Global markets were generally lower overnight with Wall Street reversing gains as investors turned their attention to fiscal policy, with tax writers from the House of Representatives expected to hammer out their plan this week.
Closer to home, the Reserve Bank of Australia once again decided to keep interest rates on hold at 1.5% and the lack of signals that it will raise rates at any time in the near future is an example of how central bank liquidity is driving markets. We continue to expect the RBA to remain on hold in the near term.
Yesterday also saw the ASX 200 market index move above the 6000 level for the first time in almost a decade, as the Aussie market plays catch up with other major global markets. Investors are enjoying buoyancy in markets as a result of the most benign global growth environment since the global financial crisis. Looking forward we are watchful as eventually either growth will roll over or central banks will normalise monetary policy, making it a more challenging environment for stock picking.
Stock in Focus: Skycity Entertainment (SKC:NZ / SKC:AX)
Casino and entertainment business SkyCity recently held its Annual General Meeting (AGM), with the key news being centred around SKC’s struggling Darwin casino.
SkyCity’s Australian casinos have struggled, particularly relative to its NZ locations, and SKC is running the ruler over Darwin after 'tough year'. SkyCity's new chief executive Graeme Stephens, who took the helm in April, has hinted SKC may seek an investment partner to help develop its underperforming Darwin business in Australia, and hasn't ruled out a future sale of the asset.
Regulatory change has been a key factor negatively impacting the Darwin business, which is an unavoidable risk associsated with the gaming sector. We have remained positive on the outlook for SkyCity given our tourism boom investment theme.
We are currently BUY rated on SKC.
Members should look out for a full update on SKC to be released in today’s weekly report.
Australia & New Zealand Market Movers
The Australian share market rallied yesterday (ASX 200 index +1.02%) as the market index climbed back over the 6000 level for the first time in almost a decade, with resources and banks lifting the index to post GFC-highs. Investors bought into resource companies on Tuesday, with miners and energy firms leading the index higher following a near 6% jump in the iron ore price and with Brent oil prices hovering around 2 1/2 year highs.
The New Zealand market was a touch lower on Tuesday (NZX 50 index -0.05%) as A2 Milk and Synlait Milk, the best-performing companies on the benchmark index this year, extended their decline as investors continue to take profits from recent gains. Fisher & Paykel Healthcare rose as the kiwi dollar headed into its third week below 70 US cents. New Zealand King Salmon told shareholders at their annual meeting in Blenheim that it is too early to tell whether a new government will affect its plans to relocate six fish farms to more favourable sites in the Marlborough Sounds.
3 Things Markets Will be Watching this Week
1. We move into the tail-end of US corporate profit announcements, with the level of the market making the current earnings season as important as ever.
2. The Reserve Bank of New Zealand makes an interest rate decision Thursday.
3. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
Have a Great Day,
Team