Global markets were mixed overnight, with the US market (S&P 500 +0.03%) holding flat, whilst the tech heavy Nasdaq Index rose +0.3% to close at another new high.
US companies added fewer jobs than expected in August, with ADP Research Institute data showing 375,000 jobs added well below 625,000 estimated sending cyclical stocks lower such as Energy and Financials. It was a solid day for Tech stocks particularly the FANG stocks, while defensive stocks were the strongest performers led by real estate and utilities. The employment data was once again seen as bad news = good news as it implies the US Fed can stay supportive for longer.
European Markets were up overnight (Stoxx 600 index, +0.5%) led by the Consumer Discretionary and Utilities sectors, offset by weakness from materials sector.
Closer to home, in Australia there was a better-than-expected increase in economic growth during the three months ended June. The economy expanded 0.7% in the second quarter, beating expectations for growth of 0.4%. The release confirms the strong economic settings heading into the current lockdown disruption that will no doubt drive a deep contraction in the third quarter (markets are largely looking through this at the moment as being short-lived).
Costa Group (CGC:ASX)
Costa Group (CGC) shares have been sliding after delivering their 2021 half year result last week, which met guidance but market was anticipating more in terms of guidance from the second half given the 2PH Farms acquisition. Costa expects earnings for the full year 2021 earnings to be marginally ahead of 2020.
Challenges which were known earlier (that caused the sell-off in May) resulted in group revenue coming in flat from the previous year at $612.4m, while net profit after tax rose +4% from last year to $44m. The strong performance in the International business offset a mixed performance by the Domestic business which struggled with inclement weather and weaker avocado pricing.
Taking a medium term view, we remain BUY (but with a high risk caveat) as Costa provides attractive upside potential and we still believe the company should be able to recover from here on out. There will be room to grow earnings and expand margins on the back of increased planting efforts and planned expansion, with any setbacks likely to be transitory and not widespread across most categories, as opposed to structural and more worrying concerns.
Australia & New Zealand Market Movers
The Australian market was lower yesterday (ASX 200 index -0.1%), as the market almost fully recovered after a sharp decline earlier in the session following stronger than expected GDP growth for the second quarter.
Economically sensitive stocks performed well, the Major banks leading gains NAB up +2.2% – the bank most exposed to small business among the big 4. Property stocks were also strong, while Energy stocks were the best performing sector despite price of oil slipping.
The major miners slipped as their less exposed to local economy as iron ore price declined amid fresh production curbs in China’s Guagngxi and Sichuan provinces.
The New Zealand market was up on Wednesday (NZX 50 index 0.2%).
Fishery firm Sanford surged 21.4% after South Island iwi investment group Ngāi Tahu Holdings attempted to buy up 20% of the company on-market for $5.50 per share, with a current stake of 12.6%.
Mainfreight shares jumped +4.8% after delivering a solid trading update, with profit before tax of $142m, almost double, up +83%, in the past 22 weeks.
3 Things Markets will be Watching this Week
- Locally Earnings season eases down. Major names including Fortescue, Altium, Harvey Norman, Healius, and Crown.
- ANZ Business Confidence survey in NZ will be released along with Q2 GDP in Australia.
- Globally, economic events this week include Nonfarm payrolls in the US along with the latest ISM activity data, Chinese PMI data and Eurozone CPI.