Global markets initially sold off heavily overnight, but stocks on Wall Street did recover into the close of trade.
There was a fresh twist in China-U.S. tensions, which saw stocks fall across Asia as Huawei chief financial officer Wanzhou Meng – the daughter of founder Ren Zhengfei – was arrested in Canada and faces extradition to the US on suspected sanction violations. The news reversed optimism that the US and China were finding common ground in their protracted dispute after presidents Donald Trump and Xi Jinping agreed to work towards better relations.
In other news, OPEC and its allies have agreed to cut oil production next year as crude prices continue to remain low. The group recommended that a cut in production was necessary in order to balance the oil market in 2019.
Stock in Focus: Fonterra (FSF:NZX / FSF:ASX)
Dairy giant Fonterra reported weaker first-quarter earnings yesterday and lowered its forecast pay-out to farmers due to a global oversupply that is weighing on prices.
Fonterra also said it is investigating a sale of its Tip Top ice cream business, confirmed the end to a joint-venture with Beingmate Baby & Child Food, and said a third asset was under the microscope too. The co-op, which is part-way through a stock take of its operations and assets, said in market update that it planned to go to full ownership of its Darnum, Victoria, milk powder facility that it jointly owns with China's Beingmate.
Fonterra has strong market share and positioning in the global dairy market as a high-quality dairy provider, although to date has failed to deliver on its “value-add” strategy. We recently removed Fonterra from our model portfolio as without the ability to execute on their strategy effectively, we do not believe they will be able to deliver a meaningful return to shareholders (adding to the inherent issues with the company’s structure).
We currently have a HOLD recommendation on FSF.
Australia & New Zealand Market Movers
The Australian share market was slightly lower yesterday (ASX 200 index -0.19%) and the Australian dollar has slipped for a third straight session as fears of renewed US-China trade tensions spooked stock markets, while investors toyed with the idea of possible rate cuts at home. The information technology sector took a hit, while the miners also fell. Real estate and infrastructure stocks were among the market leaders as investors eyed off the more defensive sectors.
The New Zealand market remained in negative territory on Thursday (NZX 50 index -0.27%), although fared better than major Asian markets. The NZX said trading activity grew by more than a third in November from a year earlier as the stock market operator's efforts to drive trading through the bourse stoked a greater number of lower value transactions. Z Energy says it is ready for the rapid expansion of electric vehicles but has no idea when that tipping point will be reached. The firm, which earlier this year acquired a controlling stake in Flick Electric, is not wedded to hydrocarbon fuels and will expand its charging sites as demand increases.
3 Things Markets Will be Watching this Week
- Several US Fed members make speeches this week, with Chair Jerome Powell set to make another speech on Friday.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- There is an OPEC meeting later in the week, which will be interesting given the recent drop in the oil price.
Have a Great Day,