Global markets retraced overnight, consolidating a 4-day gain, with the ASX and NZX also halting what has been a strong rally in recent days that saw the ASX hit a post global financial crisis high and the NZ market hit a fresh all-time high.
There were some renewed worries about the trade rift between the US and China as President Donald Trump has told aides he wants to move ahead on a plan to impose tariffs on Chinese imports worth $US200 billion next week. In saying that, it is not a surprise to us at all that the market rally has paused after a strong run and as investors take risk off the table before the weekend.
Stock on Focus: TPG Telecom (TPM:AX)
The Telecommunications sector lifted the Australian market yesterday as Vodafone Hutchison Australia and TPG Telecom agreed to a $15 billion merger to create the nation's third largest telecommunications company, rivalling Telstra and Optus.
TPG Telecom shares have experienced a remarkable surge on the news, rallying from below $6 to above $9 a share in a very short space of time.
We had previously though that there is execution risk with TPG expanding aggressively into the highly competitive mobile market, while dealing with earnings pressure from their established business, although we had a preference for disruptor TPG over Telstra (the incumbent major operator). Telstra shares have also moved higher on the news, presumable on the view that one larger competitor is not as much of a threat as 2 separate competitors in the market.
We are currently have a HOLD recommendation on TPG Telecom.
Members should look out for a full update on TPG Telecom to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was more or less flat yesterday (ASX 200 index -0.01%) as a strong session from the telecommunications sector wasn't enough to lift the market to a fifth straight advance. As we discussed yesterday, the major banks had jumped after Westpac became the first of the big four banks to hike home loan rates, which increases its important net interest margin. In stock news, Ramsay Health Care shares were sharply lower as it announced a weak outlook in its core Australian hospitals business.
The New Zealand market retraced some of its recent gains on Thursday (NZX 50 index -0.24%) from a record high, led lower by Sky Network Television and NZX. The moves in August have largely been led by growth stocks, as well as offshore buying.
3 Things Markets Will be Watching this Week
1. Locally, investors in Australia and NZ will have a number of profit announcements to focus on as earnings season continues.
2. It is likely that attention shifts away from Australian politics and back to the global political stage.
3. US economic growth (GDP) data is released on Thursday, as well as core personal inflation figures.
Have a Great Day,
Team