Global markets were lower overnight, (S&P 500 index -0.5%) with US markets falling, ending their 5-day rally.
Investors went defensive as China‘s expanding anti-corporate regulations spooked markets as well as some companies that missed earnings expectations selling off sharply and as investors wait for the Federal Reserve on its monetary policy update.
UPS fell -7.6% despite being earnings expectation was down on declining US delivery volumes, while Tesla fell -4.1% following their earnings beat.
Trading at all-time highs Alphabet, Microsoft and Apple were all down during the session ahead of their result which was released after hours.
The Hong Kong Market (Hang Seng Index -4.2% – chart below) slid lower as investors feared further crack down on Technology and educations sector from Chinese authorities.
The underlying NASDAQ Golden Dragon Index (companies listed on the NASDAQ but conducting the majority of their business in China) fell ~6.5% to take its three day decline to more than 20%, in a clear sign US investors are dumping Chinese exposed equities. In China, the yuan slid to its lowest since April against the dollar and bonds slumped, indicating mounting worries that Beijing’s crackdown on education, food delivery and property sectors could expand to other industries.
Likewise European stocks were lower (Stoxx 600 index, down -0.6%), tech shares linked to China leading losses.
Tower Insurance (TWR:NZX)
Tower shares have been beaten down recently, following its announcement last week it had received 141 claims from serve flooding last week. Fortunately, liability will be partially covered and is expected to be limited to $2.5m – based on underwriters.
These one off events are risks faced by insurance companies but we remain BUY rated on Tower, as we believe their underlying business continues to remain sound while being in a position to benefit from upcoming rising interest rates (which is set to come sooner locally). TWR shares are also paying a dividend yield of over 7% at current levels.
Australia & New Zealand Market Movers
The Australian market was higher (ASX 200 index +0.5%) breaking into fresh all-time highs.
The Materials sector continue to rally being the best performer again as mining heavy weights BHP, Rio Tinto Fortescue and Mineral resources all traded higher. The market shrugged off news that the £5bn class action against BHP over the 2015 Samarco dam disaster has risen from the grave, after an English court overturned a seemingly final earlier judgment and allowed the Brazilian claimants to launch an appeal. However, an appeal is unlikely to get started until next year, and the losing side will likely lodge a further appeal to the Supreme Court.
Energy and Financials were also up after recently being sold off, while tech stocks were the weakest sector. Commonwealth bank rose +1.6% as its is rumoured it may announce a $5 billion share buyback, following ANZ’s $1.5 billion share buyback announcement last week.
Blue Scope Steel jumped +6.4% after a strong earnings results helped by a solid second half performance. Japara healthcare jumped +18% after announcing its was accepting a takeover bid, which was a +75% premium to the last undisturbed closing price.
The New Zealand market fell yesterday (NZX 50 index -0.7%) with A2 milk leading losses again amidst concerns in China down -4%.
On the flipside , A2 milk’s supplier Sylanit was up +1.1% after an Aussie broker upped their price target. Z Energy rose +1.8% ahead of its investor day. Cinema software firm Vista rose +3% as cinemas in India begin to reopen.
3 Things Markets will be Watching this Week
- Key events this week include huge week for earnings in the US with 180 members of the S&P 500 index scheduled to provide quarterly updates including Tesla, Apple, Microsoft, Alphabet, Amazon, PayPal and Caterpillar.
- The latest US Federal Reserve decision Wednesday. Economic data; CPI (inflation) prints in the Eurozone and Australia, 2nd quarter economic growth (GDP) data in the US and Eurozone.
- Locally, earnings season kicks off with Rio Tinto’s 1st half result along with a host of quarterly production reports and AGM’s to be held including Macquarie Group, Mainfreight and Ryman Healthcare.