Little Change from RBA | Select Harvests Downgrade

2 June 2021

Global equity markets were mixed overnight (S&P500 index -0.05%) with US markets ending the day flat as optimism about the economy opening was pared by lingering angst around inflation. 

Investors began the week on a positive tune as covid cases continue to decline and vaccinations reached a major milestone in the US, with more than half the US population having received at lease one dose. Cyclical sectors were in the green, led by energy as oil prices lifted following OPEC+ reiterated its plan to increase output only 'gradually'. American Airlines (+1.7%) and United Airlines (+2.2%) were both up after the transportation security administration said it screened an average of 1.78m people from Monday to Friday, well above the volumes one year ago, another sign US air travel has reached a pandemic era high.  

European markets (Stoxx 600 index +0.8%) were higher as strong metal and oil prices boosted commodity stocks. 

Closer to home, the Reserve Bank of Australia maintained their dovish view, keeping rates at 0.1% which was no surprise. There was little fresh insight about its intentions on policy decisions that will come in the July meeting. Unlike the RBNZ, the RBA gave no indication about increasing rates sooner than their 2024 target, siting the recent Melbourne lockdown as an ongoing risk, and that they will pave the way for another $100 billion extension of the bond purchase programme next month. There looks to be a clear divergence between the central banks of Australia versus NZ at the moment. 

Select Harvests (SHV:ASX)

Select Harvests (SHV) shares continue to slide following its 2021 first half result which was plagued with a drop in global almond pricing that saw net profit after tax slump 92.5% from last year down to only $1.3m.
The unfavourable price movement was driven by a number of reasons including covid-19 related challenges disrupting logistics, a strengthening Aussie dollar and record crop of estimated US harvest for 2021 season – which is likely to create further pricing pressure over the near-term.

We downgrade Select Harvest to a HOLD. Despite demand for almonds remaining strong SHV aren’t able to capitalise on this as global almond prices weaken due to factor outside of SHV’s control and we believe they aren’t likely to recover to a meaningful level any time soon. 

Australia & New Zealand Market Movers

The Australian market slipped yesterday (ASX 200 index -0.3%), as major banks dragged the market lower.
Energy and materials were the only sectors up buoyed by rising commodity prices.
Property stocks were  trading higher after Sydney's median house price for the month of May rose +3.5% in just one month.

The New Zealand market was up on Tuesday (NZX 50 index +1.1%) making up for lost ground recently.
Synlait milk lead the market higher up +8%, after saying the floods have caused significant damage to several farms but no milk was lost, unlike Fonterra noting some farms have to dispose of milk. A2 Milk rose +3.2% as it recovers from its heavy sell off on the back of news that China will relax its child policy to 3 children.
Meridian Energy rose +2.3% as increased rainfall in the South island was viewed as a positive for the gentailer reliant on hydro energy generation.  
 

3 Things Markets will be Watching this Week

  1. Highlights this week include US Nonfarm payrolls (monthly employment data), and the latest ISM Manufacturing print in the US.
  2. Central bank rhetoric globally remains in focus for investors.
  3. Locally, the RBA takes centre stage on Tuesday along with Q1 GDP in Australia.
Global equity markets were mixed overnight (S&P500 index -0.05%) with US markets ending the day flat as optimism about the economy opening was pared by lingering angst around inflation.

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