Global markets were extremely volatile overnight, with US markets (S&P 500 index +0.3%) eking out a gain after heavy losses early in the session. The Nasdaq Technology rose +0.6%, reversing a sharp -4.9% drop earlier in the session. European Markets (Stoxx 600 index -3.6%) were sold off sharply.
The volatility comes as investors brace for the US Federal Reserve announcement later this week and expectation of higher interest rates. Adding to negative sentiment, there are growing tensions between Russia and a potential invasion of Ukraine. US President Joe Biden will hold a call with European leaders as western nations work to strike a unified position on Russia. The North Atlantic Treaty Organization said it would boost its deployments in eastern Europe in a bid to deter a new Russian invasion in Ukraine.
A note from a JP Morgan strategists stated the sell-off in equity markets was overblown and markets look oversold, which may have cut the bleeding as well as other indicators suggesting on a technical level the market was oversold, as the S&P 500 hit a -12% loss from its peak.
The CBOE Volatility Index (VIX) known as the “fear gauge” is a measure of market volatility – which peaked at 38 intraday, to subside down to 30 (still indicating an elevated level of fear in the market), the highest-level reach since November 2020. This is a level only temporarily reached 3 times since the March 2020 COVID sell-off. The market tends to snap back even if temporary once its hits those levels. We think it is important for medium-term investors not to panic during this heightened level of volatility.
In stock news, department store Kohls shares surged +36% after confirming takeover offers from a couple of private equity firms.
EBOS (EBO:NZX / EBO:ASX)
EBOS shares rose +0.9% yesterday bucking yesterday’s market wide sell off, after announcing its retail share offer was oversubscribed, receiving $412m, well above the $105m offer. EBOS will be accepting and additional $66m, bringing the total amount raised by the retail offer to $171m.
In accepting oversubscriptions, EBOS had regard to rewarding retail shareholder support and further strengthening the balance sheet to provide additional headroom to continue their growth strategy, whilst preserving earnings per share accretion from the transaction and an appropriate capital structure.
We remain BUY rated on EBOS as a quality healthcare company, which is still reasonably priced and has avoided the harsh sell-off currently impacting the market.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX 200 index -0.5%), dropping p to its lowest level in 8-months.
Most sectors traded lower with tech leading losses, followed by materials as commodity prices slipped.
Fortescue fell -2% after announcing it would spend US$223m buying a battery and engineering division with links to Williams Formula One motorsport.
In M&A news, Saputo is reportedly set to announce a sizeable acquisition target in Australia with market sources pointing to Jalna Dairy Foods, A2 Milk or Bega Cheese.
The New Zealand market (NZX 50 index -1.3%) fell again on Monday, weighed down by the global sell off as well as omicron within the community.
E road led the market lower down -7.7%, while growth and retirement villages were also hit hard – given risk of staff shortages if omicron were to be widespread like it has in Australia. Travel and tourism stocks were also lower as pandemic will likely restrict travel.
Only a handful of stocks reporting gained Fisher and Paykel up +3.4% as a benefactor of rising covid cases.
3 Things Markets will be Watching this Week
- The US Fed Interest rate decision this week will be closely watched.
- US earnings season gets into full steam, with Philips, J&J, GE, Microsoft, Tesla, Intel, McDonalds, Apple, Visa, Chevron, Caterpillar and Colgate-Palmolive reporting this week.
- Locally, Australia and New Zealand’s CPI (inflation) data is released.
