Global markets were higher on Friday following signs of progress in US-China trade talks, while the British pound fell after lawmakers rejected Prime Minister Theresa May's Brexit agreement for the third time.
Dominating headlines on Wall Street was Lyft Inc's shares, which opened up more than 20% in their market debut, giving the ride hailing startup a market value of more than $27 billion amid strong investor demand – that bodes well for larger rival Uber which is potentially listing on the market.
For the week ahead, signals around the health of the global economy will likely remain a focus for investors – with US & Chinese manufacturing data published Monday. The Australian government will release their latest Federal Budget and the Reserve Bank of Australia also makes an interest rate decision on Tuesday.
Stock in Focus: Myer (MYR:ASX)
As discussed on Friday, we have held a cautious view towards the retail industry for some time now, particularly as consumer spending on discretionary items will likely be under pressure as the Australian and New Zealand economies experience falling house prices and tightening credit. In saying that, it looks like Aussie retailer Myer may be showing early signs of a turnaround.
Myer shares surged higher after proving the market wrong, with many investors anticipating its net profit would fall due to soft consumer spending and weaker sales data. While Myer’s sales did dip another -2.8%, the retailer delivered an underlying net profit after tax of $41.3m, up +3.1% from last year. This was the first-time operating earnings rose since 2011.
The performance was a result of New CEO Mr King’s initiative to focus on their Customer First Plan and drive profit growth as his new team slashed costs, curtailed discounting, exited unprofitable products such as furniture, shut two stores, and closed dozens of concessions. While the strategy appears to being to be showing signs of improvement, a full turnaround is likely to be a medium-term play with execution risk. Not only is the retail environment extremely competitive, the industry faces near-term headwinds with consumer spending expected to remain weak given unfavourable macro-economic conditions in Australia.
We currently have a HOLD recommendation on Myer.
Australia & New Zealand Market Movers
The Australian share market was in slight positive territory again on Friday (ASX 200 index +0.07%), but Australian shares weren't able to recover from Monday's $20 billion sell-off, ending the week lower as the major banks weighed. In stock news, Rio Tinto has declared force majeure to some of its iron ore customers after cyclone damage halted shipping from its Cape Lambert A terminal in the Pilbara. Rio shares have rallied strongly of late following surging iron ore prices.
The New Zealand market continued to power higher on Friday (NZX 50 index +0.81%) to a new record high, as the tailwind from the Reserve Bank's bias towards lower rates spurred demand for companies with reliable dividends. Reserve Bank governor Adrian Orr last week indicated the next move for the official cash rate will be down, triggering a surge in demand for New Zealand income stocks which typically includes utilities such as power companies and real estate investors. The country's electricity generator-retailers spent much of the week hitting new highs. In stock news, clothing chain Hallenstein Glasson Holdings rose after reporting a 5.9 percent increase in first-half profit, primarily on lower costs.
3 Things Markets Will be Watching this Week
- Signals around the health of the global economy will likely remain a focus for investors – with US & Chinese manufacturing data published Monday.
- The Australian government will release their latest Federal Budget on Tuesday.
- The Reserve Bank of Australia also makes an interest rate decision on Tuesday.
Have a Great Day,