Global markets were mostly in the green overnight, as investors assessed mixed corporate reports.
The big news was from the US Federal Reserve, which cut interest rates for the third time this year in a move to ensure the US economy weathers a global trade war without slipping into a recession, but signalled its rate-cut cycle might be at a pause. Chairman Jereom Powell dropped a previous reference in his policy statement that the Fed "will act as appropriate" to sustain the economic expansion – language that was considered a sign for future rate cuts.
In other news, the cancellation of next month’s APEC meeting, where the US and China intended to sign a partial trade pact, initially sent markets to session lows.
Stock in Focus: Costa Group (CGC:ASX)
Costa Group shares were whacked yesterday after returning from a six day trading halt with a disappointing guidance update. Another deterioration in trading and growing conditions led CGC to raise A$176mn in new equity through a rights issue, to shore up its balance sheet and pay down debt in order to ride through an extended downturn.
Earnings expectations for the year ahead have approximately been halved, as a further deterioration relative to the August trading update was driven by late season citrus, as yields dropped off due to drought weather conditions. Other major impacts included low berry pricing due to persistent NSW oversupply and mushroom prices that remain depressed. Spot water prices are expected to double in 2020 due to the drought.
Given CGC’s poor track record over last year, we think delivery is required to restore the faith, although the institutional rights offer looks to have relatively gone well.
While it is notoriously difficult to predict the weather/drought, we note that 7/9 of Costa’s produce categories are facing headwinds – which is surely not a “normal year”. How many issues will normalise and how many will persist for the year ahead remains the key question. However taking a medium term view we still believe the company can recover once the operating backdrop improves.
We currently have a BUY rating on Costa.
Members should look out for a full update on Costa to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market retraced on Wednesday (-0.83%) as in-line inflation data for the September quarter dampened the prospects of a further rate cut from the Reserve Bank of Australia next week. The major banks were among the market's weakest stocks, dragging the index lower, while the major miners also gave back some recent gains. Shares in supermarket giant Woolworths also fell. The group reported strong sales growth during the first quarter of the year, far exceeding the performance of its rival Coles who reported on Tuesday. But that result was offset by news the company had underpaid its staff by up to $300 million in what could be the biggest underpayment on record
The New Zealand market was a touch lower yesterday (-0.04%) as Kiwi Property Group's plans to raise up to $210 million kept investors busy ahead of a number of company earnings and annual meetings today.
Kiwi Property', the owner of the Sylvia Park mall in Auckland will raise $180 million in a fully underwritten placement at $1.58 a share, a discount to the $1.67 price they previously closed at prior. A further $20 million of shares will be sold to New Zealand retail investors with the capacity to accept a further $10 million of oversubscriptions. Z Energy reports its first-half earnings today, having already warned that tighter competition and the cost of the Commerce Commission's fuel market study weighed on the bottom line. Tourism Holdings, Freightways and Chorus also hold annual meetings today.
3 Things Markets Will be Watching this Week
- US earnings season for the 3rd quarter continues this week.
- The US Federal Reserve makes an interest rate decision Thursday morning AU/NZ time.
- On the economic growth front, there will be important US economic data published at the end of the week.
Have a Great Day,