Global markets generally continued to trend higher overnight as US Fed minutes showed the next move in rates could be up or down.
US Federal Reserve policymakers debated how to manage the US central bank's massive holding of bonds while agreeing to be patient about any changes to interest rate policy, according to minutes from their latest meeting.
Overnight also saw the release of tame US inflation data and the European Central Bank left its ultra-easy policy stance unchanged but warned that economic risks remained to the downside. We are watching US inflation data closely as a spike in inflation could force the Fed's hand in terms of having to hike interest rates.
Stock in Focus: Air New Zealand (AIR:NZX / AIZ:ASX)
Air NZ made the biggest gains on the NZX yesterday, as its shares recovered after what has been a volatile period after the airline confirmed a lacklustre result for the first half of 2019 financial year.
Air NZ’s recent recovery is attributed to its business review, as it announced it will defer capital expenditure and implement significant cost cutting to help weather slowing demand and rising fuel prices.
While a disappointing result, the challenges facing the airliner should not have come as a huge surprise as they were outlined earlier in the year with a spike in fuel prices, slightly softer tourism numbers, and disruptions due to issues with Rolls-Royce engines. One thing in Air NZ’s favour is it offers an attractive 7.7% dividend yield for the year ahead (assuming a small dividend cut).
AIR also clearly fits well with our tourism boom investment thematic. However, we would continue to caution that investors need to have an appetite for risk considering the competitive airline industry and the impact that volatile jet fuel prices can have on future profits.
We currently have a BUY (High-Risk) recommendation on Air NZ.
Australia & New Zealand Market Movers
The Australian share market was a touch higher on Wednesday (ASX 200 index +0.03%) as the ASX rebounded from a loss at the open with the market trading cautiously following a fall in global markets. The major banks led the gains and gold miners also moved higher as falls in European and US equities increased safe-haven demand for precious metals. In stock news, Seven West Media jumped as it announced it had finalised the sale of its 50 per cent interest in Yahoo7 to Verizon Media. The company will receive $20.75 million in cash for the sale this financial year. Crown Resorts was among the market's worst performers after Wynn Resorts tried to shut down takeover talks with the local casino operator.
The New Zealand market continued to slide yesterday (NZX 50 index -0.81%) as stocks across Asia were broadly weaker following Wall Street's lead, as ongoing trade tensions between the US and China and a downgraded global growth outlook from the International Monetary Fund kept investors uneasy. A lot of the high dividend yield stocks are reversing some of the strong gains of late, while the retirement sector remains under pressure. In stock news, Trustpower fell after saying annual earnings were in the middle of its guidance, and warning 2020 earnings may fall on a decline in generation and fewer mass market customer numbers.
3 Things Markets Will be Watching this Week
- This week marks the start of the US first-quarter reporting season.
- The European central bank makes an interest rate decision Wednesday night (AU/NZ time).
- The Reserve Bank of Australia’s semi-annual Financial Stability Review is released on Friday.
Have a Great Day,
