US markets rallied overnight (S&P 500 Index +0.4%) to extend gains from last week, recovering from an initial loss early in the session.
Most sectors traded higher except for materials and energy, as investors wait for earnings from key retailers Walmart, Target and Home Depot. Blue-chip tech stocks like Apple and Microsoft did most of the heavy lifting, while other more volatile tech names experienced some profit taking given their strong run recently.
European markets (Stoxx 600 Index +0.3%) ended a choppy session in the green as food and beverage stocks rose, partially offset by declines in mining stocks.
Bad economic news out of China has driven a weaker yuan and the NZD and AUD, while oil prices and global rates have also fallen, but equity investors have adopted the bad news is good news playbook and this sees some modest gains. The People’s Bank of China revealed a surprise rate cut to fuel China’s economic recovery. Monthly activity data in China for July was weaker than expected across key industrial production, retail sales and investment indicators.
Contact Energy (CEN:NZX)
Contact energy shares rose +1.4% yesterday after delivering its 2022 full-year result which was mostly in line with expectations – operating earnings (EBITDA coming in at $537m, and full-year dividend of $0.35 per share. More importantly Contact announced a $300m investment to develop a new 51.4MW geothermal power station at Te Huka, near Taupō, targeting to be onstream by the fourth quarter of 2024, and commented they were making good progress on their Tauhara geothermal power station.
Contact guided earnings (EBITDA) to grow by +$30m to $550m, and post Tauhara and Te Huka completion operating earnings in 2025 is expected to be ~$720m.
Unfortunately, 2023 full-year dividend is expected to remain flat at 35 cents per share, investors having to wait for the completion of the above-mentioned projects to receive significant dividend growth.
We are Buy rated on Contact energy, as our NZ renewable energy exposure, offering an attractive dividend especially from 2025 onwards.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index, +0.5%) rose on Monday, having a positive start to the trading week, despite the grim economic outlook in China
Most sectors were in the green except for energy and financials. Westpac shares slipped -1% following its third quarter trading update despite credit, capital and funding positions remaining robust.
Adveritas shares were up +4.1% yesterday, after delivering a positive trading update but most importantly signing up a number of blue-chip clients such as Disney Streaming Services.
JB Hi-Fi shares were also down -1% on its 2022 full-year result, despite delivering a record result, as investors were concerned about inventory levels and forward-looking economic conditions.
The New Zealand market (NZX 50 Index, +0.5%) was up yesterday, following a strong lead from global markets.
Auckland International Airport rose +2.4% after saying passenger numbers for the month of July rose +41% in July, which now represents 66% of pre-covid levels as travel recovers, the news also lifting Air NZ up +3%.
My Food Bag slumped -8% after warning its earnings in the past four months is down due to customers downgraded to cheaper and ordering fewer meal-kit options, linked to slowing economic conditions.
Things Markets will be Watching this Week
Monday
Global: US NAHB Housing Market Index, China retail sales data
Australia: Earnings from Beach Energy, Bendigo & Adelaide Bank, JB Hi-Fi, Quarterly update from Westpac.
New Zealand: Earnings, Contact Energy
Tuesday
Global: Earnings from Walmart and Home Depot
Australia: RBA Minutes, Earnings from BHP, Challenger, Goodman Group, and James Hardie
New Zealand Earnings from Mercury and PGG Wrightson.
Wednesday
Global: US Retail sales data and Fed Meeting minutes release, Eurozone second quarter GDP and employment data, and earnings from Target.
Australia: Earnings from Brambles, Corporate Travel, CSL, Downer EDI, Magellan, Santos, Super Retail, Vicinity Centres.
New Zealand: RBNZ’s cash rate decision (OCR), and earnings from Fletcher Building
Thursday
Global: US Existing home sales data, US initial jobs claims, and Eurozone inflation (CPI) data
Australia: Employment data, and earnings from Blackmores, Evolution Mining, Transurban and Treasury Wine.
New Zealand: Earnings from Auckland International Airport, Precinct Properties, and Skellerup.
Friday
Australia: Earnings: Accent Group, AGL, Cleanaway, Cochlear, Inghams, and TPG Telecom.
New Zealand: Credit card spending data and earnings from Genesis Energy.