Global markets were lower overnight, as Wall Street slipped from early gains as investors tempered their enthusiasm on the fate of the Republican tax cut plan.
US markets are still hovering near records, perked up by the Federal Reserve's upbeat view on the economy and news that the Republicans' tax code overhaul is set to face final votes in Congress before the year-end. A final tax bill could be unveiled by Friday (Saturday AU/NZ time), with decisive votes expected next week in both chambers.
We are watching developments closely as there seems to be some pressure on The Republicans to pass something before the end of the year. As we have discussed, proposed tax cuts are expected to provide a significant boost to company profits, somewhere likely in the order of a 10% boost to earnings of the US market overall next year.
Stock in Focus: Myer Holdings (MYR:AX)
Retail department store chain Myer saw its share price plunge yesterday following the release of a disappointing trading update less than 2 weeks before Christmas.
Despite investing heavily in marketing and traffic-driving initiatives, total sales to the end of November were down -2.3% on the prior corresponding period. December’s sales data has been even worse, with sales during the first two weeks in December down -5%. Myer said they are unlikely to return to profit for the first half of the financial year. Myer said that while the online business has shown promise, it is not at a large enough scale to compensate for poor store performance.
While Myer remain committed to their turnaround “New Myer” strategy, this is likely to be a long-term process, if successful. We have always noted that investing in Myer was a high-risk proposition, particularly given the difficult retail environment and arrival of Amazon into Australia. We had hopes around the strategic turnaround being implemented by Myer, but given yesterday’s update we have lost faith in a near term turnaround.
We are currently reviewing our recommendation and will be downgrading our High-Risk Buy rating on Myer. Members should look out for a full update on Myer to be released in our next weekly report.
Australia & New Zealand Market Movers
The Australian share market slipped slightly yesterday (ASX 200 index -0.17%) snapping a five-session winning streak with Myer falling hard after a profit warning and Telstra also losing ground. Telstra ended the day down as it said it splurged more than $72 million on additional mobile spectrum in a bid to back its current mobile network and support the development of 5G technology. In other news, the competition body said that it will block the sale of Woolworths petrol stations to BP – Caltex stood to lose its fuel supply contract with Woolworths if the deal went through and its shares rallied.
The New Zealand market rallied on Thursday (NZX 50 index +0.48%) led by Scales Corp and A2 Milk Co, while Sky Network Television dropped again. There were a couple of leadership change announcements yesterday. Firstly, high-flying Qantas executive Jayne Hrdlicka who is seen as a marketing expert, has quit the national carrier to join the a2 Milk Company as chief executive. Chief executive Nigel Rigby also said he is stepping down after five years as the head of Metro Performance Glass, saying "the time is right" for new leadership.
3 Things Markets Will be Watching this Week
1. The US Federal Reserve makes an interest rate decision on Thursday morning AU/NZ time.
2. The European Central Bank also makes a post meeting announcement on Friday.
3. Australian employment figures are released Thursday.
Have a Great Day,
Team