Global markets sold off overnight as the US market opened after a 3-day weekend and reacted to fresh tensions involving North Korea.
Closer to home, the Reserve Bank of Australia (RBA) kept its key cash rate at 1.5 per cent for the thirteenth straight month as was widely expected, explaining a no-change stance is best to foster "sustainable growth in the economy" and to achieve its inflation target over time. As we have discussed previously we believe that both the RBA and RBNZ will keep interest rates unchanged for the foreseeable future.
This is key to our forecast for a higher US dollar and lower AUD & NZD (all else equal a higher interest rate drives demand for a currency and results in currency strength). We believe the market is underestimating the pace of rate hikes by the US Federal Reserve, which should result in US dollar strength.
Given our currency view, one of our core investment themes remains investing in stocks which will benefit from a lower currency. These include offshore earners, exporters and stocks in currency sensitive sectors such as Tourism.
Stock in Focus: Treasury Wine Estates (TWE.AX)
One of our best performing ASX stocks has been wine exporter Treasury Wine Estates.
Treasury Wine Estates recently released solid full year results with net sales revenue up 7.6% to $2,401.7m and operating profit up 36% on a constant currency basis. TWE also revealed its plan to buyback $300 million of shares, with the only negative being vague forward looking guidance from management.
We believe TWE offers investors an attractive medium-term play on the gentrification of the Asian pallet, in particular given the growing taste for red wine. As an exporter TWE is also exposed to currency moves.
We are currently BUY rated on Treasury Wine Estates.
Members should look out for our full update on Treasury Wine Estates to be released in this afternoons weekly report.
Australia & New Zealand Market Movers
The Australian share market was slightly higher on Tuesday (ASX 200 index +0.07%) as the no-change decision on interest rates from the RBA in the afternoon reinforced a steady tone. Another upbeat set of economic data, this time on trade and government spending over the June quarter also helped buoy the mood in the market. Miners once again propped up the market, with investors continuing to reward the sector after a generally well-received earnings season with majors BHP Billiton, South32, Rio Tinto and Newcrest Mining all trading higher.
The New Zealand market fell again on Tuesday (NZX 50 index -0.39%) dragged lower by election uncertainty and geopolitical fears, with Auckland Airport dropping to an eight-month low and Trade Me Group falling. As with Sky TV, for Trade Me there are concerns around Amazon and the potential it has in the Southern Hemisphere, and at the same time Facebook is also becoming quite a competitor.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
2. Australian economic growth (GDP) data is set to be released on Wednesday.
3. US politics as investors are concerned around the Trump Administration’s ability to pursue its pro-growth agenda.
Have a Great Day,
Team