Global markets were subdued overnight, with the US market (S&P 500 index +0.2%) a touch higher in quiet trade, with bond yields slipping ahead of much anticipated US CPI (inflation) data due tonight.
Economists are expecting US CPI (inflation) to rise 4.7% from a year earlier. In April, the CPI increased +4.2% on an annual basis, the fastest rise since 2008. Steel, lumber, plastic and fuel. Corn, soybeans, sugar and sunflower oil. Houses, cars, diapers and toilet paper. Prices are rising almost everywhere you look. The main discussion will be whether current inflation is "transitory" or something more "permanent" (requiring immediate action) – either way it appears it won't be settled anytime soon.
Easing bond yields saw tech and defensive stocks trade higher last night, with Healthcare and Utility sectors being the strongest performers pared by losses by industrials and financials – the latter most adversely impacted by lower interest rates.
European Markets remained near record highs (Stoxx 600 up +0.1%) as investors held off on predicting upcoming European Central Bank actions. Airlines and Travel related stocks were stronger after the US Centre for Disease Control and Prevention said it was easing travel warnings on 110 countries.
Closer to home, several seafood stocks have been struggling. Sanford CEO Peter Reidie has been in the media highlighting that while world markets are opening up on the back of vaccines, and restaurants are receiving increased demand for seafood, the ability for Sanford to supply markets is becoming increasingly challenging – suggesting no short term solution to both revenue and inventory challenges. He noted that fish continues to be frozen where it cannot be sold, but there remains meaningful financial implications of holding stock. Sanford is not alone however, with exporters across the horticulture space all noting challenges while cool stores are the beneficiaries.
New Zealand King Salmon (NZK:NZX)
NZ King Salmon shares were also lower last week, after guiding trading conditions for the first half of the 2022 financial year (Feb to July 2021) will be problematic following warmer waters over the summer months which are hindering fish growth in some farms. So far this appears to be temporary and NZK are working to rectify the situation, and that a recovery in demand has seen prices recover to help mitigate the effects.
Despite this, we still see NZK as well priced given medium-term opportunities and as demand fundamentals remain supportive. We remain mindful of agriculture related risks but see an attractive risk/reward trade off at current valuations and continue to have a High-Risk BUY rating on NZK.
Australia & New Zealand Market Movers
The Australian market (ASX 200 index -0.3%) closed lower yesterday following a muted lead from Wall street.
Consumer staples and tech companies struggled giving back recent gains, with most sectors in the red. Only utilities and materials (miners) were the only sectors in the green, the latter benefiting from a 3.5% jump in iron ore prices.
Brickworks was the best performer of the day up +11.3%, after reporting it anticipates record earnings from its property assets.
Afterpay shares were up +1.7% bucking the tech sector sell off – despite analyst stating its growth rate in Australia may fall significantly.
The New Zealand market (NZX 50 index +0.4%) was up as bond yields eased.
Defensive companies made the biggest gains. Ryman Healthcare rose +2.9%, Auckland Airport was up +1.5%, Ebos climbed 1.0% and Fisher and Paykel rose +0.7%.
Contact energy continued to climb higher up +0.7% after receiving an upgrade following its update, while on the flipside Mercury Energy fell -3.8% after cutting its earnings guidance due to dry weather in Taupo and an unplanned outage of its Kawerau geothermal power station.
3 Things Markets will be Watching this Week
- Central bank rhetoric globally remains in focus for investors.
- Easily the key data release this week is the May CPI print in the US, which will be released early Friday morning NZ time.
- Aside from consumer confidence data in Australia and NZ, other releases of note this week include the ECB meeting and Scales Corp hosting its AGM.