Global markets were mixed overnight as Federal Reserve policy makers gave mixed signals about their next move, after cutting interest rates by a quarter of a percentage point in a widely expected move.
The US economic outlook is "favourable," with labour markets strong and inflation likely to return to the Fed's 2% inflation goal, Fed chairman Jerome Powell said in a news conference after the decision was announced. But Fed policymakers decided to cut rates by a split majority decision, "to provide insurance against ongoing risks" including weak global growth and resurgent trade tensions. "If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate," he said. "We are going to be highly data-dependent … We are not on a pre-set course".
Stock in Focus: Kathmandu (KMD:NZX / KMD:ASX)
Kathmandu Holdings jumped 7% yesterday as the retailer reported earnings at the top end of its upgraded guidance, with a stand-out performance from its Oboz footwear unit in the US and as its Australian business remained solid.
We had a negative view on the retail industry for some time, largely due to expectations of slowing economic growth at the end of an impressive decade long run and competition intensifying. However, given heavy interest rate cuts by the RBNZ & RBA this year, we have changed our outlook on retail and consumer sentiment from negative to neutral.
Kathmandu have bucked the trend against intense retail competition and continued to deliver growth in the past due to their unique product offering. In saying that, we are wary there is a risk consumer spending particularly on discretionary items (such as the products Kathmandu sells) comes under pressure if economic growth starts to slow. We believe the share price fairly reflects a neutral outlook.
We currently have a HOLD rating on KMD.
Australia & New Zealand Market Movers
The Australian market was lower yesterday (ASX 200 Index -0.20%) as Saudi Arabia reassured global markets it would restore supply following drone strikes on the Saudi Aramco Abqaiq facility. Qantas lifted after it was upgraded by Morgan Stanley and fears fuel prices would be higher for longer on the back of the Saudi attacks were abated. The energy and resources stocks were the main weight on the market after crude pulled back, led by Woodside, BHP and Oil Search.
The New Zealand market sold off on Wednesday (NZX 50 Index -0.86%) with heavy trading in property stocks as investors cleared their books to make way for a $150 million placement in Goodman Property Trust. A2 Milk led the market lower as its shares continued to retrace.
3 Things Markets Will be Watching this Week
- Trade War related news-flow is likely to continue to feature in headlines.
- The US Federal Reserve makes an interest rate decision on Thursday morning AU/NZ time.
- Oil related news-flow is likely to feature in headlines following the drone strike on Saudi Aramco
Have a Great Day,