Monday’s ready-mixed concrete statistics will set the foundations for a fortnight of forward guidance, beginning with Contact Energy, Fletcher Building and Steel & Tube Holdings.
Local investors finally get a chance to review the results of listed companies with a June balance date with more than 30 set to report their half year results over the next two weeks.
While US investors have the advantage of receiving quarterly updates, local investors only get two opportunities a year to review company results and a lot has happened since August last year.
Perhaps surprisingly, given the current operating environment, there have been almost no profit warnings issued by local companies. That’s given investors confidence to keep pushing the market higher, though a reality check might be about to hit the local market as chief executives offer forward guidance on their outlook.
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Fletcher Building’s result on Wednesday will be of particular interest given the company’s bellwether status for the building and construction sector. Investors are likely to be more interested in the company’s outlook than its result given the significant ramping up of interest rates in recent months and the impact that will have on future building demand.
Air NZ, Spark, Chorus and Auckland Airport will all report their half year results next week.
Briscoes recently reported full year sales of $786 million, up 5.6 percent on last year while anticipating a record profit of $88m when it announces its full year results in March. Investors will be hoping earnings seasons maintains this positive sentiment.
Investors revaluate outlook
Markets globally had a change of tune last week after digesting a mixed bag of corporate earnings results in the US and re-examined their assumptions about the prospect of further interest rate rises ahead of the release of important inflation data this week.
US stocks recorded their biggest weekly decline in two months with the benchmark S&P500 index falling 1.1 percent while the tech-heavy Nasdaq Composite fell 2.4 percent for the week.
Locally, the NZ market, which has a higher weighting of defensive stocks, eased just 0.15 percent for the week.
Many analysts continue to worry the Fed will over-tighten, while perhaps more concerning for investors, corporate earnings seem to be coming in on the light side, as the number of companies beating Wall Street estimates is lagging the historical average.
Blue-chip US companies such as Disney and PepsiCo exceeded analysts’ forecasts, but others in the consumer economy such as ride sharing company Lyft, restaurant chain Chipotle and toy maker Mattel all disappointed with their results.
A series of central bank officials also declared their willingness to push interest rates higher to dampen down inflation pressures, raising fears that policymakers will stay hawkish longer than previously expected.
Adding to investor concerns, US Treasury yields continued their climb, while the inversion between yields on two- and 10-year notes hit the deepest level since 1981. The yield on the 10-year note gained 0.06 percentage points to 3.75 per cent, and the rate-sensitive two-year yield rose slightly to 4.52 per cent.
Seasoned market watchers are well aware that every recession has been preceded by an inversion, and previously there’s been no inversion without a recession, so there seems little reason to doubt this time will be any different.
Oil prices continued to push higher with Brent Crude futures gaining 8.4 percent for the week to close at US$86.39 a barrel following Russia’s announcement that it would cut almost 5 percent of its monthly oil output in response to a price cap imposed by western nations.
Government bond tender closes undersubscribed
For only the second time in more than a decade, a New Zealand government bond tender was undersubscribed last week.
The nominal bond tender had been offered for $200m and was undersubscribed at $188m.
The government offer was competing with a more attractive ANZ Bank bond offering that had a similar tenure and length of time. ANZ’s offering was for $500m and had an annual interest rate of 5.22% over five years, compared with the government’s 4.5% interest rate and four-year cut-off mark.
The news underscores investors’ increasing appetite for yield after years of sub-par returns.
Google shares under pressure
Shares in Google parent company Alphabet tumbled more than 9 percent last week following growing concerns about ChatGPT’s threat to its core search business.
In what is already being labelled by insiders as the company’s “botched” reaction to Microsoft’s recent event launching its revamped Bing search offering incorporating new AI features, Google is, for the first time in its 25 year history, facing serious questions about its continued dominance of search.
Google has been under pressure since November last year, when Microsoft-backed OpenAI unveiled new ChatGPT software. It quickly became a viral hit for its facility in passing business school exams, composing song lyrics and writing long form essays in a matter of seconds.
Microsoft this week said a new version of its Bing search engine, which has lagged Google for years, would use the ChatGPT technology in an even more advanced form.
Though investors have embraced the push for artificial intelligence, sceptics have warned rushing out the technology raises risks of errors or otherwise skewed results, as well as issues of plagiarism.
Adidas shares sink following news of inventory glut
European sportswear giant Adidas has told investors it could lose upwards of US$1.3 billion in revenue in 2023 if it is unable to sell its existing Yeezy stock.
The German sportswear company scrapped its partnership with high-profile rapper and fashion designer Ye, formerly known as Kanye West, the face of Yeezy, in October after he made a series of anti-semitic comments.
The company said that it is currently assessing what to do with the Yeezy inventory, adding it has already accounted for the “significant adverse impact” of not selling the products adding that it could opt to write off its remaining Yeezy products.
Operating profit would drop by around US$600 million if the company fails to shift the products, while Adidas said it expects overall sales to decline at a high single-digit rate in 2023.
Adidas shares sank more than 11 percent following the announcement.
“The numbers speak for themselves. We are currently not performing the way we should,” Adidas chief executive Bjørn Gulden said in a press release.
Coming up this week
Monday
- Ready-mixed concrete quarterly update – Stats NZ
- Contact Energy half-year result – NZX
Tuesday
- Food and rent price indices – Stats NZ
- Survey of expectations of forecasters and business leaders – Reserve Bank
Wednesday
- Foreign exchange turnover – Reserve Bank
- Fletcher Building half-year result – NZX
- Steel & Tube Holdings half-year result – NZX
- SkyCity Entertainment Group half-year result – NZX
Thursday
- International travel and migration update – Stats NZ
- Skellerup Holdings half-year result – NZX
Friday
- Transport vehicle registrations – Stats NZ
- Residential mortgage borrowing – Reserve Bank
