Wall Street Near Records | A2 Milk Slides

12 December 2017

Global markets were generally higher overnight, as Wall Street hovers near record highs buoyed by gains in Resource and Tech Stocks. 

There seems to be a sense of complacency in markets at the moment, and volatility remains extremely depressed. Once again, the key event to watch this week will be the US Federal Reserve rate announcement as the Fed begins its 2-day meeting today.  

Closer to home, New Zealand's government named pension fund chief Adrian Orr as the new governor of the nation's central bank.  Orr served as deputy governor of the RBNZ for four years before joining the New Zealand Super Fund in 2007. Dominick Stephens, chief economist at Westpac, said markets welcomed Orr's appointment, adding that he was unlikely to veer away dramatically from the inflation target.
 

Stock in Focus: A2 Milk (:NZ / A2M:AX)

As we touch on below, dairy related market darlings A2 Milk and Synlait appear to be consolidating after what has been a stellar run in 2017. While A2 shares have pulled back recently, it is still up over +260% this year.

 

In terms of recent news flow, A2 Milk said it has settled a court case in Australia with its rival Lion Group. Lion had brought a case against A2 over the science behind health-related claims about the milk, with A2 countersuing over its milk brand's use of A2 protein claims, seeking an injunction and damages. Both companies have agreed not to pursue their claims and have come to a confidential settlement. This has removed a longstanding uncertainty around the company, although the share price was little change on the announcement. 

A2 also held a positively received AGM last month where the company said both revenue and net profit jumped in the first four months of the current financial year. However, we continue to remain on the side-lines given the extreme volatility of late, we would like to some price stability and share price consolidation before potentially changing our recommendation on A2.

Members should look out for a full update on A2 to be released in next week’s weekly report.

 

Australia & New Zealand Market Movers

The Australian share market was in positive territory again on Monday (ASX 200 index +0.07%) as individual stock moves took centre stage for ASX traders at the start of the week, with Retail Food Group slumping 26% during the session while AWE surged 16%. Retail Food Group fell after a Fairfax Media investigation revealed hundreds of Donut King, Brumby's and Gloria Jeans stores were going to the wall as a result of a brutal franchise model. The firm also faced claims it spies on franchisees and charges crippling costs, including franchise fees, which is driving the stable of brands to the ground.

 

The New Zealand market continued to move higher on Monday (NZX 50 index +0.5%) led by Metro Performance Glass and Heartland Bank, while dairy-related companies A2 Milk Co and Synlait Milk continued to weaken. Sentiment was buoyed by offshore leads, and stocks such as Metro Glass attracted “bargain hunters” yesterday.  

 

3 Things Markets Will be Watching this Week

1.                 The US Federal Reserve makes an interest rate decision on Thursday morning AU/NZ time.

2.                 The European Central Bank also makes a post meeting announcement on Friday.

3.                 Australian employment figures are released Thursday.

 

Have a Great Day,

Team

There seems to be a sense of complacency in markets at the moment, and volatility remains extremely depressed. Once again, the key event to watch this week will be the US Federal Reserve rate announcement which begins its 2-day meeting today.

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