Global markets were lower overnight, with US markets (S&P500, -0.9%) sliding ahead of the Fed’s meeting after an economic report showed the highest producer price inflation since 2010.
Markets are see-sawing around virus concerns & the tapering path (withdrawal of central bank support) ahead of the US Fed meeting tonight. Another measure of US inflation, the November Producer Price Index rose +9.6% year on year, above market expectations.
Losses were broad based with all sectors in the red except for Financials, which are a benefactor of rising rates. Interest rate sensitive stocks were lower, tech and real estate stocks falling, as the market anticipates the Fed to accelerate their tapering of bond buying to tame the current trend of wild inflation.
European Markets (Stoxx 600 index -0.8%) were down for a fifth day in a row, as negative sentiment regarding covid and inflation weighed down on the market.
Supermarket giant Woolworths slumped -7.7% yesterday after guiding 2022 first half earnings would fall 7% to 9% from last year, well off market expectations.
The lower earnings are attributed to additional costs, due to covid-19, wages, and food (particularly meat) cost inflation. Importantly, we see these costs as one-off in nature and not a cause for concern looking ahead over the medium term. Total Australian sales were up +3%, which was also softer than expected as post lockdown spending eases.
We remain BUY rated on Woolworths as a defensive holding and view the current pricing pressure as transitory for WOW, and they are in a better position to pass on cost inflations to consumers than many other businesses. Given the share price run of late a pullback is understandable, but we see this as more of a buying opportunity.
Australia & New Zealand Market Movers
The Australian market was flat yesterday (ASX 200 index -0.01%) as a sell off across the major supermarkets was offset by modest gains by most of the market. Coles (-2.7%), Endeavour (-3.4%), and Wesfarmers were down following Woolworths downgrade.
Mesoblast slumped -17.4% on news biotech giant Novaritis has terminated its agreement with the company regarding the use of its remestemcel-L as treatment for acute respiratory distress syndrome.
On the other side of the spectrum PolyNovo surged +15.4% after reporting US sales have more than doubled in their second quarter.
CSL was put into a trading halt ahead of its expected US$11.7 billion acquisition of Vifor Pharma.
The New Zealand market was down on Tuesday (NZX 50 index -0.5%) giving back some of Monday’s gains.
Sky City (-3.2%), Mainfreight (-2.4%) and Fonterra (-2.3%) led losses. Air New Zealand fell -1.6% after receiving an additional $500m in leading facility from the NZ government, lifting government leading capacity to $2 billion.
Sky TV continues to perform strongly up another +4%, since announcing its costs cutting last week has risen up +32%. Contact Energy rose +0.9% after another strong operating update for the month of November.
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.