Global markets were lower on Friday, with US Markets (S&P 500 Index -0.8%) falling for the fourth time in the last 5 sessions, and marking its fourth week in a row in the red.
Stronger than expected jobs data wasn’t enough to fend off investor nerves as developments in Ukraine weigh on global sentiment. The US nonfarm payrolls report showed job growth was much stronger than expected in February, at 678k, and the unemployment rate fell to a new post-Covid low of 3.8%.
The decline for stocks followed reports that smoke was visible from a nuclear power plant in Ukraine — the largest in Europe — after Russian troops attacked. This caused commodity prices to soar particularly oil which had rising 21% over last week to $115/barrel. A major concerns is the economic impact of Russian sanctions, and that oil could go higher due to limited Middle Eastern spare capacity and that relief measures from strategic petroleum reserves cant make up the difference in Russian supply. Unfortunately the Russia/Ukraine situation is likely to remain in focus this week, with no near term resolution in sight at this stage.
European Markets slumped (Stoxx 600 -3.6%) with banks plunging leading losses as all sectors traded into negative territory. The European market suffered its worst week since March 2020, the onset of the coronavirus pandemic, down -7%.
Xero (XRO:ASX)
Xero’s shares have been sold off heavily this year, sparking from the Fed announcing they would begin lifting interests which weighed down heavily on high growth tech shares across the globe as their valuations are sensitive to rising interest rates.
We believe Xero is still great business, with nothing fundamentally changing our view on the company. Looking ahead, we believe there is strong growth potential over the long-term given the market opportunity to service a total addressable market (TAM) for cloud-based accounting software of ~45m subscribers, with 20% adoption so far and plenty of growth ahead.
At these levels we feel comfortable with our BUY rating and see the current dip as an attractive entry point for investors, given the large total addressable market and Xero’s goal to invest in future growth to achieve solid double-digit revenue and subscriber growth. Investors should be mindful that Xero’s stock is still prone to high levels of volatility linked to the sector and market sentiment swings given XRO’s high growth expectations.
Australia & New Zealand Market Movers
The Australian market was down on Friday (ASX200 index -0.6%) ending its 5-day streak of gains, taking a weak lead from Wall Street.
Tech shares led losses followed by consumer discretionary, while energy and materials which have been strong performers as of late took a breather. Investors moved to safer sectors Consumer staples and utilities the only two sectors that ended the session up, with gold miners also performing well.
QBE announced the sale of its US agency Westwood Insurance, which specialises in distributing builder-sourced homeowners’ insurance for US$375m.
The New Zealand market was down on Friday (NZX 50 index -0.6%) as investors remain concerned about a about slowing down in the economy and rising inflation rises.
Growth stocks continue to lead losses, Plexure group slipped -4.6%, Pacific Edge was down -4.2% and Vista group fell -3.5%.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- Highlights this week include the latest US inflation (CPI) print.
- The European Central Bank (ECB) meeting and trade data from China will be closely watched.