Global markets were mixed overnight, with US Markets (S&P 500 index -1.0%) ending a volatile session lower as investors weighed up strong corporate earnings against rising interest rates & the timing of potential policy tightening.
The U.S. 10-year Treasury yield topped 1.9% at one point on Wednesday, its highest level since December 2019 – the 10-year rate started the year around 1.5%. Most sectors were lower, with Consumer Discretionary, Financials and Tech shares leading losses.
Bank of America rose +0.4% and Morgan Stanley was up +1.8% after their earnings beat expectations, partially recovering from their sharper fall earlier, while other banking stocks continued to slide. Procter and Gamble shares jumped +3.4% after their earnings beat expectations, holding margins stable (which investors were more concerned about) and provided an upbeat sales guidance. Of the 44 S&P 500 companies that have reported so far, 73% have topped market expectations
European Markets (Stoxx 600 index +0.2%) managed to eke out a gain after starting the session in the red. Investors continue to grapple with higher interest rates as high growth sectors were lower, particularly tech stocks, with losses offset by strong earnings updates gains led by mining stocks. Commodity prices continue to trade higher on Chinese policy easing measures.
Continuing the recent global pattern, both UK and Canadian CPI inflation data surprised coming in higher than expected. UK headline inflation hit its highest level since the early-1990s, at +5.4% year on year, while core inflation picked up to 4.2%. In Canada, headline inflation of +4.8%, matching expectations, while core inflation came in higher than expected, at +2.9% (both at 30-year highs) ahead of the Bank of Canada’s policy meeting next week.
Locally the NZ Government announcement is due today to set up any changes to the traffic light setting.
Lynas delivered a record revenue result for the second quarter of the 2022 financial year (ending December 2021). Despite ongoing covid restrictions and supply issues limiting production Lynas delivered $202.7m in revenue thanks to strong rare earth prices, particularly NdPr which has doubled over the last year to over $100/kg driven by strong demand and customers concerned with security over price.
Highlighting shipping issues Lynas will start to chartere their own vessels to ensure it can reliably feed Australian ores into its Malaysian processing plant at a time of booming commodity prices.
We remain BUY rated on Lynas as a benefactor to EV boom, but with a high risk caveat due to commodity pricing risk.
Australia & New Zealand Market Movers
The Australian market was lower on Wednesday (ASX 200 index -1%) following Wall street’s sell off overnight.
The Australian tech sector continues to lead losses, as treasury bond rates rise, while weak result from Goldman Sachs due to rising costs caused Australian bank stocks to also trade lower.
BHP slipped -0.3% despite reporting a strong finished to 2021 shipping 73.2m tonnes, leaving the company on track to beat the top end of its full-year export target.
Harvey Norman managed to buck the trend rising +3%, after a broker upgrade stating the retailer will continue to benefit from above trend demand for household goods.
The New Zealand market (NZX 50 index -1.6%) was down yesterday joining the global sell-off.
Adding to the selling pressure was ANZ’s forecast for RBNZ to potentially hike the OCR to 3% by April next year, a lot more hawkish than their earlier forecast of a 2% peak by this year.
Selling was broad based with 43 of NZX50 socks all trading in the red, Vista Group leading losses down -4%, followed by other technology stocks also being hit hard.
Fisher and Paykel Healthcare fell -3.2%, along with other notable big names Ryman Healthcare (-3%), Contact Energy (-2.5%), and Mainfreight (-2.3%) all sensitive to higher interest rates to some degree.
3 Things Markets will be Watching this Week
- Inflation data across the Eurozone and fourth quarter GDP data from China.
- US earnings Season kicks off with Bank of America, Proctor & Gamble, Netflix, Morgan Stanley, Intuit, Goldman Sachs, Alcoa, American Airlines and United Airlines among large caps scheduled to release results.
- Locally, Australia’s employment data and a number of quarterly production reports are also due in Australia including Rio Tinto, BHP, Woodside, Northern Star and Santos.