Global markets continued to rally on Friday (S&P 500 index +0.9%) with major US market indices hitting all-time highs and small-cap stocks outperformed. Energy stocks led gains as oil prices rose to a nine-month high after an agreement between OPEC and Russia eased fears of oversupply.
New job data in the US showed a sharp decline in job growth in November with employers adding 245,000 jobs last month, less than half the 610,000 jobs added in October and below economists’ expectations for 460,000. The unemployment rate edged down to 6.7% from 6.9% in October, partly because fewer Americans were looking for work. Newly reported Covid-19 cases in the US hit a record high as did deaths reported in a day, as the global death toll from the coronavirus pandemic passed 1.5m.
However, the news didn’t phase markets, which saw “bad news as good news”, increasing the chances that another fiscal stimulus package is passed soon. Markets remain inclined to see incoming developments with a ‘glass half full’ lens given pending vaccine distribution. President-elect Joe Biden warned the "dark winter" ahead would exacerbate the pain unless US Congress passes a coronavirus relief bill immediately.
Fonterra (FSF:NZX / FSF:ASX)
Fonterra Shareholders’ Fund units climbed 1% on Friday after the cooperative said it expects its 2021 forecast farmgate milk price to pump $10.5 billion into New Zealand economy, $500 million more than it suggested in October.
While Fonterra Shareholders’ Fund did not shift its 20-35 cents per share earnings guidance for the 2021 financial year, a solid 1st quarter result positions it well to hit the top end of the range. The dairy giant however said any escalation of trade and diplomatic tensions between China and Australia would be a concern. It also noted global markets are seeing some congestion in global supply chains.
Highlights included a strong bounce back in China Food Services (South East Asia coming back also); higher gross margin (+50bps on steady revenue) and good operating expense control (some of which is timing). While There was no update on the Capital Structure review, Fonterra has been focussed a lot more on getting the basics right and has been supported by strong global dairy prices of late.
While another promising announcement after years of poor performance, we remain HOLD rated on FSF, and prefer A2 Milk as our dairy sector pick.
Australia & New Zealand Market Movers
The Australian market was in positive territory on Friday (ASX 200 index +0.3%) making it 5 straight weeks of gains for the ASX market index.
Iron ore traded in the spot market continued to surge on Friday – Inventory at China's ports is being drawn down and the futures market is tactically long, suggesting further price rises.
Interestingly, farm production is tipped to hit $65 billion following the second biggest grain crop in Australia’s history and sky-high livestock prices, according to official forecaster ABARES. However, China trade sanctions are among the few clouds hanging over the agriculture sector.
The New Zealand market slipped on Friday (NZX 50 index -0.1%). The largest company in the market, Fisher & Paykel Healthcare, led the market lower as the strong currency and promising vaccine outlook weighed down the medical device exporter.
3 Things Markets Will be Watching this Week
- COVID related news flow, including vaccines are likely to dominate headlines for another week.
- US inflation data is released on Thursday.
- US fiscal stimulus package talk also continue to drag on.
Team
