Global markets were mixed overnight, as US markets (S&P 500 Index +1.1%) snapped a 3-day losing streak, despite a strong inflation print for producers.
US core Producer Price Index (PPI) was almost double market expectations, jumping 1% on the month and reported an annual increase of +9.2%. There were broad-based gains with growth stocks experiencing a strong rebound, with the NASDAQ rising +2% as tech stocks performed the best.
We have kicked off 1st quarter earnings season in the US; Delta airlines rose after their result was better than expected and robust demand had allowed the company to offset increased fuel costs with higher fares, which bode well with other US airline stocks performing strongly.
JP Morgan was the first of the big US banks to report, falling -3.3% after its profits fell -42% from last year missing expectations, while its revenue of $31.59 billion was ahead of expectations. CEO Jamie Dimon stated they see ‘storm clouds’ ahead for the US economy have started building up its loss reserves coming in at $904m, a large reversal from a $5.2 billion gain in the previous year
European markets (Stoxx 600 index -0.1%) edged lower, weighed down by UK’s inflation rising +7% over the previous year – the highest level in 30-years driven by soaring food and energy prices.
Closer to home, the RBNZ announced a +50-basis point rate hike yesterday (its first 0.5% hike since 2000) bringing the OCR to 1.50% – now sitting back at June 2019 levels. The RBNZ is taking a path of least regrets given how inflation has played out around the globe from loosening monetary policy and central banks not acting soon enough.
Looking ahead, this does not look like the end, with the possibility of another 50-point hike appearing likely in May, followed by a couple more to see the OCR end the year around 2.50% to 3.00%. Our view is we could see a medium-term peak of about 3.50% by the end of 2023 – a level temporarily seen in 2015, and well ahead of 10-year average post GFC. This will put more pressure on asset prices – particularly interest rate sensitive ones, however most local shares have appeared to price this in, given the market decline since October last year.
The Bank of Canada also joined the RBNZ, and raised their cash rate +50-basis points to 1%, marking its second hike of the cycle. The BoC also said it would commence ‘quantitative tightening’, later this month, with its bond portfolio expected to shrink around 40% over the next two years as it lets its bond holdings roll off – and sees the cash rate returning to 2.00% to 3.00% over the near-term and would move “forcefully”.
New Zealand King Salmon (NZK:NZX / NZK:ASX)
New Zealand King Salmon shares slumped -19.8% yesterday and another -17% this morning after surprising investors with a $60m capital raise and heavy earnings down grade for 2023 full year earnings guidance, expecting a $8m to $12m operating loss (EBITDA).
Given the high salmon mortality rate NZK require the capital to manage near-term losses as it operates a smaller and more sustainable business model, and give them better balance sheet flexibility and fund medium-term operations or capital expenditure.
NZK weren’t able to provide much light on the Blue Endeavour move to cooler waters, other than have a hearing later this month and a consent decision due mid this year. Even assuming it were to receive consent the earliest possible harvest would be in 2027.
We are HOLD rated on NZK, as operational challenges mount