New Zealand
The New Zealand market (NZX 50, +0.3%) was up despite RBA’s rate hike decision surprising the market.
Despite inflation slowing down from its peak, households are going to feel more pain, if not already. According to Centrix 10.5% of buy now pay later loan account holders were in arrears now – increasing the risk of bad debts. The Reserve Bank says it expects more borrowers will fall behind on their mortgage payments this year “given the ongoing repricing of mortgages and expected weakening in the labour market”. This comes as 25% of current outstanding mortgage debt was taken out in the peak of 2020-2021 property boom.
We note the NZ Super Fund has become a significant shareholder of Summerset (we are buy rated) disclosing an initial stake of +5.00%. Preference given to Summerset, Oceania in that order; we don’t like Ryman.
Australia
The Australian market (ASX 200, -0.9%) fell on Tuesday as the RBA announced a 25 bps point increase in its cash rate to 3.85%. The sell-off caused all sectors to trade lower, real estate, energy and materials leading losses.
The surprise came given the first pause during the April meeting and that inflation had slowed from its peak but is still too high and more work tightening is required to bring it back. The surprise was also driven by surprise in migration and population growth, with services inflation likely to remain sticky and the unemployment rate remaining at a 50-year low of 3.5%. The RBA added that further interest rate rises are on the cards. Looking at Lynas under $6.50 — the lithium miner has had a strong run and now appears oversold.
US
Job Cuts
As financial institutions face mounting cost pressures, Morgan Stanley and Citigroup are among the latest companies to announce job cuts. Morgan Stanley attributes its decision to the decline in dealmaking, which resulted in a profit decrease during the first quarter. Despite reducing its workforce by about 2% only a few months ago, the bank plans to cut an additional 3,000 jobs worldwide. Citigroup CEO, Jane Fraser, also cites similar pressures and expresses the willingness to modify staffing levels in its investment bank to cope with the drop in dealmaking, which has affected fees across Wall Street.
Haleon
Pfizer, which spun out consumer-products unit Haleon into an independent company late last year, indicated it would begin selling down its stake in the company. Pfizer still ons 32% of Haleon – which makes products such as Panadol and Sensodyne toothpaste. Any sale is likely to be handled through block trades and will likely push the price of the stock down. We’re keeping an eye on it as we like the fundamentals of consumer “essential” products — Advil, Panadol, Sensodyne etc are powerful brands. Some weakness in the stock may provide a good buying opportunity.
Manchester United Final bids were due in on Friday for the football team — the Qataris have added $800M in infrastructure commitments to sweeten the offer, while INEOS owner Jim Ratcliffe has offered to keep the Glazers on as minority partners. Any deal which favours the Glazers over the shareholders as a whole opens the company up to legal issues – all MANU stock has equal weight in an acquisition deal and the board would be foolish to reject the Qatari’s much higher offer (+$6B + $800M).
China’s factories are grappling with weaker global demand In April, the Purchasing Managers’ Index (PMI) reported an unforeseen decline in factory activity, marking the first time the indicator has fallen below 50 this year. The sub-indexes for new orders, new export orders, and manufacturing employment were all in contraction territory. Analysts cautioned that China’s economic recovery could lose momentum, with these figures adding pressure on the government to enhance policy support.
Week ahead
Tuesday: RBA (Reserve Bank of Australia) Interest Rate Decision, Eurozone Inflation (CPI) Data
Earnings from: Pfizer, Starbucks, BP
Wednesday: Eurozone Unemployment Data
Earnings from: PepsiCo, Qualcomm Inc, Airbus, Estee Lauder Companies
Thursday: US Fed Interest Rate Decision (FOMC)
Earnings from: Apple Inc, ANZ, NAB, Booking Holdings, Shopify
Friday: ECB (European Central Bank) Interest Rate Decision, US Non-Farm Payroll
Earnings from: Macquarie Group