Global markets were mixed overnight, as US Markets (S&P 500 Index, -3.6%) fell heavily, erasing all of the previous session gains, with stocks nearing 2022 lows reached last Friday.
Investor sentiment is shifting negatively around concerns over stagflation (slow growth and high inflation) as central banks are forced to aggressively tighten monetary policy further to combat inflation, increasing the risk of recession.
Selling was broad-based with all sectors in the red. The US Tech index NASDAQ slumped -5.1% as tech shares led declines, its largest single day decline since March 2022. The index is now down 23.4% from its all-time high and back at lows for the year last touched last week Friday.
The mega-cap tech stocks were also down heavily. E-commerce platform provider Shopify slumped -14.9% after delivering a weak result, and guidance with other E-commerce business hit heavily.
Twitter rose +2.6%, after Elon Musk announced he had secured $7.14 billion in funding to help with his Twitter takeover. Booking.com was another rare stock in the green rose +3.3% on its earnings beat, and upbeat outlook as travel recovers.
European markets (Stoxx 600 index -0.7%) were down as the Bank of England lift its core interest rate 25 basis points to 1.00% and guided around a weaker economic outlook following further tightening.
Markets are selling off heavily and over the near-term things could get worse, as underlying issues from the War in Ukraine, supply chain issues, inflation, tightening monetary policy and rising interest rates could induce a recession. It would be time to start averaging in positions soon with a medium-term view.
Most of the New Zealand and parts of the Australian market on the other hand appears to have priced in most of the upcoming risks given their sell-off has started earlier and most stocks appear more fairly priced. Keep in mind they didn’t experience a sharp post covid rally like US markets (so the US market could be prone to a much larger correction following a strong above average 3-year rally) so were not trading at more inflated prices limiting downside risks. While the Australian market as a whole is holding up better recently given the index weight is skewed towards commodity and banking sectors both benefiting in the current environment.
QBE Insurance (QBE:ASX)
QBE insurance shares jumped +5.5% after reporting a strong quarterly update as gross written premiums rose +19% in the march quarter well ahead of guidance. Additionally, investment returns are also tracking ahead of expectations up +2.2% as at April 2022 – benefiting from a rising interest rate environment.
We are BUY rated on QBE, as it is well placed to benefit from the inflationary environment lifting gross written premiums and a benefactor of rising interest rates.
Australia & New Zealand Market Movers
The Australian market was up yesterday (ASX200 index, +0.8%) snapping up a 3-day losing streak driven by strong investment sentiment from Wall Street (at the time).
All sectors were up except for financials, tech materials and energy leading gains as investors were more upbeat on economy following the fed’s comments.
NAB shares slipped -0.6% despite a +4.1% lift in cash earnings beat expectations due to lower bad and doubtful debt, while the cost outlook disappointed.
The New Zealand market (NZX 50 index) was up on Thursday, most stock trading higher, following wall street rally overnight.
Briscoes Group rose +2.6% after its first quarter sales rose +1.8% to $176.2m. Pushpay rose +2.3% as investors wait for their earnings next week and a potential update about its takeover offer.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated with the Russia/Ukraine conflict.
- Central bank interest rate decision from RBA and the Fed, and employment data in New Zealand
- US earnings continues, locally earnings seasons beings starting with the banks ANZ, Macquarie and NAB are all due to report this week