New Zealand Market Movers
The New Zealand Market (NZX50 Index, -0.6%) fell as it reopened after the long-weekend digesting US hot jobs data from Friday, as well RBA’s rate hike.
Genesis Energy said it purchased a site in Canterbury to operate a solar farm, signalling stregnth in demand for electricity in the South Island and increasing the likelihood of the NZ Aluminium Smelter will remain open after its 2024 review.
Sky City Entertainment was down ~1.6% after the South Australian regulator put its review of the Adelaide Casino on hold pending the outcome of legal action brought by the federal anti-money laundering regulator. They face ~$4B in charges.
Australia Market Movers
The Australian market (ASX200 Index, -0.5%) after the Reserve Bank of Australia increased it increased interest rates for the ninth time in a row.
The 25-point hike brings the cash rate to 3.35%, and hinted towards more rates to come which didn’t go well with the market that had anticipated some easing to come adding:
“Further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary. The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course”. The RBA hardened their rhetoric on inflation saying “if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later”.
Understandably interest rate sensitive stocks fell. Real Estate, and consumer discretionary led losses, while tech also did poorly.
US Market Movers
Powell echoed what we wrote in yesterday’s email: strong job data necessitates higher-for-longer Fed rates. Markets rallied +1.28% regardless. We think this is deeply irrational – at the moment the market is fading Powell’s comments. Since equity lows in September last year stocks have repriced +10%, pricing in both earnings expansion and a high probability of a “soft landing”. We don’t think the likelihood of a soft landing is as high, and we think entrenched employment is going to be a larger bugbear for both the Fed and other central banks. Like Led Zep sang, “If it keeps on rainin’, levee’s goin’ to break”. On the other side of the divide, the Royal Bank of Canada reasserted its rate pause today. Canada’s unemployment is ~5.00%, though, whereas the USA’s hovers around 3.4%. That’s significantly more for the country of Joni Mitchell and maple syrup – the big risk is still reinflation.
In other news, Softbank reported a stunning $5.9B loss for the quarter as the firm’s once high-flying investments start to suffer. At the peak of the bull market the company was deploying $15B at a time – this quarter it reported only $300M in new investments. The firm invested in companies like WeWork, Uber, DoorDash and others at their peak. Many of them are worth pennies on the dollar now.
Privatisation seems to be the order of the day for the Rothschilds, whose family office, Concordia, plans to offer €48 per share, a +19 per cent premium to the price prior to the offer. We think there’s a good chance other family-controlled firms start to look for routes towards privatization as their valuations lag the rest of the market. Dealmaking has slowed across the board: firms like Evercore and Carlyle Group have seen a dearth of deals in the last year; whereas JPMogan and Goldman Sachs’ investment banking departments have forecast ~further 50% drops in revenue. Sometimes the dealmakers have to become the deals themselves. Speaking of privatization – Manchester United (MANU) currently trades for $21.12 per share: we think it is worth allocating as ~1% position of your portfolio towards this equity, as the likelihood of the company being acquired by either Jim Ratcliffe or a sovereign wealth fund. Overweight.
Stock in Focus: Macquarie (MQG.ASX)
Macquarie shares jumped +0.7% after reporting its third quarter update, which was slightly ahead of a strong corresponding period last year. The result driven by strong performances from its markets-facing businesses thanks to strong commodity prices, which offset softer performances from its annuity-style businesses.
Additionally they have excess capital of $12.5b ready to take up opportunities to keep growing their banking, asset management or commodities businesses.
We maintain our positive view on Macquarie in terms of it continuing to grow its profits and being capable of taking advantage of volatile markets, however at the current juncture we believe the valuation is stretched – trading at a forward Price to Earnings multiple of 15x and offering a dividend yield of ~4%. We continue to HOLD Macquarie in our Australian portfolio but would prefer to BUY the stock at more attractive valuation multiples.
What Markets will be Watching this Week (UTC +13)
Tuesday
RBA interest Rate Decision
Wednesday
US Balance of Trade Data
UK House Price Inflation
Disney Earnings
Uber Earnings
Thursday
US Weekly Jobless Claims
Paypal Earnings
PepsiCo Earnings
Warner Music Group Earnings
Friday
AUS Monetary Policy Statement
Inflation Data from China
NZ PMI data
