US markets (S&P 500 Index -0.3%) swung from a small positive position in the last hour of trading to close in the red on Wednesday.
On the economic data front, the ADP Employment Change showed 208K jobs added to the US economy in September, slightly above market forecasts of 200K. Investors are now looking ahead to Friday’s release (UTC -4) of the Non Farm Payrolls (NFP) report. Although, the hawkish comments spouted from US Fed officials lately means that the central banks tightening is unlikely to change in the near term even if the NFP disappoints.
European markets (Stoxx 600 Index, -1.0%) fell on Wednesday with all sectors in the red, except Oil and Gas (+0.8%) as OPEC+ has announced that they plan on cutting crude oil (+1.3%) production by 2 million barrels per day to support falling prices. The wider market was dragged down by September’s euro zone manufacturing survey reading, which contracted to a 20-month low of 48.1 from August’s 48.9, suggesting the region will fall into recession in the 4th quarter.
The pound (-1.0%) reversed course on Wednesday after UK PM Liz Truss spoke at the Conservative Party’s annual conference in Birmingham, where she tried to rally support for her unpopular plan for tax cuts.
Closer to home, in contrast to the RBA a day earlier, the RBNZ raised the OCR by 50bps yesterday as expected to 3.50%. There was a slightly hawkish tinge to the statement, given the RBNZ discussed a 75bps move, but the market reaction has been fleeting. After hitting US$0.58 in the wake of the RBNZ, the NZD is back to 0.5720 this morning. Stocks were higher as the hike was already expected, and sentiment was driven more by strong equity market moves overseas.
Starbucks (SBUX: NASDAQ)
Starbucks (+1.8%) rose on Wednesday, after advancing 3.4% the day before. The coffee chain is now up +8.1% in the past six months, bucking the overall trend of the S&P (which is down -15.6% for this time period).
We initiate our coverage of Starbucks on Tuesday with a HOLD rating. All metrics point that the USA operations of Starbucks continue to be strong. It is the main driver of revenue and the “heart” of the brand. The issue is international; specifically, China, where Starbucks has +5,400 stores. We do not think China is a lost cause for Starbucks by any means, but we will be watching carefully in Q4 and FY’23 for movement.
Given the uncertainty for Q4 and nary a sign of recovery in China, we do not think the market has assigned an appropriate discount to the stock. It is priced at the higher end to its peers.
For a catalyst that acts as a “buy” rating we need to see either i) significant de-rating in the stock or ii) significantly better operational performance.
Australian & New Zealand Market Movers
The Australian market (ASX 200 Index, +1.7%) continued its positive run, led by gains in IT (+3.9%), Consumer Discretionary (+2.7%), and Financials (+2.3%). All major banks rose more than +2.0% on the day.
Link Administration shares (+6.7%) reacted after the company’s board said they were reviewing a new partial buyout proposal from Toronto-listed Dye & Durham. The board immediately dismissed two previous proposals from the Canadian suitor.
The Australian dollar (-0.1%) fell slightly on the day to 0.6493.
The New Zealand market (NZX 50 Index, +0.8%) gained on Wednesday, unaffected by the RBNZ’s taking its benchmark rate to 3.5% with an expected 50-basis-points hike. Interestingly, the bank noted that it was seriously considering a 75-basis-point hike to get in front of inflation and take some pressure off the NZ dollar (whose weaknesses will be contributing to inflation).
The New Zealand dollar (-0.0%) spent another day in consolidation at 0.5728
What Markets will be Watching this Week (UTC –4)
Monday
AU RBA Interest Rate Decision
Tuesday
US JOLTs Job Openings (AUG)
NZ RBNZ Interest Rate Decision
Wednesday
US Unemployment Change (SEP)
US Balance of Trade (AUG)
Thursday
AU RBA Financial Stability Review
Friday
Us Non Farm Payrolls (SEP)