Global markets rallied once again overnight as tepid US inflation data eased worries of faster interest rate hikes coming this year (as we have discussed in the past, higher interest rates in the US are a key risk for stock markets this year).
Closer to home, yesterday saw new Reserve Bank of NZ governor Adrian Orr keep the official cash rate at 1.75%. Orr said he expects to keep the OCR at "this expansionary level for a considerable period of time", however the big surprise for us was that he indicated that the direction of the next move is equally balanced and could be up or down.
The New Zealand dollar has fallen across the board as New Zealand interest rate expectations adjusted lower (interest rates on a currency are a key driver of currency demand).
Stock in Focus: Xero (XRO:AX)
Accounting software company Xero has been an amazing performer (previously on the NZ market, now only listed in Australia) and released its annual results for the 2018 financial year. While the share price was lower, as shown by the chart Xero shares had rallied strongly into the result.
Looking at some of the detail, revenues rose 38% to $406.6 million, with annualised monthly revenue up +33%. Importantly, Xero reported positive operating earnings (EBITDA) of $26m for the first time, and positive operating cash flow of $41 million. It is encouraging to see Xero approach profitability after years of cash burn in order to achieve scale and growth. In terms of segments, the US business continues to struggle in a relative sense to other countries, while the UK business is showing great signs.
We currently have a BUY recommendation on Xero.
Members should look out for a full update on Xero to be released in next week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was higher on Thursday (ASX 200 index +0.18%) and is within striking distance of its highest level in 10 years. Energy stocks helped the ASX finish higher as Brent crude oil prices jumped after confirmation that sanctions would be imposed against Iran, potentially cutting off a large percentage of the world's oil supply. That price increase helped lift local energy and mining stocks such as BHP Billiton which led the market. Energy stocks Woodside Petroleum and Oil Search had a strong trading session. AMP hosted its annual general meeting yesterday where more than 60% of shareholders voted against the company's 2017 remuneration report amid the fallout from the royal commission.
The New Zealand market rallied yesterday (NZX 50 index +0.21%) led by Pushpay and Scales, after the Reserve Bank affirmed plans to keep interest rates low. Mercury and Fletcher Building weakened. Pushpay is due to report its annual results next Thursday. Agri business PGG Wrightson was up 5% on the back of further rumours that Aussie counterpart Elders is preparing a takeover offer
3 Things Markets Will be Watching this Week
1. Corporate earnings season enters its final stages in the US this week, with around 80% of stocks having released profit results.
2. The Reserve Bank of New Zealand is widely expected to keep interest rates on hold at 1.75% on Thursday.
3. This week sees the release of the Australian Federal Budget on Tuesday.
Have a Great Day,
Team
