Global stocks were mixed overnight, with US markets (S&P 500 index +0.03%) little changed after initially breaking into a new record high in the middle of the session, with investors playing "wait and see" as we close out the quarter. Markets remain calm despite the increased spread of COVID-19.
Tech shares continue to lead the market higher, viewed as a safe haven against covid-19, and benefiting from treasury yields remaining flat, while commodity sensitive stocks were lower. Morgan Stanley shares jumped +3.4% after doubling its dividend payout for the third-quarter – with other banks having mixed results following last weeks gains. We remain positive on banks as they look set to pay out strong dividends as restrictions on them are relaxed and remain well capitalised.
European Stocks (Stoxx 600 index +0.3%) closed higher after economic sentiment hit a 21 year high in June, as several economies start to open up following a steady vaccination roll-out in parts of the world.
Xero Limited (XRO:ASX)
Xero shares have performed well since we upgraded Xero to a BUY again in May, after being heavily oversold after its full-year result.
We are generally cautious around the tech sector as despite being attractive businesses with strong growth potential, elevated valuations since covid-19 means tech shares are prone to a correction when interest rates do rise.
At current levels we still favour Xero given its growth potential supported by a significant total addressable market and wider margins should support its share price. Our other top tech picks include Aristocrat, Next DC, Pushpay and Wisetech.
Australia & New Zealand Market Movers
The Australian market dipped slightly yesterday (ASX 200 index -0.1%) as investors traded cautiously inlight of new lockdowns in Queensland and Western Australia. Losses appear to be minimal so far as snap lockdowns are believed to be short and have a minor impact of Australia's over strong economic and equities market – but markets would be prone to a harsher correction "if" these current lockdowns were longer than expected.
Travel stocks were mixed, suffering most of their damage in the previous session, Flight Centre remaining flat, Qantas up +0.2%, Webjet slipping -1.7% and Sydney Airport down -0.7%.
Major miners lead losses BHP (-0.7%), Rio Tinto (-0.8%) and South32 (-2.0%). Energy stocks also weighed down by restricted economic activity, while the banks remained mixed.
Tech stocks was the best performing sector rebounding from the previous session as well as supported by global rally in tech stocks as Wall street's tech heavy Nasdaq charged to new record highs to be the best performing sector on the day. Healthcare stocks performed strongly as well followed by "stay at home" retailers and supermarkets which also reported modest gains.
The New Zealand market was up on Tuesday (NZX 50 index +0.3%).
Travel and tourism stocks were up, partially recovering Monday's losses, Air NZ up +1.6%, Sky City climbing +1.5% and both Auckland International Airport and Tourism Holding were up +0.4%.
Kathmandu shares were down -2.5% after announcing the lockdowns in Australia will impact its crucial winter season annual sales will miss its $930m annual guidance.
Sky TV shares were a touch higher yesterday (+0.6%) after their investor day, unveiling a new hybrid set top box, and are on track to meet or possibly exceed their net profit guidance of $37.5m to $45m.
3 Things Markets will be Watching this Week
- Key events this week include US monthly nonfarm payrolls data, the latest US ISM Manufacturing print, an inflation CPI print for the Eurozone.
- In Australia, covid-19 related developments are back in focus with recent lock downs and heavy restrictions.
- In NZ, Sky TV will be holding an Investor Day, and AGM's are scheduled for Argosy and Arvida.
