US markets (S&P 500 index +0.2%) clawed back heavy losses earlier in the session to end the day up +0.2%. The market was initially down -2% at one point as recession fears spooked the market as the price of oil plunged -9% on a weaker demand outlook.
Low US treasury yields gave investors reason to buy tech stocks, as the NASDAQ tech index jumped +1.7%, while commodity stocks and stocks linked to the economy performed poorly on the day.
European Markets (Stoxx 600 index -2.1%) were lower as recession fears was more brutal on oil and gas shares which lead market losses.
The Reserve Bank of Australia (RBA) lifted its cash rate by 50 basis points to 1.35% yesterday which was widely expected. The central bank added that it would do “what is necessary” to tame inflation with further hikes ahead, with more hikes to come over the months ahead. Key inflation day for the month of June is set to be released in late July which will determine the course of how near-term rate hikes will play out. A surprise on the upside could warrant a 75-basis point hike in August. The RBA noted both global and domestic forces were both acting on inflation and upgraded its peak inflation (CPI) to 7% from 6%.
The RBA outlook on consumer confidence is low with a plan to reduce demand as the key tool for fighting inflation and allowing a better equilibrium between supply capacity and demand.
Channel Infrastructure (CHI.NZX)
Channel Infrastructure shares have been on a strong run over the last year bucking the market-wide selloff as an indirect benefactor of higher oil prices and as demand recovers as the economy opens up significantly (particularly air travel).
At their investor day CHI confirmed its transition from refinery to import and storage terminal is on schedule and tracking in line with cost guidance, and management provided an uplift in revenue guidance driven by ongoing inflation.
We are currently HOLD rated on CHI, but our rating will be under review with a new recommendation out shortly.
Australia & New Zealand Market Movers
The Australian market (ASX200 index +0.3%) was in the green after the RBA’s interest rate decision came with no surprises, soothing investors who feared a 75-point rate hike.
Most sectors were higher led by energy and tech, while real estate and financials were mostly down.
The New Zealand market (NZX 50 Index +1.0%) was up on Tuesday, getting a boost from RBA’s rate decision which kept market nerves in check.
This came despite a poor NZ quarterly survey of business of confidence and other weak activity indicators, and heightened inflationary pressures.
Beaten down large caps helped lift the market, Fisher & Paykel Healthcare rose +3.5% and Mercury Energy lifted +3.7%, with most stocks trading higher.
3 Things Markets will be Watching this Week
- Highlights this week include US nonfarm payrolls (employment data), Fed meeting minutes and the latest inflation data in China.
- Locally, the RBA meets with a 50bp lift to the cash rate expected, which would take it to 1.35%.
- Home loans and building approvals in Australia are also due this week along with Goodman Property’s AGM and a Q2 sales update from Summerset.