Fed Signal Slowing Hike Path | Downgrade BHP Billiton 

1 December 2022

New Zealand Market Movers 

The New Zealand market (NZX 50 Index, +1.4%) climbed on Wednesday on heavy end-of-month turnover. Ebos (+1.9%) was the most traded stock on the day as it entered the MSCI Small Cap index. Gentrack (+19.0%) soared for a second day on its report that revenue rose +19.3% for the 12 months ended September 30. Fisher & Paykel Healthcare (+3.5%) also advanced for a second day after positive market news.  

Precinct Properties (+5.8%) jumped after announcing it has agreed to buy and develop a new ~250 million office site in Wellington (to be completed in 2025) and leased to the Ministry of Foreign Affairs and Trade. 

Australia Market Movers 

The Australian market (ASX 200 Index, +0.4%) closed in the green on Wednesday after the release of the Australian inflation data that showed a deceleration, falling from 7.3% in September to 6.9% in October, suggesting that inflation has peaked. The Reserve Bank of Australia delivers an interest rate decision next week, and conversations about a pause in its rate hike campaign have now appeared. 

Above-average demand for coal from Europe and India as well as wet weather in Australia hitting coal production are helping support coal prices. Coal stocks advanced the most on the day, with Whitehaven (+8.4%) and New Hope (+6.8%) leading the pack. 

Europe Market Movers  

European markets (Stoxx 600 Index, +0.6%) advanced on Wednesday after registering its own deceleration in inflation, falling 0.6 percentage points to 10.0% in October. 

US Market Movers 

US markets (S&P 500 Index +2.7%) jumped after the Fed Chair Jerome Powell spoke confirming that the central bank will slow down the pace of its aggressive rate hike. 
Increasing market expectations for a 50-point hike versus a 75-point hike for next week. However tried cautioned optimism adding that the Fed may still remain restrictive for a long period of time – squashing any possibility of a pivot any time soon. We believe the current rate hike path hasn’t been fully realised and that there is more volatility to come and that it is very difficult to achieve a soft landing which markets appear hopeful for. 
The news sparked a rebound across the market, tech (+5%) and consumer discretionary (+3.5%) up strongly.  
 

MORE INFO ONCE US CLOSES 

Stock In Focus: BHP (BHP.ASX) 

BHP has been on a rebound recently, partly on hopes of China eventually reopening as well as added stimulus to their property sector to boost construction activity – all benefactors to iron ore pricing. Commodity prices have also held up well due to supply and demand dynamics, but also as an inflation hedge. The latter likely to ease, and we believe added pressure from a tightening economic activity means we are nearing the end of the current commodity cycle boom. 
For this reason, we downgrade BHP from a BUY to a Hold, and will sell down our position in our Australian portfolio from 7% down to 5%, (selling down -29% of our holdings). We still maintain majority in our portfolio, as even taken a pull-back in commodities which will weigh down negatively on share price, its large scale and low-cost model mean it will still be reasonably profitable and be able to pay a decent dividend of ~6% on the low end. 

What Markets will be Watching this Week (UTC +13) 

Monday 
NZ Kiwi Property Group earnings 

Tuesday 
NZ Fisher & Paykel Healthcare earnings 

EA Economic Sentiment NOV 

Wednesday 
EA Inflation Rate YoY November 

Thursday 
US ADP Employment Change November 

US JOLTS Job Openings October 

US Salesforce earnings 

EA Unemployment Rate October 

Friday 
US Personal Income MoM OCT 

Saturday 
US Non Farm Payrolls November 

The New Zealand market (NZX 50 Index, +1.4%) climbed on Wednesday on heavy end-of-month turnover. Ebos (+1.9%) was the most traded stock on the day as it entered the MSCI Small Cap index. Gentrack (+19.0%) soared for a second day on its report that revenue rose +19.3% for the 12 months ended September 30. Fisher & Paykel Healthcare (+3.5%) also advanced for a second day after positive market news.

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