Global markets were mixed overnight as Europe's four major benchmarks were higher, snapping seven days of losses, while the US market remains volatile. Shares on Wall Street retraced early gains, led by losses across the energy and technology sectors and at the time of writing the US market is moving between small gains and losses.
Once again, volatility is likely to be higher in 2018 (after an extended period of market calm in 2017) given market valuations and the prospect of rising bond yields and as the market reassesses the track for global interest rates, in our view. In periods of high market volatility, we believe it is important for investors to remain calm and focus on the medium term.
Closer to home, earnings season is underway in Australia and NZ, with mining giant Rio Tinto being one of the first major companies to report yesterday. As we touched on last week, heading into the reporting period there have been surprisingly few profit guidance downgrades, which could indicate a strong earnings season is on the cards in terms of corporate profitability.
Stock in Focus: Rio Tinto (RIO:AX)
The fortunes for RIO continue to improve since the turmoil experienced across the mining sector in late 2015/early 2016. RIO announced a $US8.6 billion underlying profit which was in line with market expectations and the company's best result since 2014.
The highlight of the result was Rio's better than expected delivery of debt reduction and shareholder returns.
Total dividends for 2017 will be $US2.90 per share and the full year dividend is 35% higher than Rio's previous record dividend, which was paid in 2015. Rio also announced a further $US1bn of share buybacks which will be focused on its London stock, adding to the $US500 million of buybacks announced in February 2017, the $US1bn of buybacks announced in August 2017 and the $US2.5 billion of buybacks announced in September on the back of Australian coal divestments. Share buybacks are seen as a supportive for share prices and a positive signal by management to investors.
We currently have a HOLD rating on RIO.
Members should look out for a full update on RIO to be released in next week’s weekly report.
We have created a short tutorial video detailing how to use the different sections of our website. You can click here to view the video.
Australia & New Zealand Market Movers
The Australian share market suffered recovered from its worst session in more than two years to rally on Wednesday (ASX 200 index +0.75%) with consumer discretionary stocks leading gains.
Local earnings season is underway, and Commonwealth Bank of Australia shares slipped following its first-half profit result, delivering a 1.9% fall in cash profit to $4.73 billion on Wednesday, missing the market's expectations for a cash profit of $5.2 billion. Cattle exporter Wellard also announced it has reduced net losses after tax to $7.5 million in the six months to December 31, down from $17.9 million a year ago and is back in operating profitability – the stock was flat on the news.
The New Zealand market was lower yesterday (NZX 50 index -0.57%) as the market played catch up after being closed on Tuesday. The fall was less than some analysts feared as global volatility settled down from extreme selling earlier in the week. In stock news, Infratil gained as the infrastructure investment co. said it has begun a strategic review of its ownership of NZ Bus after concluding negotiations for contracts for Wellington and Auckland commuter services valued at $1.3 billion.
3 Things Markets Will be Watching this Week
1. US earnings season is in full swing, while local AU/NZ companies also head into earnings season.
2. The Reserve Bank of Australia makes an interest rate decision Tuesday,
3. The Reserve Bank of New Zealand also makes an interest rate decision this week on Thursday.
Have a Great Day,
Team