Global stocks were weaker overnight, with the S&P 500 down -0.2%, ending its 7-day win streak (its longest since August) as investors took profit after the US long weekend. Losses were mitigated due to a 7 basis point fall in US 10-year rate fell down 1.37%, levels not seen since February as investors shift to lower risk assets which also saw Technology stocks outperform.
Locally, the Reserve Bank of Australia's no rate change yesterday came as no surprise. The RBA added that they could consider bringing forward rate hike expectations from 2024 if employment remains robust. The main change was tapering their quantitative easing programme by lowering weekly bond buying from 5 billion a week down to $4 billion per week.
In NZ, ASB and BNZ economists now forecast that RBNZ may raise interest rates in NZ later this year, bringing forward earlier expectations. The move comes after the latest NZIER quarterly business confidence survey showed business sentiment was strong ahead of pre-covid levels and acknowledging the labour shortage was at the worse since the survey began in 1976. We would agree that given current employment levels, inflation rising and heating property market RBNZ will be forced to bring their rate hikes forward – likely to November this year.
Auckland International Airport (AIA:NZX)
Auckland International Airport (AIA) shares jumped on Monday after Sydney Airport received an attractive takeover offer +42% higher than its previous day close. The market viewed Airport assets more positively with rebound in international travellers likely over the medium to long term. We think the likelihood of a takeover for AIA seems unlikely given stricter rules on foreign ownership and limited amount of local outfits able bid for the major infrastructure asset.
The road to recovery appears to be rockier than anticipated and expect further volatility for the stock especially at current valuation during the interim and transitory phase for the next couple of years – which is dependant on when and how the NZ government decides to reopen borders to other countries and allow international travel to recommence at near-normal levels.
We do not feel comfortable buying at current elevated levels and for that reason we downgrade AIA to a HOLD, but would encourage patient investors to average into their positions and "buy dips" that may occur with a medium term investment horizon in mind.
Australia & New Zealand Market Movers
The Australian market fell yesterday (ASX 200 index -0.7%), following the RBA's statement on monetary policy late in the session on their decision to slightly taper their bond buying programme.
Most sectors were lower, Communications Service, Healthcare and tech sector leading losses. Energy stocks were higher buoyed by news that major oil producers failed to agree to a proposed lift in production which sent Brent Crude prices up +1.3%.
Shares in Myer soared 14.9%, hitting a 18-month high as billionaire retailer Solomon Lew confirmed he increased his stake in the company to 15.8%, as he urges to shake up Myer's current board.
The New Zealand market fell on Tuesday (NZX 50 index -0.4%), as economists bring forward their OCR rate hike predictions which weighed down on most of the market.
Shares in NZ Refining jumped +10.1% as investors absorbed the benefits of switching to a solely fuel importer model, which brings more certainty when refining rates are deflated.
3 Things Markets will be Watching this Week
- Key events this week include Fed's June meeting minutes for their inflation view and bond tapering
- In Australia, covid-19 related developments, RBA's meeting on cash rate, building approvals and retail sales data.
- In NZ, Goodman Property and Investore Property are holding AGM's, and Summerset's second quarter sales update.