US markets (S&P 500 Index -0.7%) fell overnight, snapping a 5-day winning streak.
In the middle of the session, markets viewed the latest Fed meeting minutes as less hawkish than expected, with the central bank noting they would decelerate the pace of interest rate hikes. However, this relief in the middle of the session was short-lived. Selling was broad-based with all sectors trading lower except for energy. Target shares slipped -2.6% after posting earnings that missed expectations, as heavy discounting hurt margins in an attempt to release excess inventory, while US retail sales data for the month of July came in flat with June.
European markets (Stoxx 600 Index, -1%) fell as positive momentum fizzles, not helped by another hot inflation data print in the UK. UK inflation hit a fresh 40-year high for the month of July, as the consumer price index (CPI- Inflation) rose +10.1% on an annual basis ahead of expectations of +9.8% and higher than the +9.4% increase in June.
Closer to home, the Reserve bank of New Zealand (RBNZ) announced a 50 basis point rate hike which came as no real surprise bringing the Official Cash Rate (OCR) 3.00%. The RBNZ also lifted its forecast OCR peak from 3.95% to 4.1% likely to be reached by next year. The tone continues to be hawkish, with the RBNZ stating the economy is in a strong position to handle the required rate hikes to control inflation, signaling a high probability of two more 50 basis point hikes for the next two meetings in October and September.
Fletcher Building (FBU:NZX)
Fletcher Building shares rose +1.3% yesterday, pulling back from a strong open after delivering a solid result for the 2022 financial year.
Operating earnings (EBIT) came in at $757m, ahead of guidance, and with a strong demand pipeline management anticipate earnings to be $100m higher for 2023 – keep in mind the 2022 result was impacted by last year’s lockdown (~$100m impact).
Margins have improved while strong cashflow generation means they paid out a higher dividend than expected and debt levels remain low.
We change our rating on Fletcher Building from a Buy to a Buy (High Risk), due to its attractive valuation as the market anticipates softness for the construction sector. We see value in the stock at current levels – even if building activity were to be weaker than what Fletcher Building anticipates as our base case. However, we view the risk of the construction sector being hit by a deep and prolonged slowdown as a real, but small possibility which is why we have a high-risk caveat.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index, +0.3%) was up on Wednesday on a more mixed day of earnings results.
Consumer staples and consumer discretionary were the best performing sectors, following wall street with local retailers up Coles and Woolworths both doing most of the heavy lifting ahead of their earnings results due next week.
Healthcare giant CSL ended the day down -1.3%, recovering from a more severe drop when it delivered a -5% decline in net profit, and guided a softer than expected profit for 2023 which disappointed as gross margins struggle to recover.
On the other hand, Brambles was a standout rising +5.1%, delivered a strong result and upbeat guidance with the company able to comfortably pass on cost increases to customers.
The New Zealand market (NZX 50 Index) was flat yesterday, recovering from an initial drop on RBNZ’s hawkish commentary with its interest rate decision.
Market moves were mixed across the board, with stocks struggling to find a direction as investors brace for company earnings over the next few weeks.
Things Markets will be Watching this Week
Monday
Global: US NAHB Housing Market Index, China retail sales data
Australia: Earnings from Beach Energy, Bendigo & Adelaide Bank, JB Hi-Fi, Quarterly update from Westpac.
New Zealand: Earnings, Contact Energy
Tuesday
Global: Earnings from Walmart and Home Depot
Australia: RBA Minutes, Earnings from BHP, Challenger, Goodman Group, and James Hardie
New Zealand Earnings from Mercury and PGG Wrightson.
Wednesday
Global: US Retail sales data and Fed Meeting minutes release, Eurozone second quarter GDP and employment data, and earnings from Target.
Australia: Earnings from Brambles, Corporate Travel, CSL, Downer EDI, Magellan, Santos, Super Retail, Vicinity Centres.
New Zealand: RBNZ’s cash rate decision (OCR), and earnings from Fletcher Building
Thursday
Global: US Existing home sales data, US initial jobs claims, and Eurozone inflation (CPI) data
Australia: Employment data, and earnings from Blackmores, Evolution Mining, Transurban and Treasury Wine.
New Zealand: Earnings from Auckland International Airport, Precinct Properties, and Skellerup.
Friday
Australia: Earnings: Accent Group, AGL, Cleanaway, Cochlear, Inghams, and TPG Telecom.
New Zealand: Credit card spending data and earnings from Genesis Energy.