Global markets were higher overnight (S&P 500 Index +0.5%) as investors await the latest US Federal Reserve announcement, with hopes it will stick with its supportive policy stance as the central bank’s two-day meeting got under way. At the same time, economic data suggested the global economic recovery is gaining traction.
The Tech sector continues to rebound strongly for a second day in a row after its recent sell off, led by Tesla which popped another +7%, while Apple started the trading day strongly but ended the day flat in the wake of its product event.
Economic data on Tuesday showed US factory output increased strongly in August. Separately, US import prices increased more than expected for the same month, supporting the view that inflation pressures are building. Chinese retail sales also turned positive on year on year basis for the first time since the covid-19 outbreak began.
Macquarie Group Limited (MQG:ASX)
Macquaire (MQG) shares were down for a second day in a row after warning its profit would take a significant hit for the 2021 financial year.
This was larger than what the market may have anticipated given how well its share price has recovered since March compared to the big 4 Aussie Banks. The group expects half-year profits to fall to about $955m for the six months ending September 30, down -35% (or -$300m) from last year, and second half profits to be down about -25% from the previous year. Covid-19 has caused delays in the timing of asset sales, increased provisions for souring loans, and a reduction in transaction volumes and lower investment income.
Despite the dip, we maintain our BUY rating on MQG as a quality company able to leverage off a partially recovering economy over the medium-term, with a reasonably attractive dividend from 2022 onwards.
Australia & New Zealand Market Movers
The Australian market was basically flat on Tuesday (-0.1%) as energy companies were a drag on the market following the Federal Government's announcement it would back gas pipeline construction and a new gas-fired power station. The major lenders also dragged on the market after the big four banks closed between -1.4% and -1.9% lower, following Macquarie's update.
Vaccine developments helped the real estate sector etch the best sector performance in local trade with Scentre Group shares jumping +5.2% and Vicinity Centres up +1.9%. Qantas is considering moving and downsizing its Australian offices and aviation facilities, as it tries to cut costs even further amid the pandemic – after laying off thousands of workers.
The New Zealand market edged higher yesterday (NZX50 Index +0.2%), on a quiet day of trading due to the NZX’s website coming offline for much of the afternoon in similar circumstances to the cyber-attacks in August. Gains were mild on a positive lead by Wall Street on news that AstraZeneca resumed trials of its covid-19 vaccine and Pfizer saying its vaccine could be distributed in the US this year.
Air New Zealand shares were up +0.7% after the airline said it had sold more than 110,000 seats on Monday, more than three times the pre-covid usual, after the government removed physical distancing restrictions on public transport, allowing planes to operate at full capacity, Auckland International Airport was also up +0.7% yesterday.
3 Things Markets Will be Watching this Week
- COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- The key event this week is the US Federal Reserve Interest rate decision, which will be followed by Fed Chair Powell’s news conference.
- Locally, NZ’s Q2 GDP data and Australia’s latest employment data are both due on Thursday.
