Global markets were higher overnight, with the US market (S&P 500 index +0.2%) eking out a small gain as the recent jump in bond yields took a breather. On the economic data front, US jobless claims for the prior week came in at 199,000, the lowest level in more than 50 years, although there were some special factors driving strength in the data.
This saw technology, energy, and real estate sectors lead gains, the former partially recovering from early losses, while materials and consumer staples were the laggards.
European Markets (Stoxx 600 index +0.1%) closed a touch higher as investors weighed up strong economic data against surging covid cases.
Closer to home, the RBNZ announced it raised the OCR by +25 basis points to 0.75%, with their guidance suggesting a more dovish tone than the market had anticipated (but much more hawkish than during their August commentary). The RBNZ is forecasting the OCR to hit 1.5% by June next year, and to peak at 2.6% (a level not seen since 2015), reaching that level in late 2023 and expected to remain there through 2024.
The Reserve Bank noted – "The Committee expected that the OCR would need to be progressively increased and, conditional on the economy evolving as expected, the OCR would likely need to be raised above its neutral rate". We believe 2022 first quarter economic data will be a key indicator, given this current quarter figures will be clouded by Auckland’s lockdown and wage subsidy stimulus effects.
Tower Insurance (TWR:NZX / TWR:ASX)
Tower Insurance jumped +8.5% yesterday, after delivering their full year result which came in on the upper end of its recently downgraded guidance, in a challenging year for the insurer.
Tower announced a 2.5 cents per share dividend, ahead of expectations bringing its full year dividend to 5 cents per share, representing an attractive dividend yield over over 7%. With excess capital management announced a $30.4m share buyback, representing just over 10% of its current market cap – which is a positive sign as management view the stock price as "cheap". Looking ahead management guided 2022 net profit to come in between $21m and $25m.
We remain BUY rated on Tower, as it is attractively priced and its investment income will benefit from rising interest rates going forward.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX 200 index -0.2%).
Energy and Material stocks were higher, to help offset across most of the market. Aussie Tech stocks experienced another weak session followed by weak lead from Wall Street.
Harvey Norman shares fell -1.7% reporting a 4-month trading update to November 2021, which came in at -8.8% lower than the previous year.
QBE shares were up +0.2% after it was reported they were in talks with Zurich Insurance about an acquisition of its Australian general insurance division, excluding its travel insurance
The New Zealand market was up on Wednesday (NZX 50 index +0.6%) following RBNZ’s rate hike decision as guidance was more dovish than market had anticipated.
Interest rate sensitive stocks which have been sold off heavily recently rebounded slightly. Fisher and Paykel rose +2.1% heading into its result out today.
The NZ government announced that double vaccinated NZ Citizens would be able to travel into NZ from Australia by passing MIQ from 17th January, but would be required to self-isolate for 7-days. From 14 February the same rules applying to NZ citizens from all other countries from 30 April. Fully vaccinated foreign travelers would be able to enter the country but would still be required to self isolate for 7-days (if they provide a negative covid test). Auckland Airport (+1.3%) and Air NZ (+1.0%) were higher after the travel easement announcement.
Pushpay shares sank -4.2%, as they were caught up in global tech sell off, and the stock struggles to find buyers right now.
3 Things Markets will be Watching this Week
- Key events this week in Japan and the US who will reportedly make a joint announcement on the release of oil reserves as soon as this week.
- Locally, RBNZ will may an OCR review on Wednesday and latest retail sales print in Australia.
- Earnings release from Kiwi Property Group, Metro Performance Glass, Webjet and Fisher & Paykel Healthcare.
