Global markets were lower overnight, as US markets (S&P 500 -0.7%) snapped up a 5-day streak. Investors were concerned the global economic recovery would be losing momentum as retail sales for the month of July fell -1.1%, a steeper drop than anticipated.
As a result, Consumer Discretionary stocks led the market lower. Home Depot shares fell -4.2% despite topping expectations as US homebuilder sentiment sank to a 13-month low in August amid high costs and supply shortages. Walmart shares were flat on their second quarter result beat.
European (Stoxx 600 index up -0.1%) eked a small gain as investors digest another round of weak economic data. Health stocks managed to led the market higher, whilst Auto’s were the major drag.
Closer to home, New Zealand has entered level 4 lock down after 1 delta variant COVID case was found in the community, followed by 4 other cases being identified as identified as a close contact since the initial announcement. Auckland and Coromandal will be in level 4 lock down (the strictest) for 7 days, while the remainder of the country for 3-days, so far.
Our gut feel given previous lock down's is for Auckland and Coromandel lockdown will likely to be extended further from the initial 7-day period.
In terms of the market reaction, the NZ dollar dropped -1.6% on the news, and all eyes are on the Reserve Bank of NZ announcements at 2pm – with probabilities of an interest rate hike now clearly lower.
While NZX stocks were hit on the news yesterday, most have partially rebounded this morning – selling was broad based but the retailers such as Kathmandu (unfortunate timing with its winter sale) and property stocks (such as Kiwi Property) were hit hardest. For now, we remain in more of a wait and see stance given the high level of uncertainty.
Our best guess is that any lockdown extension announcement may be a more opportune moment to ‘Buy the dip’ – assuming the lock down is not dragged out for over a month like it has in Australia – especially for stocks heavily affected by level 3 and level 4 lockdowns (Travel, Retail, Construction, and Property etc). We do not see reason to panic sell, and cite the broad robustness of the ASX as an example of how markets may trade.
PGG Wrightson (PGW:NZX)
PGW released a solid result for the 2021 financial year yesterday. Operating earnings (EBITDA) of $56m were up +33% from the same corresponding period last year and inline with guidance. The result benefiting from their divestment of their seed business and focus on horticulture generating attractive cashflow. Accordingly PGW announced a final dividend of 16 cents per share, bringing their full year dividend to 28 cents per share (a 60% increase from the previous year – which was affected by covid).
We maintain our HOLD rating on PGW as we see limited upside for investors, and investors aren’t compensated for the risks such as weather and commodity prices faced by the less diversified smaller PGW business. We would prefer the stock at a more attractive risk (lower) adjusted valuation.
Australia & New Zealand Market Movers
The Australian market slipped yesterday (ASX 200 index -0.9%) after another bunch of weak earnings.
Financials led the market lower, as major banks gave back recent gains, Magellan Financial Group tumbling -10.2% after its performance fee’s slumped and gross flows slowed in recent months due to fund performance.
Santos fell -0.8% after only narrowly beating profit estimates. Breville Group slumped -9% after it slashed its dividend despite a healthy profit in a bit to retain cash to fund growth opportunities.
BHP and Woodside have signed a well flagged Merger Implementation Deed for WPL to acquire BHP’s Petroleum – BHP shareholders would own 48% of WPL post merger, which values BHPP’s assets at A$18.5bn. Additionally, BHP will enter potash with a US$5.7bn investment in Canada’s Jansen potash mine, and spend US$500m unifying its dual-listed company structure.
Rare earth and Lithium miners were hit hard on no news as investors looked to take profit from its recent rally. On the flip side Healthcare stocks bucked the trend, ending the day higher.
The New Zealand market fell sharply on Tuesday (NZX 50 index, -0.7%) once news broke out that a community covid case was identified.
Fisher and Paykel Healthcare jumped +4.5%, viewed as covid safe haven, while other stocks more immune to lockdowns also held firm.
This morning a wave of earnings NZ results came in, with 3 of our buys releasing solid updates:
EBOS reported a strong full year result as expected, Revenues coming in at $9.2 billion, underlying net profit after tax $188.2m (+15.5%) and full year dividend of 88.5 cents per share (+14.2%) driven by solid growth from its animal care business.
Fletcher Building reported revenue of $8120m, and net profit after tax of $305m, a major turnaround form the previous year heavily affected by covid and on the top end of guidance.
Spark's result came in with no real surprised, with strong cost cutting offsetting weaker revenues due to legacy calling and loss of roaming revenue. SPK maintained their 25 cent per share annual dividend.
3 Things Markets will be Watching this Week
- Key events this week include the RBNZ meeting where a 25-basis point hike is fully priced in and expected by the market.
- Locally Earnings season kicks into full gear. Major names include JB Hi-Fi, Contact Energy, BHP, Aristocrat, Coles, CSL, Oz Mineral, Woodside, EBOS, Fletcher Building, Spark, Auckland Airport, Sydney Airport – and quarterly updates from ANZ and Westpac.
- Economic data from China, US Fed minutes and employment data in Australia.