Global markets were mostly higher once again overnight, powered by rising expectations that the United States and China could strike a deal during their ongoing trade talks, with benign US inflation data also lifting sentiment.
As we touched on yesterday, there have been growing views that there will be interest rate cuts by the Reserve Bank’s across both sides of the Tasman.
Yesterday, Reserve Bank of NZ governor Adrian Orr’s latest monetary policy statement was on the dovish side, but not as dovish as the market had been expecting. Orr held his official cash rate steady, as expected, and essentially repeated the language from his last review in November, saying he expects to hold it where it is through 2019 and 2020 and that the next move could be up or down – although forecasts are for solid economic growth which would suggest a rate hiking bias.
We are also in the midst of local earnings season across Australia & NZ, and among stocks to report yesterday were CSL, SkyCity, Carsales.com, & Hallensteins which we touch on below.
Stock in Focus: Heartland Group (HGH:NZX / HGH:ASX)
Heartland Bank shares have been under pressure of late, most recently with the recent announcement from the royal commission in Australia – in which there are proposals to ban trail fees/commissions for mortgage brokers.
The majority of Heartland bank’s recent growth has been from reverse mortgages in Australia, with 70% of that revenue attributed to brokers – so the recommendation is set to hurt Heartland due to their heavy reliance on brokers in Australia and lack of physical presence. As well as that, the RBNZ are proposing new capital requirements which would require banks to hold more capital, which would then further limit their ability to grow in New Zealand.
The risks of a slowdown in the NZ economy and regulatory pressure from the royal commission and RBNZ, combined with their higher risk profile has seen us hold a more cautious view on the outlook for HGH.
We currently have a HOLD rating on Heartland Group.
Members can login to read our full reports on Heartland Group.
Australia & New Zealand Market Movers
The Australian share market was lower yesterday (ASX 200 index -0.25%) as falls in index heavyweights CSL and Commonwealth Bank weighed on the markets return. Healthcare giant CSL's shares fell despite the company raising its interim dividend and saying its full-year net profit would be at the upper end of the $US1.88 billion to $US1.95 billion range it set in August. In other earnings related news, Carsales.com shares closed lower after weakness in the company's finance and displaying advertising business led to an 82 per cent drop in the company's first-half profits. On the flipside, Computershare shares rose 5.9 per cent to $18.85 after upgrading its full-year earnings guidance driven by ongoing growth in register maintenance, margin income gains and reduced taxes.
The New Zealand market continued to move higher on Wednesday (NZX 50 index +0.57%) as NZ shares joined a global rally on optimism that the latest US delegation to Beijing will make meaningful gains in soothing the strained trade relations. Tourism Holdings led widespread gains, while SkyCity Entertainment Group fell after reporting a decline in first-half profit and a share buyback. Outside the benchmark index, Hallenstein Glasson Holdings gained 5% after flagging a gain in first-half profit after a stronger-than-expected Christmas trading period.
3 Things Markets Will be Watching this Week
- US corporate earnings season gets into its latter stages.
- Local earnings season also kicks off in NZ and gets further underway in Australia this week.
- The Reserve Bank of New Zealand holds a press conference & makes an interest rate decision Wednesday.
Have a Great Day,
