Global markets were mixed overnight, as the major US market indices fell, with US stocks coming off their worst five-day drop in seven months last week. Apple led technology stocks lower and tensions between Western powers and Saudi Arabia added to already frayed investor nerves ahead of earnings.
As we touched on yesterday, it will be an interesting US earnings season, as generally during reporting periods investors focus shifts back towards company fundamentals rather broader macroeconomic issues. Corporate earnings growth is expected to remain strong in the third quarter amid a very healthy economic backdrop. In saying that, there are mounting concerns about the impact of tariffs and rising borrowing costs on corporate profits. We will be watching developments closely.
Stock in Focus: BHP Billiton (BHP:ASX)
BHP shares have been trading near highs for the year following a recovery across commodity prices (particularly oil) in recent times.
In terms of recent news, BHP reported net profit after tax of US$3.7 billion for the 2018 financial year, with revenue from continuing operations up +21% from last year to $43.6 billion. The majority of the gains were made on the back of stronger commodity prices. BHP also raised its full year dividend by +42% to US 118 cents per share, and the proceeds of the sale of their US offshore shale assets are also likely to be returned to shareholders.
While there are risks of a slow-down from China, we continue to see BHP as our preferred portfolio holding to gain exposure to the commodity space, particularly late in the economic cycle when commodity prices usually rise with inflation.
We have a BUY recommendation on BHP.
Australia & New Zealand Market Movers
The Australian share market continued to sell-off yesterday (ASX 200 index -0.99%) as the major banks dipped the ASX 200 below 5,800 points for the first time since April. Commonwealth Bank was the biggest laggard on the market as the financial sector was the worst performer on Monday.
The New Zealand market dipped on Monday (NZX 50 index -0.05%) outperforming many Asian markets. The major stock specific news was that Fletcher Building aborted its pursuit of Steel & Tube Holdings after its increased offer wasn't warmly embraced by the target. The country's biggest listed building company gave up plans to buy Steel & Tube when the steel products maker wouldn't immediately endorse an increased offer of $1.90 per share. Steel & Tube shares initially jumped before ending the day in the red. Outside the benchmark index, Michael Hill International sank -24% to 74 cents in heavy trading after reporting an 8.8 percent slide in first-quarter sales.
3 Things Markets Will be Watching this Week
1. US corporate earnings season for the 3rd quarter gets underway.
2. Trade related news-flow is likely to continue to feature in headlines.
3. Minutes from the last US Federal Reserve Meeting are released on Thursday morning AU/NZ time.
Have a Great Day