Global markets were higher on Friday (S&P 500 index +1.5%) as the rollercoaster rides continues for equities, with a "risk on" mood Friday night.
The US market (S&P 500) ended the week down only -1.4%, having been -4% by Wednesday. On Friday, sentiment shifted as lower commodity prices easing concerns about inflation risks. Gains were led by the Energy (+3.2%) and Technology (+2.1%) sectors while the Industrials (+0.2%) and Health Care (+0.4%) sectors underperformed.
In stock news, Walt Disney shares dipped 2.6% after results showed a faltering in growth at streaming service as Disney+ subscriber growth missed market expectations. We are in the back end of earnings season, with 20 S&P 500 companies due to report this week along with some of China’s largest companies and a few large international companies including Walmart, Home Depot, Lowe’s, Target, VF Corp, Ralph Lauren, Cisco, Applied Material, Tencent, JD.com, Baidu Inc, Vodafone and Porsche SE.
Locally, the latest employment data in Australia is due along with earnings releases from Incitec Pivot, Trustpower, James Hardie, Kiwi Property, Webjet, Infratil, Serko, Ryman Healthcare, Aristocrat, My Food Bag and Oceania Healthcare.
MQG shares were weaker after delivering their 2021 financial year result, despite delivering a record net profit after tax of $3,105m despite amongst a challenging backdrop over the last year. Macquarie’s annuity style business profits fell slightly impacted partly by unfavourable currency exchange movements, which lowered assets under management in Australian dollars. This was offset by a large boost for their markets facing business in the second half driven by the extreme winter weather conditions in North America.
While meeting expectations, Macquarie failed to provide investors with any guidance given the high level of uncertainty due to covid-19 – with investors hoping for more, combined with a lower dividend payout.
Despite being a solid company, we believe Macquarie is fully valued with their track record of profit growth priced in to shares currently. We believe recent levels of growth will be difficult to achieve especially over the near-term and management's inability to provide meaningful guidance is interesting. Further, Australian dollar strength could become a headwind for MQG as they bring profits back from overseas – combined the recent result being held up by an ‘one off gain”.
Given the current valuations and more optimism over local economy. we feel that the Big 4 Aussie Banks (namely ANZ & Westpac) are more attractively priced. Further, given the strength of the property market on both side of the Tasman, we are comfortable taking a more concentrated bet on the mortgage market. As a result, we remain HOLD rated due to near-term earnings pressure facing MQG and its full valuation, preferring other banking sector peers as BUYS.
Australia & New Zealand Market Movers
The Australian market was higher on Friday (ASX 200 index +0.5%) as the biggest stock on the market, Commonwealth Bank, reached a record high.
There was a broad-based rally after three days of losses on the ASX. Materials was the only sector to drag as mining stocks Fortescue Metals (-2.8%), Rio Tinto (-2.0%) and BHP (-1.6%) pulled back after their recent iron-ore price fuelled run-up as the iron ore price came off Wednesday's record high.
For the week, tech stocks were the biggest drag on the market through the week, with the sector facing one of its worst runs in years as the rotation towards value stocks keeps apace. Travel stocks were also hit hard with the federal budget failing to provide any meaningful support to the international travel sector despite forecasting borders would remain shut until 2022.
Treasury Wine Estates was up more than +6% following its AGM. TWE has had a terrible time of late, but TWE's 2021 strategy day was incrementally positive, with underlying trading better and, in our view, management presenting well and medium-term targets realistic. The winemaker said that it wants to deliver sustainable revenue growth and high-single digit average earnings growth over the long-term. Some of that will be down to increasing its investment in technology to improve efficiencies and lower costs. It also said it wants to increase its percentage of premium sales.
The New Zealand market dipped on Friday (NZX 50 index -0.5%) amid mixed performances from its constituents. Vista Group International led the benchmark index lower for a second day, falling -4.6%. Synlait Milk dropped -2.6% after announcing the exit of its chief financial officer.
Feedback from farmers unsurprisingly on the Fonterra Capital Structure consultation process is the preferred options is for the reduced standard shareholding from current 1:1 to 1:4 holding required for farmers so a move to a more capital light structure.
The Warehouse rose +3.2% after the retailer said it expects annual profit to double when reporting a 35% lift in third-quarter sales. Growth has been led by Noel Leeming and Torpedo7, which are experiencing meaningful double digit growth against pre-COVID levels.
3 Things Markets will be Watching this Week
- Key events this week include the latest US Federal Reserve minutes, US housing starts and existing home sales, Inflation prints across Europe, PMI data across much of the globe and a dump of Chinese data on Monday including Industrial Production and Retail sales.
- This week 20 S&P 500 companies are due to report along with some of China’s largest companies and a few large international companies including Walmart, Home Depot, Lowe’s, Target, VF Corp, Ralph Lauren, Cisco, Applied Material, Tencent, JD.com, Baidu Inc, Vodafone and Porsche SE.
- Locally, the latest employment data in Australia is due along with earnings releases from Incitec Pivot, Trustpower, James Hardie, Kiwi Property, Webjet, Infratil, Serko, Ryman Helathcare, Aristocrat, My Food Bag and Oceania Healthcare.