Global markets were lower overnight (S&P 500 index -0.9%) as the pull-back in global markets continued> Overnight losses were not limited to the tech sector but more broad based, as investors took profit after US markets reached record high on Friday.
Energy (-2.6%) and Financials (-1.7%) were the worst performers, while Materials (+0.4%) was the only sector in the green. Technology shares (-0.2%) started the session sharply lower but managed to limit losses as investors were willing to buy the recent 'dip', with the Nasdaq closing almost flat after opening down -2%.
Interestingly, two US Federal Reserve speakers – Brainard & Mester, used the same wording that the ‘outlook is bright’ to describe the economy, while acknowledging last week’s weaker employment figures.
European markets fell sharply (STOXX 600 index -2%), with travel and leisure stock plunging -5.7% to lead losses, followed by tech and retail shares, as all sectors and major bourses slid into negative territory.
Closer to home, the Australian federal budget saw significant upgrades helped by a more optimistic economic outlook and stronger than expected recovery, with $96 billion to be spent over the next four-years. It will consist of targeting support towards Aged Care and Infrastructure and tax relief for businesses and low to middle income earners – to help support consumer spending. For equities, we see the budget as broadly supportive of the current macro backdrop, and positive for aged care, banks, building materials, car dealers and retail.
QBE Insurance (QBE:ASX)
QBE Insurance shares were higher last week, after delivering solid set of numbers for the first quarter of 2021 at their AGM. Gross Written Premiums (GWP) lifted +28% from last year, and up +10% from 2019 first quarter on the back of strong volume and price growth. Encouragingly, the insurer indicated it would resume paying a dividend for the 2021 financial year.
We continue to remain BUY rated on QBE, as we believe operating conditions for insurer are set to be favourable as well as being a benefactor of increasing interest rates – which we believe should rise from recent lows over the medium-term.
Australia & New Zealand Market Movers
The Australian market (ASX 200 index -1.1%) fell back from its all-time highs as inflation fears hit sentiment across most of the market.
Aussie tech shares, and more particularly Buy Now Pay Later shares, were hardest hit with Afterpay falling -8.7% and Zip Co down -9.1%.
The price of Iron Ore continued to climb higher, but the miners ended weaker as analysts questioned how much further shares can rise and how sustainable the current rally in commodity prices is – BHP was down 0.7% and Rio Tinto lost -1.8%. Likewise the big Aussie banks ended the day weaker pulling back from their recent recovery rally – with investors taking profit.
New Zealand’s main share index fell (NZX 50 index -0.2%) yesterday weighed down by A2 Milk again.
A2 Milk fell another -6.5% and Fonterra was down 2.9% as they continue to decline following their respected announcements. Negative sentiment towards the dairy sector also weighed down on other agriculture stocks such as PGG Wrightson down -2.4%, Skellerup Holding down 0.6%, NZ Rural Land Co falling -1.7%, and Scales dipped -0.9%.
Median Shares were stronger up +2.3% following their investor day, as they focused on replacement in electricity demand following the eminent departure of NZ Aluminum Smelter in 2024 – targeting a hydrogen plant, and their responses to future dry year responses and decarbonisation.
3 Things Markets will be Watching this Week
- COVID, lockdown, and vaccine related news-flow globally continues to dominate headlines.
- Economic data highlights this week include inflation prints in the US and China along with the latest retail sales data in the US.
- Closer to home, retail sales in Australia are due on Monday while a number of earnings reports will be released including Pendal, AusNet, CSR, Pushpay, Graincorp, Xero, Orica, Goodman Property and Tilt Renewables. CBA will round out the bank reporting season with its Q3 update while Meridian Energy will host an Investor Day on Tuesday.