Global markets rallied on Friday (S&P 500 index +2.0%) and after an initial selloff the S&P 500 ended the week with modest gains. Meanwhile, despite trading 1.6% higher on Friday, the Nasdaq technology index finished the week with a decline of 2.1% – its third consecutive week losing ground.
US stocks climbed and Treasuries rotated higher on Friday after a bumper US payrolls report. The monthly US payrolls report was a strong one. The US recorded 379k new jobs in February, almost double market expectations, while the unemployment rate ticked lower, to 6.2%. Most the jobs growth in February came in the services sector (e.g. leisure and hospitality), as some states began to reopen. This is a trend which should continue this year as Covid-related restrictions are eventually removed. All sectors except consumer discretionary (which was held down by Tesla's -3.8% tumble) finished more than +1% in the green, led by energy (+3.7%) amid oil price gains, industrials (+2.5%) and materials (+2.4%).
Biden is on the verge of his first legislative win with the House ready to give final vote on $1.9 billion stimulus package. The Senate passed the legislation 50-49 on Saturday.
Next DC (NXT:ASX)
Datacentre business NXT reported its 1st half 2021 result recently, with underlying operating earnings (EBITDA) of $66 million, up +29% year on year. This was another solid operational result from NXT, highlighting the recurring nature and operating leverage inherent in the business model. Given the margin assumptions in guidance is likely conservative, we see potential for upgrades looking forward.
The pandemic has accelerated cloud adoption and digitisation, which in turn should result in greater demand for NXT from both enterprise customers and hyper-scale customers. Further, Asia remains a long-term growth option, with NXT having a site under option in Singapore.
The stock has sold off recently on the back of higher interest rates, but we continue to see NXT as a great way to play the explosion of data investment theme medium-term.
Australia & New Zealand Market Movers
The Australian market was lower on Friday (ASX 200 index -0.7%) to end the week in the red after big falls in the health, materials and information technology sectors. CSL was donw -2.8%, Rio Tinto sank -3.3% and BHP skidded -2.2%.
Afterpay sank -2.5% as investors continued to question valuations in the high-flying 'buy now, pay later' sector. Energy companies including Oil Search (+5.0%) and Santos (+4.7%) surged along with the oil price after OPEC and Russia agreed to maintain production cuts into April.
The New Zealand market continued its slide on Friday (NZX 50 index -0.4%) as bond yields continued their upwards march, with the 10-year government bond settling just below 2%, while five-year bonds hit 1.2%.
Meridian Energy (-6.4%) and Contact Energy (-4.1%) extended their decline on news of further changes to the index behind the iShares Global Clean Energy ETF (-1.4%), which could result in larger-than-expected sales of the stocks by the ETF. The key proposed change impacting CEN and MEL is the increased target constituent count of 100, which will dilute MEL and CEN's weightings even further. In terms of timing, consultation is due back 19th March for implementation 16th April & changes released 2nd April.
The much-anticipated My Food Bag listing disappointed investors as it finished the day almost -6% below the IPO offer price and has dropped further Monday morning. We see the investment as uncompelling given the highly competitive market and uncertainty around the sustainability of the COVID related sales boost.
Fonterra lifted its forecast payout for its farmer shareholders due to strong demand but noted the high input costs put pressure on the cooperative’s earnings. The midpoint of the range, which farmers are paid off, has increased to $7.60 per kgMS and the lift means Fonterra will now pump more than $11.5 billion into the economy through milk payments.
Shares in AFT Pharmaceuticals rose 5.8% after it signed an exclusive licensing agreement for the intravenous version of Maxigesic in eight new European markets.
3 Things Markets will be Watching this Week
- Unfortunately, COVID related news-flow continues to dominate headlines, both in terms of lock-down and vaccine news – with the US now expecting vaccinations to be rolled out across the country by the end of May.
- The European Central Bank makes an interest rate call on Thursday.
- In terms of economic data, we will see the latest US inflation data, and the latest business confidence readings in Australia and NZ.