks sensitive to rising interest rates were also weaker Pushpay down -5.2%, and Fisher and Paykel healthcare slipped -2.4%.
These losses were offset by EBOS jumping +3.9% to all time highs, with investors seeking stability with commercial property stocks also trading higher.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- The economic calendar in the week ahead is very light – minutes from the March US Fed meeting are released and a number of Fed speakers will be on the wires.
- Locally, in Australia the RBA policy decision tomorrow is a non-event, with no change in policy expected ahead of the May Federal election, but another incremental shift to more hawkish commentary wouldn’t look out of line.
