Global markets were mostly higher overnight (S&P 500 index +1.3%) with the US market rebounding from the recent three-day sell off as investors felt comfortable buying the recent dip.
Most sectors were up, led by Financials and Utilities, while Energy and Healthcare were down. The Tech sector was up marginally, with most of the blue-chips trading higher, with a few exceptions. Namely, Tesla was down -3% after Elon Musk announced Tesla would no longer be accepting Bitcoin as payment due to environmental concerns associated with mining and transacting bitcoin. Alibaba dropped -5.5% despite reporting a better than forecast +64% quarterly revenue increase and predicting +30% growth this fiscal year.
Interestingly, US Federal Reserve Governor Waller echoed comments by vice chair Clarida the previous night, saying in a speech that that the factors putting upward pressure on inflation were likely to prove temporary and the Fed “will not overreact to temporary overshoots of inflation.” Waller described the economy as “going gangbusters” but said the Fed would need to see several more months of data before thinking about tapering, adding this would help it determine whether the shocking April payrolls report was an outlier.
European markets were a touch lower (STOXX 600 index -0.1%) as they were slightly immune to the inflation scare, with energy and basic materials leading declines as commodity prices dipped, while defensive's rose.
Xero shares tanked -13% yesterday despite delivering a reasonably sound result for the 2021 financial year. Part of the selling can be attributed to broad based selling on the day, with high growth tech shares hardest hit, although it does highlight the high expectations embedded into Xero's share price.
Operating revenue increased +18% to NZ$848.8m, whilst annualised monthly recurring revenue (AMRR) rose +17% to NZ$963.6m. This was on the back of Total subscribers increasing by 20% from last year to 2.74m, driven by increased operating expenses particularly marketing to drive subscriber growth in the second half. It appears as though Xero is investing to drive future growth and keep subscriber growth on a solid trajectory, which hurts profit in the near term but supports longer term growth.
While a solid business with strong growth potential over the medium-term, Xero's lofty valuation is the main reason for our recent move to a HOLD recommendation and the share price has been volatile. We are currently watching XRO's share price and reviewing our rating and will release a full update in our weekly report.
Australia & New Zealand Market Movers
The Australian market (ASX 200 index -0.9%) fell for the third day in a row, led by sharp decline for technology stocks following signs of quickening inflation in the US – which may seen rates increase sooner than anticipated.
The price of iron ore reaching a new record high wasn't enough to lift market sentiment for any of the major miners with BHP dropping -1.3% and Rio Tinto falling -1.6%. Similar to earlier in the year, Tech stocks were hardest hit, Xero falling the most, Afterpay down -5.4%, Aristocrat down -3.0%, and Wisetech down -2.0%
The Healthcare sector was the best performer, CSL up +1.2% as listed comparable companies announced improvement in the rate of plasma collection. Energy was the only other sector in the green ending the session a touch higher.
Treasury Wine's share price was up 3% following the release of its investor day update, where it expects operating earnings to be in the range of $495m to $515m – ahead of market consensus.
New Zealand’s main share index fell again (NZX 50 index -1.1%) yesterday as US inflation concerns weighed down on equity markets around the world.
With fears of interest rates rising NZ's reliable dividend paying stocks were hardest hit, Auckland International Airport sank -4%, Argosy Property fell -3.6% and Stride Property slipped 1.7% to $2.31. Goodman Property Trust was down -2.2% despite reporting a 5.4% increase in its underlying annual earnings.
A2 Milk also continued its descend shedding another -3.9%, to be down -21% since Monday's earnings downgrade.
3 Things Markets will be Watching this Week
- COVID, lockdown, and vaccine related news-flow globally continues to dominate headlines.
- Economic data highlights this week include inflation prints in the US and China along with the latest retail sales data in the US.
- Closer to home, retail sales in Australia are due on Monday while a number of earnings reports will be released including Pendal, AusNet, CSR, Pushpay, Graincorp, Xero, Orica, Goodman Property and Tilt Renewables. CBA will round out the bank reporting season with its Q3 update while Meridian Energy will host an Investor Day on Tuesday.