Global markets sold off sharply on Friday triggered by expectations that the US Federal Reserve will accelerate its pace of interest rate hikes this year and a leap in volatility.
The greenback rallied and US Treasury yields spiked as it appears that inflation isn't dead after all, as evidenced by an unexpected 2.9% year over year lift in US wages, as reported in the January payrolls report. We have previously noted that interest rates and inflation will be key factors to watch in terms of driving investor sentiment this year.
Looking at the numbers in context, the US market (S&P 500 index) lost 2.12% on Friday and 3.85% for the week and posted its worst weekly return in 2 years, ending the longest streak in history without a 3% pullback (311 trading days). In the context of the current low volatility market, this is a decent size pull back. However, it is still historically minor and remains longest streak ever without a 5% pullback (404 trading days).
For the week ahead, closer to home both the Reserve Bank of Australia and NZ are set to make interest rate decisions this week.
Stock in Focus: James Hardie (JHX:AX)
James Hardie shares rose by 6.7% on Friday thanks to a solid quarterly update. We have held a positive view on JHX given its exposure to the US housing market recovery, and as a play on a weakening Australian dollar (strengthening US dollar).
The construction materials company revealed that net sales from ordinary activities grew by 7% for the nine months ended 31 December 2017 compared to the prior corresponding period.
Adjusted net operating profit of US$69.9 million for the quarter and US$205.5 million for the nine months, was an increase of 33% and 6% respectively compared to the prior corresponding period. James Hardie CEO, Louis Gries, said “Our exterior volume remains below our expectations, however we continue to improve quarter to quarter, and grew in line with our market index in the current quarter. Additionally, we continue to reduce our manufacturing inefficiencies and production costs, and also continue to experience higher input costs.”
We currently have a BUY rating on JHX.
Members should look our for a full update on JHX to be released in this week’s weekly report.
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Australia & New Zealand Market Movers
The Australian share market made gains on Friday (ASX 200 index +0.51%) for a third straight session to seal a solid weekly advance, with a sparkling session for energy companies and banks pulling the index higher. In other stock news, shares in data centre company Next DC jumped on takeover rumours. Theme parks and entertainment centres operator Ardent Leisure said it will write down the value of its theme parks by $15 million to $25 million after attendances failed to fully recover from the fatal accident at Dreamworld in October 2016.
The New Zealand market was high on Friday (NZX 50 index +0.37%) led by Air New Zealand and Fletcher Building, with Z Energy and CBL dropping. Outside the benchmark index, Briscoe Group gained as it said full-year sales topped $600 million for the first time, helped by stronger revenue from sporting goods in the fourth quarter, and it expects to report a record annual profit of about $61 million.
3 Things Markets Will be Watching this Week
1. US earnings season is in full swing, while local AU/NZ companies also head into earnings season.
2. The Reserve Bank of Australia makes an interest rate decision Tuesday,
3. The Reserve Bank of New Zealand also makes an interest rate decision this week on Thursday.
Have a Great Day,
Team