Global markets were mixed overnight as shares on Wall Street recovered from early losses, but rising trade tensions and signals from the bond market of a higher risk of recession kept a lid on gains.
While markets partially recovered overnight, we think the underlying trade tensions between the United States and China are heading down a path of escalation, with no relief any time soon. With tariffs and suspensions of purchases being implemented from both sides, this does not look like a situation where a solution can be implemented overnight to us and volatility is likely to remain elevated.
Closer to home, the Reserve Bank of NZ cut the official cash rate by a surprise -0.5%, to a record low of 1.0%. While the domestic outlook in NZ is far from weak, the RBNZ is concerned about the global picture and the Bank continues to miss its inflation target to the downside. Governor Adrian Orr said the RBNZ stands ready to do "whatever it takes" to meet its mandate, echoing the famous words of ECB president Mario Draghi in the midst of the European Debt Crisis – including the possibility of implementing negative interest rates. The massive surprise sent the kiwi dollar tumbling, and it is currently trading at US64¢.
Stock in Focus: Briscoe Group (BGP:NZX)
Briscoes shares were up temporarily after delivering a surprise lift in sales for the first half of the 2019 financial year, shrugging off headwinds in the retail sector.
Sales for the half came in at $303m for the group, up +3.34% from last year, and adjusting for store additions and disposals same store sales growth was up +2.74% which is an impressive feat given subdued business and consumer confidence. The results was helped with a stronger second quarter which benefitted from a strong finish from their winter clearance programme.
Given the heavy rate cuts by RBNZ this year, we now have a more neutral outlook towards the retail industry as consumer confidence is more likely to remain stable (upgrading from negative). As a result, overall retail spending should remain supportive, however there are still challenges in the sector with intense competition likely to weaken margins and cost inflation. In saying that, given Briscoes strong past performance and provides investors with a dividend yield of 6%.
We currently have a HOLD rating on Briscoes.
Members should look out for a full update on Briscoes to be released in today’s weekly report.
Australia & New Zealand Market Movers
The Australian market was higher on Thursday (ASX 200 index +0.64%) as an aggressive cut from the Reserve Bank of New Zealand pushed investors into gold miners and bond proxy stocks. The big stock news was Commonwealth Bank, which released a weak result which saw the county’s largest bank sell-off as the impact of a slowing economy, falling interest rates and remediation of misconduct took their toll.
The New Zealand market surged yesterday (NZX 50 index +1.88%) after the Reserve Bank's unexpectedly large interest rate cut revived demand for yield stocks, boosting the likes of Mercury NZ to a record. Fonterra shares were slightly higher as the dairy exporter said it couldn't find a buyer for its entire stake in Beingmate Baby & Child Food, and may sell the shares on market in Shenzhen.
3 Things Markets Will be Watching this Week
- US Corporate earnings season continues this week, with some Australian companies also set to make earnings announcements.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- The Reserve Bank of New Zealand makes its latest interest rate announcement on Wednesday.
Have a Great Day,