Global markets were lower on Friday, as US (S&P 500 Index -0.9%) stocks declined amid a batch of weak corporate earnings.
Social media company Snapchat shares crashed -39% after a disappointing result on slowing advertising revenue, with marketing one of the first expenses usually cut by businesses heading into a recession. The news hit online advertising companies hard such as Meta Platforms (-7.5%), Alphabet (+5.6%) and Pinterest (-13.5%). Twitter bucked the trend rising +0.8% despite delivering a disappointing result. Verizon fell -6.7% after cutting its full year forecast, as higher prices dented subscriber growth. Despite Friday’s results, approximately 70% of stocks so-far have beaten expectations, with 1 in 5 having made announcements to date.
It will be another busy week ahead for earnings with results from tech heavyweights Microsoft, Alphabet (Google), Meta Platforms (Facebook) as well as Proctor & Gamble, and Exon Mobil. The Fed also make their interest rate decision on Thursday, heavily tipped to be another 0.75% hike, followed by US second-quarter GDP (economic growth) figures on Friday.
On the economic data front, US composite PMI (a measure of manufacturing confidence) was down from 52.3 to 47.5, well below expectations and down at its lowest level since September 2009 (excluding a brief stint in early 2020). Likewise, both the Services and Manufacturing PMIs in Germany fell below the 50 point mark, signaling a contraction in both sectors, while the European Composite PMI fell from 52 to 49.4, the first time it has fallen into contractionary territory (excluding Covid-related lockdowns) since 2013.
Closer to home, Australia reports second quarter inflation (CPI) data this week, which will be watched closely for its interest rate implications.
Auckland International Airport (AIA:NZX)
Auckland International Airport shares have held up well and revealed June monthly traffic number showing strong growth up +11% from the previous month and an increase of +37.9% from the same corresponding period last year (June 2021).
Passenger numbers are still down -37.9% from pre covid levels (June 2019), with the majority of the recent recovery coming from international travelers as border restrictions ease.
While demand for travel is set to grow as travel restrictions ease, we are still HOLD rated on AIA. Despite being a quality infrastructure asset, AIA’s valuation still appears stretched and is prone to higher interest rates, meaning a share price recovery to above $8 per share (what AIA traded at for most of 2019) over the medium-term is unjustified in our view – even if tourism travel were to fully recover to pre-covid levels due to the higher interest rate environment we are currently in.
For investors wanting to play a tourism recovery, we prefer Sky City and Tourism Holdings as tourism plays at current share price levels.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index) was flat on Friday but ended the week up +2.8% posting its best weekly performance since March.
Real estate and financials were the best performing on the session, while tech and energy gave back gains from earlier in the week. Bank stocks were strong helped by ANZ’s acquisition of Suncorp and a general upbeat mood towards the markets.
The New Zealand market (NZX 50 Index) was flat on Friday in another quiet day of trade.
Pacific Edge jumped another 5% on Friday, delivering a +18% increase over the week after a strong trading update and news the Southern district health board is adopting cxBladder tests.
Vulcan steel rose +6.5% after signing a deal to acquire Ullrich Aluminium Company for NZ$165m
3 Things Markets will be Watching this Week
- The Fed releases its interest rate decision, and the US announces GDP figures for the second quarter.
- A busy week of US corporate earnings led by tech heavyweights Microsoft, Alphabet (Google), Meta Platforms (Facebook).
- Locally, Australian inflation (CPI) data and AGM’s from Ryman Healthcare, Pacific Edge, Mainfreight and a half year result from Rio Tinto.