Global markets continued to sell-off overnight, although the US market appears to have found a floor following what has been a vicious market pull-back triggered by the prospect of higher interest rates and the resurgence of inflation.
Hundreds of billions of dollars have been wiped from the value of shares around the world this week. Australia's stock market fell -3.2% yesterday after Wall Street's -4.6% fall on Monday, as gains for the year have been erased in what was the steepest tumble in nearly 7 years.
While we expected volatility to be higher in 2018 (after an extended period of extreme market calm in 2017) given market valuations as well as the prospect of rising bond yields, the volatility of the past few days has been off the charts. The VIX, a measure of US market volatility has spiked and is at levels not seen since 2011.
The US market (measured by the S&P 500) is now down -1.1% for the calendar year after what was a record start to the year. The Australian market has given up nearly 4-months of gains, while other major markets such as the German DAX have plummeted to 6-month lows. We expect the NZ market to open with losses today, as it plays “catch up” after the Waitangi Day holiday. Losses have been broad-based with no sectors providing a safe haven.
In periods of extreme market volatility, we believe it is important for investors to remain calm and focus on the medium term. We continue to watch developments closely.
Stock in Focus: Macquarie Group (MQG:AX)
Amid the turmoil yesterday, MQG said it expects to lift full-year profit by about 10% on last year's record $2.2 billion, after its annuity-style businesses did well in the 3rd quarter which implies a record $2.4 billion profit figure is on the cards.
The business has been making moves towards more defensive operations in recent years, calling them ‘annuity-style businesses’. This segment of Macquarie comprises Macquarie Asset Management, Corporate and Asset Finance and Banking and Financial Services.
While MQG’s performance is sensitive to volatile market factors, we have held a positive view on MQG for some time now and are encouraged by another solid operational update.
Members should look out for a full update on MQG to be released in next week’s weekly report.
We have created a short tutorial video detailing how to use the different sections of our website. You can click here to view the video.
Australia & New Zealand Market Movers
The Australian share market suffered its biggest one-day fall in more than two years yesterday (ASX 200 index -3.20%) wiping around $66 billion from its value. Tuesday's plunge was double the size of Monday's fall, and comes after Wall Street was hit by a second straight session of heavy selling. The Reserve Bank of Australia kept interest rates at a record low in its first meeting of the year, with inflation still soft and the outlook for household spending uncertain.
The New Zealand market sold off on Monday (NZX 50 index -2.06%) following leads from Wall Street. Pushpay Holdings, Kathmandu Holdings, Synlait Milk, Summerset Group, Fisher & Paykel Healthcare, a2 Milk and Ebos Group all dropped more than -3%. New Zealand Markets were closed in observance of Waitangi Day on Tuesday and shares are tipped to be hit today after global share markets were slammed..
3 Things Markets Will be Watching this Week
1. US earnings season is in full swing, while local AU/NZ companies also head into earnings season.
2. The Reserve Bank of Australia makes an interest rate decision Tuesday,
3. The Reserve Bank of New Zealand also makes an interest rate decision this week on Thursday.
Have a Great Day,
Team