Global markets dropped sharply on Friday and were mixed overnight, with the US market (measured by the S&P 500 index) experiencing its biggest May slump since 2010. Major tech stocks led losses overnight amid reports that the US would review Alphabet's Google for anti-competitive behaviour.
Investors are nervous as trade tensions mount on multiple fronts, with wide-reaching implications for global economic growth. Trump made a surprise threat of tariffs on Mexico due to the illegal immigration problem, and the Trump administration also announced it would no longer recognise India as a developing country, a status that exempts nations from US tariffs. In regards to China, the situation looks to be escalating. Markets are now focused on whether the two leaders can at least agree to meet at the G-20 Summit later this month, and are also worried about any new retaliatory measures China may have in store.
The month of May saw the US market give back some of 2019’s gains, as it fell -6.6%. In contrast, the Australian share market performed well over the month, up +1.1% on the back of Australian specific drivers such as a surprise election result. The NZ market was also relatively unscathed, up +1.0% for May
Closer to home, today sees the RBA make an interest rate decision, with the market widely expecting the central bank to slice 25 basis points off the official cash rate, taking the rate down to 1.25%.
Stock in Focus: Select Harvests (SHV:ASX)
While most stocks on the ASX were in the red yesterday, shares in almond producer SHV held on to Friday’s gains when it jumped +10% on the back of strong 1st half results.
SHV announced a +96% increase in profit to $20m for the 1st half of the 2019 financial year, driven by a larger crop and firm $A pricing. After what has been a challenging two-year period for SHV, things have turned around for the almond producer.
Further, SHV are taking advantage of the opportunity created by the China-US trade war – SHV are seeing strong demand from China given tariffs have been imposed on US almond exports to China. The outlook remains positive on this front with trade tensions likely to remain, and as the Asian healthy snacking food market continues to grow.
We currently have a BUY (High-Risk) recommendation on SHV.
Australia & New Zealand Market Movers
The Australian share market (ASX 200 index -1.19%) was in slight positive territory on Friday, but sold off over -1% to start the week on Monday as investors fretted over an escalation of global trade tensions one day ahead of a crucial Reserve Bank of Australia interest rate meeting. Miners and banks led the market down, Miners and banks led the market down, while safe-haven gold miners managed to attract some buying. Shares in Lynas, the largest rare earth producer outside of China, gave back some of Friday’s jump on the back of trade war threats between China and the US (with China looking to ban the export of rare earths to the US).
The New Zealand market was in positive territory on Friday (NZX 50 index +0.46%) with the local market closed on Monday for Queens Birthday holiday. Vector and Chorus were among stocks recovering from a recent sell-off over regulatory fears, with the NZX market index down every day last week, except Friday. In stock news, Infratil said the issues the Commerce Commission plans to assess when considering the company's joint purchase of Vodafone New Zealand were in line with expectations. Infratil believes there are strong reasons for the deal to be cleared. Separately, Infratil sold Snapper for a nominal sum, and said its Longroad Energy investment has started building a Texas solar project.
3 Things Markets Will be Watching this Week
- Trade War headlines are likely to dominate investor sentiment.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- Key US manufacturing & employment data is published this week.
Have a Great Day,