New Zealand Market Movers
The New Zealand market (NZX 50 Index, +0.5%) responded positively to the US Federal Reserve’s latest rate hike. At the same time, the New Zealand dollar jumped a percent to above $0.6520, before retracing to $0.6490 at the time of writing.
Tower (-0.8%) announced it has begun to settle the more than 500 motor vehicle claims related to the Auckland flooding. On the other side of the spectrum, Flecther building continues to climb higher as it will benefit from the rebuild following the flooding, offsetting a –7.2% fall in building consents for the month of December. An estimated 20,000 claims relating to the floods have been made to date.
We think FPH’s recent moves upwards are a result of already-been China-COVID tailwinds and a bigger US flu season. The earnings are already priced in; we caution being too optimistic here. At 50x earnings there’s little upside to the stock over the near-term.
Australia Market Movers
The Australian market (ASX 200 Index, +0.1%) closed the day marginally higher after an initial rally. Still, IT (+3.2%) stocks held onto gains, led by Xero (+7.5%), Wise Tech (+6.8%) and Seek (+5.4%).
Healthcare (1.0%) stocks also lifted thanks to CSL (+1.0%) hitting a 52-week high.
Europe Market Movers
European markets (Stoxx 600 Index, +1.4%) rallied following Wall Street’s lead, while both the European Central Bank and Bank of England hike interest rates by 50-basis-points. Technology (+4.6%) stocks rocketed, while oil and gas (-1.5%) led losses.
US Market Movers
US markets (S&P 500 Index +1.5%) continued to rally as investors bet that rates are close to their peak. We think there’s a disconnect here: markets are pricing in a rate cut by the end of ‘23, whereas the Fed has said it will “stay the course” and won’t be making any cuts at all this year. All this is data dependent. We’ve seen some good data out of the US which suggests easing inflation – yet employment continues to be secularly tight – unemployment aid in the US fell to 183,000 las week, their lowest level in nine months, and below economist expectations of 200,000 claims. There’s a delicate balance here of taming inflation while also keeping the US economy buoyant.
Estee Lauder (EL) reported another weaker-than-expected set of earnings, with skincare sales down 20% globally. China sales continued to lag, which suggests that China’s reopening was slow-than-expected this quarter. We don’t take too much from this – we’ll have better insight into China with next quarter’s results – but we do think this suggests that consumer spending is finally starting to weaken. We added 1% to our EL position in the US Model Portfolio on weakness, taking advantage of the stock’s ~4.93% drop today. Our total allocation for EL is now 2%.
In after-hours trade
Alphabet reported EPS of $1.05 vs. $1.20 in expected earnings – YouTube revenue dropped off a little ($7.96B vs. estimates of +$8.2B) as the company shifted ad spend to its main ad product. Revenue came in at $76.05B. The company remains resilient in light of slightly slower global ad spend and it remains our favourite pure-play tech stock.
Amazon posted a very strong beat as consumer spending remained resilient around the holiday period. Sales came in at $149.2B vs estimates of $145B (+$4.2B) and operating income came in slightly above the street’s estimates, at $2.7B. Like we saw with Microsoft, the cloud business (AWS) continues to grow regardless of economic outlook.
Stock in Focus Meta Platforms (META.NASDAQ)
Meta Platforms surged +25% overnight docking its best day in a decade, after posting 2022 fourth quarter result. Earnings were only slightly ahead of expectations, while the market welcomed a $40B share buyback and Mark Zuckerburg’s’ commentary that the company would focus on cutting costs dubbing 2023 the “year of efficiency” for the company.
Total costs for the business jumped +22% from the previous year to $25.8B – it’s an issue we are still concerned about, in light of falling revenues for the sector. Meta’s loss-making Reality Labs division (Metaverse) booked a $13.7B loss for 2022 – those numbers aren’t small.
We feel the Meta may have gotten ahead of itself, helped by a market-wide boost in sentiment following the Fed’s less hawkish tone yesterday. We still prefer to avoid the stock, as we brace for weakening revenue outlook and costs likely to remain elevated. At 20x fwd earnings investors can purchase Alphabet (GOOG), which only trades at a slight multiple to Meta and has far better capital allocation.
What Markets will be Watching this Week (UTC +13)
Monday
NZ Auckland Anniversary
Tuesday
AU Retail Sales MoM
Wednesday
NZ Unemployment Rate
EU Inflation Rate YoY
US Mcdonald’s Earnings
Thursday
US JOLTS Job Openings
US Federal Reserve Interest Rate Decision
US Meta Platforms Earnings
Friday
UK Bank of England Interest Rate Decision
EU European Central Bank Interest Rate Decision
US Apple Earnings
US Alphabet Earnings
US Amazon.com Earnings
US Starbucks Earnings
US Estee Lauder Earnings
Saturday
US Non Farm Payrolls
