Wall Street Takes a Breather | Macquarie Upgrade

11 February 2021

Global markets were mixed overnight (S&P 500 index -0.1%) as investors took profits after a 6-day winning streak.

The tech-heavy Nasdaq hit an all-time high for the fifth consecutive session on early gains in Apple Inc, Amazon.com Inc and Google-parent Alphabet Inc, which later turned lower amid a shift in portfolio allocations. 
With the number of U.S. COVID-19 cases falling and expectations the US $1.9 trillion stimulus package will be approved in Congress, investors are hard-pressed to find significant negatives. While we are not seeing money coming out of the market and going into cash, it appears significant fund flows are coming out of one sector and being rotated into another sector (energy and financial stocks have been recent winners). 


Macquarie (MQG:ASX)

Macquarie (MQG) was the best performer on the ASX 200 yesterday, rising +6.6% after announcing trading conditions for have improved across the group in the quarter ending 31 December 2020.

Macquarie’s annuity-style businesses’ combined third quarter net profit contribution was up on the prior corresponding period. Macquarie’s markets-facing businesses’ combined third quarter net profit contribution was significantly higher than the prior corresponding period, resulting in year to date its net profit contribution was broadly in line with the same period in FY 2020. This was due to stronger activity across the majority of its commodity and global markets businesses being partially offset by lower fee revenue and principal income in Macquarie Capital.  .

The bank expects 2021 full year earnings to be "slightly down" from the previous year hinting at an upgrade from previous guidance and ahead of market expectations. While the string Aussie dollar is going to be a headwind for MQG, MQG have a top quality business and investments in interesting themes such as data and renewable energy infrastructure which we like.  

We continue to remain BUY rated on Macquarie


Australia & New Zealand Market Movers

The Australian market pulled back yesterday (ASX 200 index -0.9%) as investors juggled with a mixed bag of earnings results while keeping a close eye on inflation. 

James Hardie (JHX) hit an intra-day record higher after reporting a +50% jump in profit for the 2020 December quarter, as is benefits from surging residential construction activity. In contrast Boral fell -7.4% as  a fall in high rise residential development had weighed on the outlook for its products.

Crown Resorts were put into a trading halt after the casino business was ruled to be not suitable to hold the licence to run the Barangaroo casino unless there are several changes, which includes James Packer selling his shareholding to 10% (or less) of the company, down from 37% .

The New Zealand market started the week lower on Tuesday (NZX 50 index -1.1%) as threats of rising rates are set to dampen asset pricing (higher interest rates mean lower valuations, all else equal). The two-year interest swap rate has climbed to 0.36%, from negative levels just three months ago. The 10-year swap rate is now at 1.4%, up from 0.48%.

Fisher & Paykel Healthcare was the most significant drag on the index, falling -2.8%, while the electricity firms that have been responsible for much of the recent pull back, both continued to decline. Domestic courier company Freightways posted the day’s biggest rise, climbing +4.2%, and global logistics firm Mainfreight edged up +0.3% after a broker upgrade.

In stock new, Briscoes shares were up +1.8% after reporting another positive sales update with 2021 full year sales up +7.5% from the previous year, helped by +18% sales growth for the fourth quarter benefiting from rising retail spending due inflated house prices and travel restrictions.

Precinct property shares were higher as it revalued its portfolio +5.1% (+$149m) driven by a combo of cap rate compression & strong recent transactional evidence particularly in Wellington. The company also confirmed the sale of its remaining 50% interest in the ANZ Tower for $177m, reducing gearing to approximately 26%. 



3 Things Markets will be Watching this Week

  1. ​​​​​​​​​​In terms of the week ahead, the US 4th quarter earnings season rolls on, with reports due from General Motors, Twitter, Disney and Coca-Cola among the notable mentions.
  2. The US CPI (inflation) report on Wednesday will also attract more than usual interest, given simmering fear of an uptick in inflation leading to higher interest rates.
  3. Earnings season in Australia starts later this week while NZ companies start to report on Monday.


Global markets were mixed overnight (S&P 500 index -0.1%) as investors took profits after a 6-day winning streak.

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