Global markets were mixed overnight, as US markets (S&P 500 Index -0.8%) reversed earlier gains after Bloomberg reported that Apple would slow hiring and spending in some parts of its business next year in response to what are expected to be more challenging economic conditions.
Prior to the Apple (-2.1%) announcement, a strong start to the trading session was helped by strong results from Goldman Sachs (+2.5%) and Bank of America (+0%), both benefiting from the higher interest rate environment, with the former also getting a boost from increased trading volume.
European Markets (Stoxx 600 Index, +0.8%) were up as material stocks led gains amidst a recovery in commodity prices.
Data yesterday showed New Zealand inflation (CPI) increased by +7.3% (reaching a new 32-year high), ahead of expectations of +7.1%. This has now opened the door for a potential 75 basis point hike in August, followed by a higher terminal rate, as the RBNZ’s earlier hiking compared to peers hasn’t been able to tame inflation yet, largely due to supply and labour constraints pushing prices up. We estimate a peak OCR by early 2023, and interest rate cuts to begin towards a more neutral cash rate in 2024.
Infratil (IFT:NZX)
Infratil shares rose +1.4% yesterday after Vodafone NZ (which Infratil owns half of) announced the sale of its TowerCo for $1.7 billion, with Infratil to directly own 20% of it. The sale price is attractive for Vodafone at 33.8x operating earnings (EBITDA) and in line with Spark’s TowerCo sale, but means Infratil is lowering its TowerCo ownership from 49.9% down to 20%.
The funds for Vodafone NZ could be used to eliminate its external debt of $1.34 billion or its loan to Infratil of $300m. The sale is to InfraRed Capital Partners (40%) and Northleaf Capital Partners (40%) leading global investors and the transaction is expected to be completed by the end of 2022 and subject to approval from the overseas investment office.
We are BUY rated on Infratil.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index, +1.2%) was up yesterday, following a strong lead from global markets over the (local) weekend.
Tech shares performed strongly leading gains, followed by materials and energy as commodity prices started the week on a more positive tone.
ANZ was placed in a trading halt as it plans to raise $3.5 billion from shareholders to fund its $4.9 billion acquisition of Suncorp’s banking business – the news sending bank stocks higher, especially the smaller ones.
The New Zealand market (NZX 50 Index, +0.4%) was up on Monday, despite the hot inflation print.
Mercury Energy (+3.2%) and Genesis Energy (+3.1%) were both up as investors preferred defensive names.
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.