Global markets were higher overnight, as the US market (S&P 500 index +0.5%) started the week on a positive note ahead of a major week of earnings from heavyweight technology companies.
The rally comes as investors remain concerned about inflation, which saw Consumer Discretionary and Energy stocks lead gains, the latter benefiting from West Texas Intermediate crude touching $85 per barrel. However, it is not just the oil price, with Fed Chair Jerome Powell now flagging that inflation could stay higher for longer, fueling investor concern that sticky price increases may force policy makers to raise borrowing costs. Inflation rates in the UK have hit 25-year highs, and the RBNZ is already responding to the highest inflation in over a decade by hiking interest rates.
The big stock news overnight was Tesla, as its shares jumped +12% which saw its market cap surpass $1 trillion, after rental car company Hertz announced that it would order 100,000 Tesla vehicles. Earnings remain the main supportive driver for share markets. Of the 117 companies in the S&P 500 that have reported earnings to date, 84% posted numbers that beat expectations, according to Refinitiv.
This week sees 3rd quarter earnings from Tech giants Alphabet, Microsoft, Amazon and Apple, along with Dow components Caterpillar, Coca-Cola, Boeing and McDonald’s.
Locally, we see quarterly updates from ASX listed companies, AGM’s from Woolworths, Chorus, JB Hi-Fi, Star Entertainment, Challenger, Freightways, Air NZ, Carsales.com and SkyCity. A highly anticipated Investor Day will be held by a2 Milk on Wed while ANZ, Macquarie Group and Resmed will report earnings over the week.
Telecommunications giant Telstra shares were up +2% yesterday after announcing its would acquire Digicel for US$1.6 billion – plus an additional US$250m subject to Digicel Pacific’s business performance over the next three years.
The good news for Telstra is that the majority of the acquisition will be covered by the government. Although Telstra will own and operate the Digicel business, it will only be contributing US$270 million of equity to the US$1.6 billion purchase price.
Another positive, which may be boosting the Telstra share price, is that the deal is expected to be earnings per share accretive – with management estimating that it will be more accretive than a share buyback. We remain BUY rated on Telstra.
Australia & New Zealand Market Movers
The Australian market was up yesterday (ASX 200 index +0.3%), as most sectors traded strongly following a strong lead from Wall street.
Commodity stocks were strong as oil and iron ore prices continued to rise. Woodside Petroleum rose +3.7% after revealing it will build a$1 billion hydrogen plant south of Perth to export low-carbon energy overseas and boost renewable energy supplied in Western Australia.
ANZ rose +0.4% following its $100m takeover bid for ASX listed company Cashrewards.
Aussie Tech shares were mostly lower, following the trend on Wall street, as the tech heavy Nasdaq was down in the prior session.
The New Zealand market was a touch higher on Friday (NZX 50 index, +0.3%), as investors digested government’s goal to hit 90% vaccination rate before significantly easing restrictions.
Travel stocks banking on resumption to domestic tourism possibly sooner were hit hard, as it could suggest Auckland’s lockdown and or heavy restrictions could remain as late as Christmas (assuming 6-week lag from first dose to fully vaccinated).
Retailers that performed well online were also broadly stronger – able to partially operate as usual.
A2 Milk was hardest hit down -4.0% for the second day in a row following news of second-class action suit against them.
3 Things Markets will be Watching this Week
- Key events this week include third quarter GDP print in the US and Eurozone, and CPI (inflation) releases Eurozone and Australia.
- 3rd quarter Earnings from Tech giants Alphabet, Microsoft, Amazon and Apple are set to report this week, along with Dow components Caterpillar, Coca-Cola, Boeing and McDonald’s.
- Locally, quarterly updates from ASX listed companies, AGM’s from Woolworths, Chorus, JB Hi-Fi, Star Entertainment, Challenger, Freightways, Air NZ, Carsales.com and SkyCity. A highly anticipated Investor Day will be held by a2 Milk on Wed while ANZ, Macquarie Group and Resmed will report earnings over the week.