Markets Rally with Earnings, Dovish Fed | Tower Tumbles

27 July 2017

Global markets continued to rally overnight as investors digested more quarterly earnings figures and the US Federal Reserve made an interest rate announcement.
 
Wall Street was in positive territory and at record highs before the Fed announcement given a number of strong earnings announcements from heavyweight company’s including Boeing, Coca-Cola and Facebook.
 
The key overnight news was a statement from the Federal Reserve in which it, as expected, held rates steady and tipped it would "relatively soon" start to pare its $US4.5 trillion balance sheet. The statement was seen as relatively dovish despite the fact that the Fed did mention that scaling down of the balance sheet would happen soon. The market is now pricing a 45% chance for another rate hike for this year, with the main reason being that low inflation is making the Fed question the path for rates in the near term. We will be watching developments closely.  
 
While the share market didn’t move much post the Fed announcement, the US dollar fell, and the NZ dollar in particular is now also at a 2-year high versus the US dollar at 75 cents.  
 
Stock in Focus: Tower Limited (TWR.NZ / TWR.AX)
The big stock move yesterday was Tower which dropped 28.2% to 90.5 cents. Shares in the general insurer took a pounding at the opening of trading yesterday after the Commerce Commission rejected a merger application at $1.40 a share from rival insurer Vero.

Owned by Suncorp, Vero sought permission to acquire Tower's operations after winning a bidding war with Canada's Fairfax Financial Holdings in a deal that valued Tower at $236 million. The Vero bid trumped FFH's offer at $1.17 a share but the merger was denied and the TWR share price is under real pressure as the Commerce Commission is pushing back on industry changes.
 
This is the latest in a string of recent Commerce Commission decisions to block mergers, with the other recent example being the blocked merger between Sky TV and Vodafone NZ.
We do not currently have research coverage on Tower.
 
 
 
Australia & New Zealand Market Movers
The Australian share market traded higher on Wednesday (ASX 200 index +0.87%) as Resources stocks were by far the best performers on the day, after oil and iron ore prices jumped leading into the session and copper hit two-year highs. BHP Billiton climbed 3.3 per cent, Rio Tinto 2.6 per cent and Fortescue Metals 4.7 per cent, while South32 advanced 4.4 per cent. Copper miner Oz Minerals was the best performer in the ASX 200, surging 11 per cent.

In terms of economic data, the latest Australian inflation figures were lower than expected, which saw the Australian dollar retrace as it implies the Reserve Bank of Australia will be in no hurry to move on interest rates.

The New Zealand market was more or less flat on Wednesday (NZX 50 index -0.03%) with A2 Milk Co at a record high and Fletcher Building recovering some losses while Tower plunged 28 percent.
 

3 Things Markets Will be Watching this Week

1.                 US Corporate Earnings season will be centre stage with major Tech stocks such as Amazon & Facebook set to report

2.                 The US Federal Reserve makes an interest rate decision Thursday morning (AU/NZ time)

3.                 OPEC oil producing nations are set to meet in Vienna this week

Have a Great Day,

Team

Global markets continued to rally overnight as investors digested more quarterly earnings figures and the US Federal Reserve made an interest rate announcement. Wall Street was in positive territory and at record highs before the Fed announcement given a

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