Global markets were up overnight, as US markets (S&P 500 Index +2.8%) surged as traders anticipate weak earnings have been priced in and bet that the market could have bottomed.
With the potential for earnings disappointments baked into markets, any upside surprises may lead to outsized gains. Tech stocks led gains with the NASDAQ Index up +3.1%, with all sectors trading strongly. Johnson & Johnson (-1.5%) and IBM (-5.2%) both beat earnings expectations but the market focused on the firm’s downgrades to earnings and cash flow projections for this year, due to the stronger USD detracting from foreign earnings.
However, shares in Netflix were up 5% and jumped another 8% after hours as short sellers felt the squeeze and the technology stocks that had been shorted the most jumped. Netflix’s after hours result confirmed they had “only” lost 900k subscribers’ compared to the 2million that had been forecast and predicted it would return to customer growth during the third quarter.
At the same time, Bank of America’s closely watched Fund Manager Survey showed investors’ equity allocation was its lowest since the GFC while cash levels were at a more-than 20-year high, indicative of a very cautious stance towards risk assets. When investor sentiment reaches bullish or (in this case) bearish extremes, it sometimes leads to a contrarian reversal.
European Markets (Stoxx 600 Index +1.4%) ended the session higher led by Autos and bank stocks. Attention will be on the European Central Bank (ECB) meeting, giving early notice of its first-rate hike in 11 years despite the backdrop of slowing growth amid the war in Ukraine and subsequent threats to energy supplies. The market is pricing a 50/50 spilt between a 25 or 50 basis point ECB hike.
ANZ Banking Group (ANZ:ASX)
ANZ shares were put into a trading halt until Thursday 21 July, as they announced the acquisition of Suncorp’s banking division for $4.9 billion. The acquisition will be funded by $3.5 billion equity raise on a 1 for 15 pro rate allocation for existing shareholders. Fresh shares will be offered at A$18.90 each representing a -12.7% discount to ANZ’s last closing price which is attractive and we believe eligible investors should take up this offer – which closes on 15 August 2022.
The purchase price of Suncorp is a tad elevated on face value paying 1.3x book value, and 13.8x earnings. However, the benefits will be realised over the medium-term from full costs synergies, making it an attractive medium to long-term acquisition which expands ANZ’s exposure in Queensland increasing its geographic diversification, and reverses 4-years of lost lending market share.
ANZ also provided a positive trading update for their third quarter, with revenue up +6% on net interest margin improvement following a ramp in interest rates both locally and globally. We are BUY rated on ANZ at current levels.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index, -0.6%) was down on Tuesday as the RBA minutes tipped that local rates would need to rise further which weighed down on growth stocks.
Technology and healthcare were the hardest hit sectors, with the majority of the market trading lower, except for energy as the price of oil crept back above $100/barrel.
Materials were weaker led by BHP which fell -1% after flagging softer than expected iron ore and coal production growth in the coming year.
The New Zealand market (NZX 50 Index) was flat yesterday on another day of quiet trade.
Sky TV shares rose +3.5% after telling investors it was in advanced discussion to secure broadcasting rights for the Rugby World Cup.
3 Things Markets will be Watching this Week
- Major announcements this week include the European Central Bank rate decision and inflation data for the Eurozone, UK and Japan.
- US Corporate Earnings gets into full swing this week with Bank of America, Goldman Sachs, Johnson & Johnson, Netflix, Tesla, Twitter and American Express all scheduled to report.
- Locally, NZ Inflation (CPI) data and quarterly updates from Major Australian Miners and Energy companies.