US markets were a touch weaker overnight (S&P 500 index -0.04%) as investors digested the Federal Reserve's latest policy update – but overall the reaction has been fairly tame.
Cyclical stocks were weakest, with Energy and Materials leading losses – on the back of the current campaign by China to tamper down the price of metals given this year's strong commodity rally. These losses were offset by investors jumping onto the small dip in big tech stocks with Tesla (+1.9%), Amazon (+2.2%), Facebook +1.6%, Shopify +6.1% and Twilio (+8%).
European stocks were lower (Stoxx 600 index -0.1%) with utility stocks leading losses while banks bounced bank welcoming the prospect of earlier rate hikes.
Closer to home, there was much stronger than expected NZ economic growth (GDP) data released yesterday. This, combined with the 30% increase in house prices from May will continue to give RBNZ plenty to think about around interest rates – the question remains ‘not if but when’ rates continue to move higher.
De.mem shares were a touch lower yesterday despite releasing an update stating it has achieved its first Capic cross-sell.
The waste water treatment company said it has received its first order form an existing De.mem-Capic mining & resource customer in Western Australia to supply them with water treatment equipment. On the other side, an existing De.mem customer has ordered chemicals from its new Capic business to be use in its water-treatment plant – replacing the anti-scalants traditionally sourced by De.mem from an external supplier. While the values are not material yet, it indicates cross-sell potential from the acquisition and potential to increase recurring revenue from each existing customer, expanding their product/service offering to be a one-stop shop.
We remain comfortable with our BUY recommendation on De.mem, given the lucrative growth potential for the water treatment industry as well as added value synergies from the recent Capic acquisition to accelerate growth.
Australia & New Zealand Market Movers
The Australian market (ASX 200 index, down -0.4%) slipped from its record high, reacting the US Fed's hawkish policy statement.
Most sectors were weaker, Communications leading losses on the back of Telstra slipping -1.9% being sensitive to rate changes. Energy and Materials were also weaker as commodity prices tightened as a focus on controlling inflation weighed down on cyclicals – coupled with China's tampering efforts on metal prices.
Technology stocks led the market higher continuing its recovery rally with Nuix shares were up +6.2% after their overhaul in leadership gave investors something to support after being heavily beaten down. Financials were also stronger continuing their strong run this year as the banks welcomed earlier than anticipated rate hikes.
The New Zealand market (NZX 50 index -0.3%) fell initially reacting heavily to Fed's decision which was partially offset by better than expected GDP growth for the first quarter which expanded +1.6%, ahead of expectations 0.5% to 0.8%.
Defensive stocks which have been performing strongly in recent months were mostly weaker which saw Contact Energy (-1.7%) and Oceania Healthcare (-1.3%) both trade lower
Shares linked to stronger economic activity were stronger, and Z Energy up +1.6% following an improved outlook guided from its AGM yesterday, Kathmandu climbed +1.9%, and Metro Performance glass edged up +1.1%.
3 Things Markets will be Watching this Week
- Key events this week include the latest US Federal Reserve decision.
- NZ 1st quarter GDP data is due on Thursday, as well as Australia's latest employment data.
- Both Auckland Airport and Sydney Airport are due to release monthly updates, while Pushpay and Z Energy are scheduled to host AGM’s this week.