Global markets were lower on Friday, as the US Market (S&P 500 index -2.9%) was smashed after another hotter-than-expected inflation print, with Wall Street suffering its worst week since January. The S&P 500 is now down -19% from its all-time high in January and nearing bear market territory, while the NASDAQ tech index is trading -30% below its all-time high in November 2021.
The US consumer price index (CPI) surged to a 40-year high of +8.6% annually, and was up +1% for the month, above April’s readings of +8.3% for the year, and +0.3% for the month . At the same time a consumer confidence survey didn’t paint a positive picture either, slumping to a 44-year low causing consumer discretionary stocks to lead losses.
European markets (Stoxx 600 index -2.7%) were also lower on the back of the US hot inflation print.
It is another important week as the US Fed making their June interest rate decision, with the market fully pricing in a 50-basis point hike. However, given the hot inflation print, it could open the door for 75 basis point hikes for the July and August meetings – so forward looking commentary will be crucial.
We still see further near-term downward pressure as creating selective buying opportunities for medium-term investors. Taking a 2-3-year view stocks appear fairly priced at the current juncture taking into account a ‘shallow’ recession and aggressive rate hikes guided by central banks. We see no reason to panic sell quality companies and markets generally are reflecting very bearish investor sentiment that could turn on hints of positive news.
Air New Zealand (AIR:NZX / AIZ:AIX)
Air New Zealand shares fell -4.8% after the airline lowered its expected loss for the 2022 financial year from $800m to less than $750m citing strong passenger booking activity on short-haul and international services following the opening of the New Zealand border.
While the demand side is improving, the macro environment appears much more challenging due to travel restrictions in some regions and the ongoing conflict in Ukraine contributing to high jet fuel prices.
We remain Sell rated on Air NZ as despite the heavy fall we still prefer to avoid the stock at current levels as any recovery in demand will be offset by higher fuel prices squeezing margins, making a recovery to pre-covid profitability unlikely.
Australia & New Zealand Market Movers
The Australian market was down on Friday (ASX200 index -1.3%), closing out the week down -4.2%, suffering its worst weekly tumble since April 2020.
Selling was broad-based, with all sectors trading lower with real estate stocks leading losses on fears of drastically rising interest rates.
Banking shares continue to extend the loss down almost -9% over the week. Commodity-facing stocks were also weaker following reports that parts of Shanghai will lockdown over the weekend for mass covid testing.
The New Zealand market (NZX 50 Index, -0.7%) was down on Friday.
Fletcher Building fell -4.2%, not helped by the company unable to meet gib supply and forced to purchase plasterboard from Boral. Retailers were hit hard as Hallenstien Glasson’s was down -4% and Kathmandu slipped -3.3%.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Central bank meetings dominate the week ahead with rate decisions due from the US Fed, Bank of England, and Bank of Japan.
- The latest CPI (inflation) data from the Eurozone is also due along with a range of housing data in the U.S and activity data in China. Locally, employment data in Australia and Q1 GDP in NZ are the highlights
