Global markets were lower overnight, as US Markets (S&P 500 index -1.1%) ended a two-day winning streak as a forecast slowdown in the global economy weighed on market sentiment.
The OECD and World Bank both cut their growth outlooks for the global economy. The OECD lowered its global growth forecast for 2022 to +3%, down from previous estimates of +4.5%, and doubled is inflation rate to 9% citing the war in Ukraine and supply chain issues. The OECD also has a grim view for next year expecting 2023 economic growth to be even slower at +2.8%.
All sectors were lower except for energy. Oil prices rose to a 13-week high, with US West Texas Intermediate crude gaining 2.26% to settle at $122.11 per barrel. The latest catalyst has been concerns around supply levels in the US – not helped by underfunding in the sector over the last few years.
European markets (Stoxx 600 index -0.7%) were lower as investors digested a profit warning from Major bank Credit Suisse, and as the market awaits the ECB’s rate decision and US inflation data.
Fonterra (FSF.NZX)
Fonterra shareholder units (non-farmer) rose +1.7% yesterday after the co-operative announced it would buy back $50m of farmer shares starting later this month – which saw Fonterra Co-operative Group shares (farmer shares) jump +14%.
Fonterra stated the co-op considers the prevailing price, particularly since late April, has undervalued Fonterra shares, which is a key reason for announcing this buyback”. The buyback program is separate to the $300m announced last year to support liquidity.
While this is a small positive, we remain SELL rated on Fonterra, primarily due to the unfavourable structure for non-farm shareholders
Australia & New Zealand Market Movers
The Australian market edged higher yesterday (ASX200 index +0.3%), as it bounced back from Tuesday’s RBA induced sell off.
All sectors traded higher, except for largest constituent on the ASX being financials. Banking stocks were hit hard again as the sharp hike in interest rates would lift wholesale funding costs sharply over the near-term (with banks preferring a gradual and smooth increase in interest rates) for the banks. There are also the implications of higher interest rates potentially slowing the economy and property market, with investors fearing a significant rise in bad debts.
The energy sector was the best performer as oil prices continue to charge higher. Woodside Energy Group rose 5.6% and Paladin Energy surged +13.5%. Materials were also higher as commodity prices across the board were generally stronger.
The New Zealand market (NZX 50 Index) was flat yesterday on a mixed day of trade, with most trading lower following the RBA’s surprise interest rate hike on Tuesday.
Property stocks and growth stocks were weaker given their sensitivity to higher interest rates. Sky TV continues to extend its recent decline down another -2.9%. These were offset by gains from market heavyweights Fisher and Paykel Healthcare (+2.3%) and Auckland International Airport (+2.4%).
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Macro level data this week includes Inflation (CPI) data from the US and China, and an interest rate decision from the ECB.
- Locally, the RBA interest rate decision is also due.
