Global markets sold off overnight after data showed US manufacturing activity shrank in September to its weakest in more than a decade, deepening worries about the impact of a US-China trade war on the world’s largest economy. Similarly, European data was weak, with a deepening global economic slowdown a key risk we are watching for markets.
Closer to home, the ASX jumped yesterday in the afternoon after the Reserve Bank of Australia decided to lower its cash rate by 0.25% to a record low 0.75%. RBA governor Philip Lowe indicated an extended period of low-interest rates will be needed in Australia. The news also saw the Aussie dollar hit its lowest level in a decade versus the US dollar.
Stock in Focus: Wesfarmers (WES:ASX)
Retail conglomerate WES shares continue trend upwards after reporting a stronger-than-expected profit result.
The Coles demerger, as well as sales of Bengalla coal operations, Kmart Tyre and Auto Service and Quadrant Energy, boosted the company's net profit after tax substantially. Profit from continuing operations was up +13.5% from the previous year to $1,940m, with the current portfolio of businesses reporting solid results.
WES is generating improved shareholder return following a successful repositioning of their portfolio – largely driven by Bunnings which continues to be a strong performer – albeit at a slower growth rate than in the recent past. Heavy interest rate cuts have made WES dividend appear more attractive to income investors. We have also changed our negative view on the retail industry to stable, as consumer sentiment will more likely remain supportive whilst the property markets in Australasia stabilise from recent weakness.
We currently have a HOLD rating on WES.
Australia & New Zealand Market Movers
The Australian market rallied late yesterday (ASX 200 Index +0.81%) post the RBA rate cut, with shares in the big four banks brushing off concerns about mounting pressure on bank sector profit margins. The market was lifted by strong performance of bond proxy stocks including Sydney Airport and toll road operator Transurban, both of which offer investors relatively attractive yields.
The New Zealand market was higher on Tuesday (NZX 50 Index +0.65%) as the low-interest-rate environment continues to see investor demand for yield stocks. Kathmandu shares entered a trading halt as the outdoor clothing retailer completes an entitlement offer to raise $145 million for an acquisition of Rip Curl. The company will pay $368 million to buy the surf brand which it says will create a billion-dollar retailer and add at least 10% to earnings per share. Gentrack continued to fall after the utility software firm has downgraded its expected operating earnings yet again, to between $25-26 million. It was only late July when it last downgraded earnings forecasts.
3 Things Markets Will be Watching this Week
- Trade War related news-flow is likely to continue to feature in headlines.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- Monthly US employment figures are released at the end of the week.
Have a Great Day,
