Global markets were mixed overnight as the market digested the US Federal Reserve’s policy announcement this morning.
The Fed left interest rates unchanged but signalled it still expects one more increase by the end of the year, despite recent weak inflation readings. This saw the US share market initially drop, while the US dollar strengthened. The statement was seen as slightly hawkish, as the Fed is also set to begin paring its massive balance sheet.
As we have discussed in the past, gradual interest rate hikes by the US Federal Reserve are key to our forecast for a higher US dollar and lower AUD & NZD (all else equal a higher interest rate drives demand for a currency and results in currency strength). We continue to believe the market is underestimating the pace of rate hikes by the US Federal Reserve.
Stock in Focus: Wellard (WLD.AX)
As we touched on yesterday, shares in troubled live export company Wellard have rebounded as it announced its historic first every shipment of beef cattle to China (with another +24% rally yesterday).
As shown by the chart, WLD shares have recovered to 18 cents after hitting an all-time low of 10 cents earlier in the month. The company has been plagued with issues, in particular as extremely high cattle prices hurt margins and sales to key markets such as Indonesia.
While the shipment to China is relatively small (2,000 cattle), the recent news and share price move may indicate that some investors are seeing a light at the end of the tunnel for WLD. The Chinese consumer is not as price sensitive (i.e. willing to pay a higher price) and management believes that China offers significant potential for Wellard and remains confident that this first shipment will pave the way for the development of a more regular trade.
We currently have a HOLD rating on Wellard.
Members should look out for our full update on Wellard to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was a touch lower yesterday (ASX 200 index -0.08%) as investors braced for the outcome of a highly-anticipated meeting of US monetary policy makers. Financials were the worst performers as Westpac and ANZ fell, while Telstra also weighed on the market. Resource firms came under pressure as Chinese iron ore futures fell to their lowest level in almost two months, pressured by weaker steel prices and an environmental campaign by Beijing to reduce air pollution caused by steel manufacturing.
The New Zealand market rallied on Wednesday (NZX 50 index +0.70%) as stocks weighed on by fears about the jet fuel shortage in Auckland such as Air New Zealand and Z Energy joined other companies in bouncing back from a recent sell-down. In other news, Fletcher Building have kicked off their boardroom refresh with the departure of directors John Judge and Kate Spargo. Fletcher have stated they intend for replacements to have construction and contracting experience.
3 Things Markets Will be Watching this Week
1. The polls in NZ as we head towards the general election on Saturday.
2. The US Federal Reserve is due to make a policy announcement Thursday morning AU/NZ time.
3. Minutes from the latest Reserve Bank of Australia meeting are released on Tuesday.
Have a Great Day,
Team