Global markets took a weaker turn overnight as traders feared bond yield volatility (S&P 500 index -1.3%) with the Nasdaq Technology index down -2.1%.
US markets were choppy in the morning ahead of a speech by Federal Reserve Chair Jerome Powell, before sinking in the early afternoon when he showed no sign of wanting to intervene to arrest the pace of rising bond yields.
At this stage, with US 10 year government bond rates at 1.5% we dot not think there is reason to panic. A correction in the short term could be on the cards, particularly in the high growth, high valuation names such as Tesla. The market volatility creates a good environment to pick stocks, and we have seen a big divergence locally when comparing the returns of the banks, to the power generator companies, for example – ANZ versus Meridian Energy.
Myer (MYR:ASX)
Myer fell further yesterday after it reported a 76% increase in first-half profit. The result was supported by $67 million in rent waivers and wage subsidies. However, no trading update or guidance was provided and clearly the market expected more.
The highlight of the result was that the balance sheet is improving with net cash improving to $201m (+$53m)
According to The Australian, Private Equity groups are once again circling Myer. However, many believe any move to buy the company would not be for the faint-hearted and an offer would only be put on the table if it collapsed into administration or receivership. Myer is sitting on ~$200m of cash but has $1.6bn of lease liabilities, which are a major deterrent.
Myer has significantly lagged other ASX retail peers. We are currently HOLD rated on Myer and will release a full update in our weekly report.
Australia & New Zealand Market Movers
The Australian market closed lower yesterday (ASX200 Index -0.8%) after some of its biggest companies traded ex-dividend.
Most sectors were lower, with financials and real estate the only sectors to end the session higher. The major banks led the gains on the local sharemarket as they are set to benefit from rising interest rates. QBE insurance was also up after unveiling Beazley boss Andrew Horton as its new chief executive.
A number of blue chips were weaker as their shares traded ex-dividend including CSL (-4.2%), BHP (-3.1%), and Rio Tinto(-6.2%). Gold miners were among the market’s worst performers as bond yields rose and the US dollar advanced.
Technology stocks remain under pressure as investors take profits. Afterpay fell -2%, extending its poor run of form and dropping to its lowest level since mid-January. Xero fell -2.6% after it made its largest acquisition on record, buying European workforce management platform Planday for an upfront cost of €155.7 million ($241.6 million).
Cleanaway Waste Management advanced +4% after it confirmed a report in The Australian Financial Review that it had expressed interest to Suez in acquiring its Australian waste management assets should it choose to pursue a sale.
The New Zealand market sold off Thursday (NZX 50 index -1.1%) and it is now down -10% from its record high earlier this year.
New Zealand shares took a dive as milk processor Synlait pulled its earnings guidance and interest rates moved higher. Synlait had already forecast its annual net profit would be approximately half the 2020 financial year result, but yesterday it said it will not even hit that target. Ongoing uncertainty from the company’s cornerstone shareholder and strategic partner, A2 Milk, on its expected demand has been a significant factor in the downgrade.
3 Things Markets will be Watching this Week
- Unfortunately, COVID related news-flow continues to dominate headlines, both in terms of lock-downs and vaccine news.
- The Reserve Bank of Australia makes its latest cash rate call on Tuesday.
- Later in the week there is a raft of economic data, including closely watched US unemployment figures (nonfarm payrolls).
Team
