Global markets were lower overnight, as US markets (S&P 500 Index -0.7%) felt the pressure of US-China political tensions as US House Speaker Pelosi visited to Taiwan. She landed on the island last night to become the highest-ranking American politician to visit in 25 years.
All sectors traded lower, with weaker earnings announcements also playing a part. Caterpillar delivered a disappointing result, while investors waited after the bell for results from Starbucks, Paypal, and Advanced Micro Devices (AMD).
European markets (Stoxx 600 Index -0.2%) also fell following a global risk-off trade, despite oil giant BP rising +3% on the back of a strong result and paying out a higher dividend than expected.
The first Ukrainian ship — bound for Lebanon — to carry grain through the Black Sea since the Russian invasion left the port of Odesa on Monday under a safe passage deal, offering some hope in the face of a deepening global food crisis.
Locally, the Reserve Bank of Australia (RBA), raised its base rate by 50 basis points to 1.85% as expected, its third 50 basis point rise in a row and the fastest hiking cycle since 1994. The RBA said they had no firm target rate, and that further hikes would be data-dependent, suggesting a lower and conditional peak interest rate than what the market had anticipated.
A2 Milk (ATM:NZX)
A2 Milk was put into a trading halt until Thursday, after jumping +8.6% in less than an hour after news that it was nearing approval from the US Food and Drug Administration but said its application to sell infant formula in the US was being reviewed, and there is still no certainty yet.
While encouraging if it were to go through, we view this as a small temporary gain for the business but not enough to move the dial.
At the same time, Wenjun Zhang – known to all as “a2 Andy” – may need to change his nickname after the apparent collapse of his once-close business relationship with Kiwi baby formula firm The a2 Milk Company. Mr Zhang has not bought a single baby formula tin since March from the dual-listed a2 Milk – after having been its largest customer in the first half of the 2022 fiscal year. When the market was once again buoyant, he claims his stock allocation was reduced – meaning he made less money – as a2 Milk pushed tins of formula into cross border e-commence. Mr Zhang says a2 Milk has lost sight of the power of the smaller daigou which helps propel brand loyalty with mothers amid a rise in nationalism of locally made products.
We are still Hold rated and remain on the sidelines.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index) ended the session flat, recovering from an initial loss as the market digested a slightly dovish than anticipated RBA announcement.
Most sectors traded higher, with real estate and commodity-facing stocks trading lower.
Tech shares were volatile – Appen shares slumped -27.3% after the AI data services suffered a worse half than forecast, while Zip Co surged +15.1%.
CSL edged higher after receiving all regulatory clearance for its US$11.7 billion Vifor Pharma.
The New Zealand market (NZX 50 Index, +0.1%) edged higher.
Pacific Edge rose +11% clawing back some of its losses on Monday, while Plexure Group jumped +26% extending its gains.
3 Things Markets will be Watching this Week
- US Corporate Earnings continue, with nonfarm payroll (employment) data in the US out later in the week.
- The Bank of England’s rate decision and PMI manufacturing surveys across the globe.
- Locally, reserve Bank of Australia’s cash rate decision.