Global markets were lower overnight, with US markets (S&P 500 Index, -1.7%) sold off as Shanghai’s covid-19 lockdown exacerbated concerns about supply chain snarls and global growth, and prospects of policy tightening pushed bond yields higher. Adding to the selling pressure was investor concerns growing ahead of US March inflation data to be released on Tuesday, with expectations for an +8.4% annual increase in inflation.
Global bond yields rose and the US 10-year Treasury edged up +8 basis points higher to a fresh 3-year high of 2.79%. We saw a market wide sell-off with all sectors trading lower, with tech names facing the brunt of the selling the tech index NASDAQ down -2.4%, being most sensitive to rising interest rates. Energy stocks suffered the largest fall as the price of oil fell below $100/barrel amid concerns China’s lockdowns risk weakening global demand.
European markets (Stoxx 600 index, -0.6%) were down overnight as tech stocks fell on higher bond yields.
The European Central bank will meet on Thursday and could signal a rate hike as early as June as commentary takes a more hawkish tilt following a +7.5% inflation print for the month of March. While Canadian and NZ central banks could possibly see a 50-basis point rate hike this week, as bond yield rise in anticipation.
European yields are also a lot higher, with Germany’s 10-year rate climbing to 0.81% (the UK 10-year rate is up 10bps to 1.85%) its highest level since 2015. Locally NZ 10-year rate rose to 3.5% and the Australian 10-year bond rate is starting to accelerate strongly over the last month up to 3.06%, both trading at their highest levels since 2015.
Summerset (SUM:NZX)
Summerset shares held flat yesterday after revealing a solid first quarter sales update, with new sales rising +12.8% year on year for the best quarter on record, while resales fell -11.8%. This should translate into a strong earnings result, and reiterates that demand remains very strong, even through COVID.
We are BUY rated on Summerset as our preferred big name retirement village operator.
Australia & New Zealand Market Movers
The Australian market edged higher on Monday (ASX200 index, +0.1%).
Despite the majority of market trading in the red, the largest sector Financial managed to carry the index into the green as the big four banks all reported most gains as a beneficiary of interest rates both locally and globally are set to rise much sooner than initially expected. National Australia Bank rose +1.5% leading its banking peer hitting a fresh 5-year high.
Also weighing down on investor sentiment, is Australia’s largest trading partner China enforcing strict lockdowns which could hamper economic growth.
Tech shares led losses being most sensitive to higher interest rates, while commodity facing stocks were also weaker, taking a breather from their impressive run this year.
Following GrainCorp’s (+6.8%) profit upgrade last week most agriculture stocks were also stronger, Costa group was also up +2.8%, Select Harvest rising +4.9% NuFarm up +3.1%, and Elders climbing +2%
The New Zealand market fell yesterday (NZX 50 index, -1.1%), as investors await key inflation data, and central bank rate decisions around the globe.
The sell off was mostly broad-based, with A2 Milk leading losses down -4.6% as extended lockdowns in China are set to increased concerns over China’s economic growth as the strive for zero-covid policy.
Growth and interest rate sensitive stocks which dominate the NZX were lower, large healthcare names were also hit hard with EBOS down -4.5% pulling back from its impressive run recently, Fisher and Paykel Healthcare (-3.3%) and Pacific Edge (-3.1%) both down on continued interest rate headwind pressure.
Napier Port fell -1.7% after cutting its annual earnings outlook due to covid-19 and supply chain disruptions weighing on first-half earnings.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- Economic data wise, an interest rate call from the ECB is due, trade data in China and CPI infoation prints in the U.S, China and the U.K.
- Locally, the RBNZ OCR rate decision is due Wednesday along with employment data in Australia