Global markets were mostly higher overnight, with the US market (S&P 500 index +0.8%) setting a new record high as gains were broad based.
The rally came even as the spread of the delta covid-19 variant continued to cloud the outlook for the economy with the 7-day average of daily cases in the US reaching 72,790 (higher the Summer 2020 peak) – with New York announcing restaurants saying they will only serve patrons who have received two vaccine doses.
Travel names were weaker due to rising covid concerns, as well as gaming stocks after a weak sales forecast from Take-Two Interactive (-8.8%) adding to the pressure on gaming stocks was fears of being the next target from Chinese regulators. Alibaba fell -1.8% as it revenues disappointed, while apparel company Under Armour (+7.3%) and Ralph Lauren (+7.6%) jumped after delivering strong results and raised their earnings guidance. Robinhood jumped +24.3% after gaining traction from retail investors after a rough start from their IPO in Thursday.
European stocks was higher overnight, with the Stoxx 600 index up +0.2% higher on a another wave of strong earnings results. The Hong-Kong market (Hang Seng index down -0.2%) fell with market heavyweight Tencent falling -6.1% after a state controlled publication accusing it and other gaming companies of being “spiritual opium” – raising fears across gaming sector.
Closer to home, the RBA announced it maintains its initial plan to begin tapering its bond buying down to $4 billion a week from $5 billion – despite the NSW lockdown. Stating the economy was in a strong state prior to the lockdown and would bounce back pretty quickly once the outbreak is contained and restrictions were eased – like it has done in other parts of the world. The RBA unsurprisingly downgraded its economic outlook, given lockdowns, and now expects negative GDP in the third quarter but a strong recovery once restrictions are lifted. Interestingly, it is now expecting growth modestly higher in 2022, up "a little over 4%" (from 4% previously), and up 2.5% in 2023.
Pacific Edge (PEB:NZX)
Pacific Edge provided a promising first quarterly result for the 2022 financial year (ending 30 June 2021), with lab throughput of 5356 tests, which was up +79% from the same corresponding period last year however still growing at a slower rate than expected, up only +9% from the previous quarter. Likewise, cash receipts were also strong up +142% from the same corresponding period last year, and up +21% from the previous quarter.
Progress may be slow but the growth potential for Pacific Edge looks positive, driving commercial use of Cxbladder – the US remains primary focus with an annual addressable market of US$3.5 billion for that reason we remain BUY rated on Pacific Edge.
Australia & New Zealand Market Movers
The Australian market fell yesterday (ASX 200 index -0.2%) on evidence economic growth is set to slow down.
Material and Energy stocks were hardest hit sensitive to global economic activity set to slow down.
Afterpay surged another +11.4% as it embraced the takeover bid by Square, with other buy now pay later stocks trading strongly as well.
Qantas fell -0.9% after announcing its would stand down 2500 workers across its main airline and Jetstar over the next two months.
The New Zealand market was flat on Tuesday (NZX 50 index) as investors were cautious given the recent rise in covid-19 cases could slow the current rebound in the global economy.
Global stocks particularly those exposed to China were weaker as cases remerge which spooked investors. Port of Tauranga (-2.5%) and Mainfreight (-2.1) led losses given their exposure to global logistics.
Currency Watch – AUD/USD
AUD/USD seeks fresh clues to cross 0.7400 hurdle.
AUD/USD struggles to extend the heaviest daily gains in a month, led by the RBA’s hawkish tilt, beyond the 0.7400 round-figure. That said, the Aussie pair seesaws around 0.7390 as Asian traders brace for Wednesday’s work.
The Reserve Bank of Australia (RBA) offered a positive surprise to the markets by keeping the September tapering on the table despite the covid woes at home. The same fuelled AUD/USD prices by nearly 40 pips immediately on the announcement even as the Australian central bank did reiterate the rate-hike rejection until 2024, not to forget mentioning of holding the benchmark rate and three-year yield target unchanged per market consensus.
The AUD/USD pair’s struggle to overcome the 0.7400 hurdle will seek clues from Australia’s Retail Sales data for June, likely confirming -1.8% initial forecast, as well as China’s Caixin Services PMI, prior 50.3. The pair also currently sits below the 50% fib retracement from the 75 cent high, to the 72.894 cent low, a close and break above, could bring a more bullish sentiment to the pair.
3 Things Markets will be Watching this Week
- Key events this week include US Earnings season scheduled to provide quarterly updates including Alibaba, Nio, Nikola, Geneal Motors, Kraft Heinz, Booking Holdings, Uber, Square and Dropbox
- Employment data (Nonfarm payrolls) and ISM manufacturing survey data in the US.
- Locally, the RBA cash rate call is the key event along with the latest employment data in NZ. Earnings season kicks into gear with Resmed, REA Group and News Corp all scheduled to report.