Global markets were mixed overnight, with the US market (S&P 500 index -0.5%) weighed down by a day of weaker earnings and as a private jobs report coming in lower than expected. ADP private payrolls rose by 330,000 well short of estimates of 653,000, offsetting this data was ISM services manufacturing index which reached a record high.
In stock news, General Motors shares fell -8.9% after their second quarter earnings missed expectations, with the company not raising its guidance for the remainder of the year. Robinhood shares continue to gain traction, surging +50% following a rough initial start to trade on listing day.
European stocks was higher overnight, with the Stoxx 600 index up +0.6% higher as another wave of strong earnings results saw tech stock lead gains, while oil and gas stocks trended lower.
Federal Reserve Vice Chair Richard Clarida, also said overnight that an interest rate hike was likely in 2023 given the surprising pace of the economic recovery from the coronavirus pandemic. Closer to home, NZ reported unemployment rate fell from 4.6% down to 4.0% for the second quarter (3 months ending 30 June) which was much lower than expected. Implicating upcoming labour shortage and heated economy. This has prompted the market to lock in expectations of an interest rate hike in August, with the OCR likely up 3x by the end of the year, moving from 0.25% to 1.00% – and back to pre-covid pandemic levels.
Air NZ (AIR:NZX / AIZ:ASX)
Air NZ shares fell -0.7% yesterday after announcing it expects a larger loss for the 2022 financial year, previously guided to not exceed NZ$450m, to now be $530m. The downgrade comes from demand disruptions from pause of Trans-Tasman bubble and slow recovery once its recommence and rise in jet fuel pricing. Air NZ would be tapping into Crown loan facility to pay the $310m deferred PAYE payment given weaker operating cashflow over the interim period.
There seems to be a lack of comfort on the timing and trajectory of any earnings recovery, Air NZ appears overvalued to us, with cash burn to continue we foresee an upcoming capital raise will be hugely dilutive for existing shareholders and we remain firmly SELL rated.
Australia & New Zealand Market Movers
The Australian market finished at record highs yesterday (ASX 200 index +0.4%) following a strong lead from Wall street and solid local earnings.
The major miners led gains as the price of iron ore rebounded slightly, which saw BHP rise +2.1% to a fresh all time high, Rio Tinto jumped +1.5%, Fortescue Metals up +0.4%, and Mineral Resources increasing by 2%.
Woodside Petroleum rose +1% despite raising the cost estimate for its Scarborough gas project by 5%– but was less than what the market had expected.
Genworth Mortgage Insurance shares jumped +7.6% after it returned to profitability in the first half of 2021. Banks stocks were mixed, CBA was up +0.8% following a broker upgrade, while Healthcare and Industrials were mostly weaker
The New Zealand market was up on Wednesday (NZX 50 index, +0.8%) following strong unemployment data.
While investors were cautious on rising interest rates markets were upbeat on the outlook of the economy with most shares trading higher. Notable gains include Kathmandu rising +2.9%, Infratil up +2.2% and A2 Milk lifting +1.9%.
Plexure shares slumped -10.1% following a surprise resignation of its CEO, following an earlier departure of the CFO.
3 Things Markets will be Watching this Week
- Key events this week include US Earnings season scheduled to provide quarterly updates including Alibaba, Nio, Nikola, Geneal Motors, Kraft Heinz, Booking Holdings, Uber, Square and Dropbox
- Employment data (Nonfarm payrolls) and ISM manufacturing survey data in the US.
- Locally, the RBA cash rate call is the key event along with the latest employment data in NZ. Earnings season kicks into gear with Resmed, REA Group and News Corp all scheduled to report.
