Global markets were higher overnight, as US markets (S&P500 +1.6%) were trading lower but jumped late in the session following the US Federal Reserve’s decision.
The Federal Reserve signalled a more aggressive unwinding of its monthly bond buying, and 3 interest rate hikes for next year, as well as 2 more for the following year, and another 2 for 2024. The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The move is to combat record high inflation now that unemployment rate forecast is sufficiently low enough. Interestingly it appears the market had anticipated this strong level of tapering (and hence a surprise market jump) and rate hikes with markets now given some certainty, and are now focused on company earnings, margins and growth.
Gains were broad based with all sectors up except for Energy. Tech stocks led gains with particularly the Mega Cap’s doing the heavy lifting from Apple (+2.9%), Amazon (+2.5%) and Microsoft (+1.9%), the tech heavy Nasdaq (+2.4%) reversing some of its losses over the start of the week.
European Markets (Stoxx 600 index +0.3%) were up ending a 5-day losing streak as they awake key central bank decisions.
Westpac (WBC:ASX / WBC:NZX)
Westpac shares edged higher yesterday up +0.3% amid its AGM resolution. Both Westpac’s CEO and Chairman acknowledged the series of systematic failures the bank has put stakeholders through over the previous years, resulting in a destruction of shareholder value. As such, the bank touts 2022 as a key year of inflection, marking a turning point in its internal operations and management structure, in an attempt to reverse the long-term trend that’s been in-situ.
As such, the bank has a plan to improve this performance, by instating a plan to reduce costs over the coming 3-years without jeopardising investment in infrastructure and revenue opportunities. Much of the recent sell-off has been based on their inability to achieve this goal.
We remain BUY rated on Westpac, and view it as the most attractively price Aussie bank on a medium-term view. We anticipate another challenging year with tighter net interest margins, as interest rates are yet to rise in Australia, but see upside for the banks earnings when it does and if Westpac are able to deliver part of their aggressive cost out programme by 2024.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX 200 index -0.7%) as markets become more wary of a big week of central bank announcements.
Selling was broad based across the market, with all sectors down except for Utilities, Tech shares led the market lower.
A recent rise in iron ore prices eased the brunt of the selling for material sector.
The New Zealand market was down again on Wednesday (NZX 50 index -0.5%) as investors awaited the outcome of the Fed’s decision.
Some interest rate sensitive stocks were lower Kiwi Property Group leading loses down -3.7%. Property, gentailers and tech stocks were generally weaker.
Stride property managed to hold flat after completing its $20m retail offering. Steel and Tube rose +6.6% after lifting its earnings guidance for the second time in two months driven by volume growth and improving margins.
3 Things Markets will be Watching this Week
- A busy week ahead with an interest rate decision from the US Federal Reserve, European Central Bank and Bank of England. Inflation data from the Eurozone and UK, and a raft of housing data from the US.
- Locally, Australia’s employment data and NZ‘s third quarter GDP.
- AGM’s held by Westpac, ANZ, NAB and Nufarm.