US Market Movers
The Fed pressed ahead with a 25 bps rate hike – markets rose in response then fell -1.65% as they digested the news (Goldman’s call that the Fed will pause hikes came to nada). It’s worth looking across the ocean to the UK, where inflation hit +10.4% for February — this is what happens when you have delayed policy. Of note in the UK was clothing inflation accelerating +6.2% and food accelerating +2.2%. The UBS/SVB/First Republic noise has distracted from the fact that inflation is the biggest enemy we have at the moment.
Still, most futures and market participants are projecting rates to drop by 2024 (see below). This is contray to the Fed’s guidence that they would continue to reduce their balance sheet obligations (perhaps the market finds it hard to take this seriously when the Fed just injected a form of QE by saving Silicion Valley Bank depositors). The question we keep asking is — what happens if rates don’t drop? What does a long-term high interest rate enviroment look like? Advise holding ample cash to take advantage of market turmoil.
The bet here is that the recent banking stress will cause the Fed to pause sooner. We look at SVB, First Republic and Credit Suisse as outliers – as Buffett writes “only when the tide goes out that you learn who’s been swimming naked”.
Glory Glory Man United
We’ve written a lot about Manchester United – it rose 6.66% overnight as INEOS owner Jim Ratcliffe made a +£5bn dollar bid. We’re surprised by this — Ratcliffe was all but out of the running — perhaps Paul Singer’s Elliot Management has offered him some funding? Regardless it’s good news for shareholders (and for our US Model portfolio, which has returned +1.56% month to date – MANU is our biggest holding at 4%) — a £5bn bid implies a +45% premium to the stock’s closing price.
Stock in Focus: KMD Brands (KMD.NZX)
Kathmandu shares rose +2% after reporting a strong result which was flagged earlier, benefitting from increased tourism. 2023 half year revenue came in at $547.9m, which was up +35% as all three brands were fully operational with no store closures, whilst operating earnings (EBITDA) came in at $45.3m, up 4-fold from last year and flat with the 2021 half year result, which had limited store closures.
Debt levels so far remain reasonable and inventory levels not a concern as of yet, with the group unveiling strategic targets to improve efficiency over the medium-term.
While we aren’t a fan of retail, Kathmandu’s exposure to travel based spending and current share price does provide value. We remain High Risk Buy rated on Kathmandu.
New Zealand Market Movers
The New Zealand market (NZX50, +0.5%) was up yesterday, leading into a positive tone as banking crisis nerves ease and markets wait for much anticipated interest rate decision from the Fed due this morning.
Heavy weights EBOS and Fisher and Paykel Healthcare did most of the heavy lifting on the local market. Note that EROAD chair Graham Stewart said divesting the N.American business is “not on the table” — it’s a “go big or go home” strategy. No view as of yet. Scales dropped some (down ~15% on a 5 day basis) but we note directors are buying in bulk. Remain high-risk buy rated.
Australia Market Movers
The Australian Market (ASX200, +0.9%) was up on Wednesday adding to its recovery, the strong stability of local banks adding more confidence to the market.
Gains were experienced across the board with energy being the best performing sector. Virgin Australia is looking at an IPO – briefing overseas institutionals – expectations are a $3B price tag of the airline. Given the macro-economic situation we don’t see the IPO being a bonaza.
Chart of interest: UK Inflation stays gangbusters – we’re not “out of the woods” yet
What Markets will be Watching this Week
Wednesday
CPI (Inflation) data from the UK
Westpac NZ Consumer Confidence
Kathmandu Earnings
Thursday
US Fed Interest Rate decision
Friday
Bank of England (BoE) Interest rate Decision
