Global markets were lower overnight, as the US market (S&P 500) fell -2.8% after a surprise 50 basis point interest rate cut by the Fed. The US Central bank cut rates to shield the US economy from the impact of the coronavirus, which spooked investors into fearing worse is yet to come, and the rate cut may not be enough to curb a sharp economic slowdown. Fed chair Jerome Powell said during a press conference that the U.S. economy remains strong but the virus outbreak will weigh on activity “for some time”. Tech and financial sectors were hit heavily, while sectors benefiting from a low interest rate environment like real state and utilities were up marginally.
There appears to be more volatility expected over the near-term given the coronavirus situation, especially as it continues to spread, with no signs of slowing down yet, in turn creating more market uncertainty.
Stock in Focus: QBE Insurance Group (QBE:ASX)
Insurance company QBE previously touched multi-year highs as the insurance giant released a solid result for the 2019 financial year.
QBE reported a full year statutory net profit after tax of US$550 million and an adjusted net cash profit after tax of US$733 million, which were both up +41% and +6%, respectively. Strong gross premium rate growth which was the main driver of underlying growth offset by adverse weather conditions which severely impacting its US Crop insurance business as the Australian Bushfires had a partial impact on the 2019 result.
Unfortunately QBE does have a significant portion of its earnings attributed to US interest rates, which have now been heavily cut and expectations are for interest rates to of remain lower for longer. This is likely to be an ongoing headwind for QBE and part of the reason for their recent share price pressure.
We currently have a HOLD rating on QBE Insurance Group.
Members should look out for a full update on QBE to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market bounced back marginally yesterday (ASX 200 up +0.7%) ending a 7-day losing streak, after a number of global central banks indicated their willingness to stimulate the economy to combat the economic impact of coronavirus. The Reserve Bank of Australia (RBA) announced a 25 basis point cut to a historic low cash rate of 0.5%, which saw local market rally, offset by the major banks selling off as they were encouraged to pass the full cut onto lenders. Strong rebounds were seen across the board particularly in Tech and Healthcare, with CSL jumping +2.3% to once again become the market's most important stock.
The NZ market (NZX50) bounced back on Tuesday up +2.2%, after six down days, on the hope central bank intervention will curb the economic impacts of coronavirus. The heavily beaten down tourism sector saw some relief yesterday despite no real news flow, as well as most of the market following multi-day fall. The utility companies which are known for their reliable dividend rose, after the RBA's cut yesterday put pressure on the RBNZ to do the same, with an even lower interest-rate environment making their dividends more attractive.
3 Things Markets Will be Watching this Week
- Coronavirus news flow will continue to dominate investors’ attention in the week ahead.
- The Reserve Bank of Australia meets on Tuesday amidst increasing expectations they will take the opportunity to cut rates.
- Closely watched US economic data is released at the end of the week.
Have a Great Day,