Australia (ASX) & New Zealand (NZX) Market Movers – 9th July – Stock in Focus: Elders

Australia and New Zealand Market Movers is provided by: Australasian Trading Management.

The Australian share market rallied higher once again on Friday (ASX 200 index +0.91%) hitting a fresh 10-year high. The financial sector lifted 2% for the week on the back of positive performances from the four major banks, while the material sector closed the week lower following a mid-week base metal retreat amid trade tariff talks. A broker upgrade at the end of last week saw a strong week’s trading for Afterpay Touch. The report indicated there was no reason the company couldn’t repeat its low-cost successes in the United States. On the flipside, Bellamy’s Australia wiped more than four months worth of gains this week after another broker note alleged the infant formula company was likely to face delays in receiving regulatory approval for its China-labelled products.

The New Zealand market was also in positive territory on Friday (NZX 50 index +0.23%) with Fletcher Building leading gains. In stock news, New Zealand King Salmon (NZK) managing director Grant Rosewarne said salmon farming in underwater pens moored in Cook Strait could be a game-changer for the industry. NZK is looking into submersible technology being developed in Norway as a path to expansion and despite its wild reputation, Cook Strait could be the perfect mooring site.

Global markets were higher on Friday as Wall Street investors took trade tariff announcements in their stride and as economic data reinforced the strength of the US economy.

Payrolls data on Friday showed the US economy created more jobs than expected in June, but steady wage gains pointed to moderate inflation pressures that should keep the Federal Reserve on a path of gradual interest rate increases this year. The unemployment rate rose to 4.0% in June from an 18-year low of 3.8% in May as 601,000 job seekers entered the labour force in a sign of confidence in the labour market.

Escalating Trade Tariffs remain a threat for markets, and investors will be watching for moves from China this week. The measures implemented by the US on Friday look to have been expected by the market as the US and China slapped tit-for-tat duties on $34 billion worth of the other’s imports. Washington is also engaged in “fights” with other major trade partners, including Canada, Mexico and the European Union. Trump argues that the duties are necessary to protect domestic industries from what he says is unfair competition from foreign manufacturers. in a week that was rattled by geopolitical tensions, local markets continued to rally on Friday and Chinese markets were higher with the regions stocks having sold off sharply over the last month.

Stock in Focus: Elders (ELD:AX)

Shares in agribusiness Elders (ELD) plummeted -15% on Friday as it released a seasonal update, addressing market commentary on current adverse weather conditions. Elders admitted that the exceptionally dry season in many parts of Australia is reducing the demand for chemical input, reflecting negatively on retail earnings. Furthermore, the company is facing a decline in cattle prices.

As a result, Elders expect a hit to 2018 profit, with guidance for underlying profit to be between $59m and $63m for the financial year, marginally up from the $58 million of last year. CEO Mark Allison confirmed the 5% to 10% operating earnings (EBIT) growth target through the agricultural cycle to 2020.

We see the share price reaction as particularly harsh, especially as weather events are unavoidable risks for agricultural businesses such as Elders. One of our key investment themes is that a “dining boom” driven by a growing middle class in Asia will see multi-year demand growth for higher quality food and is set to be a multi-year tailwind for Australian/NZ agricultural businesses. Some of the advantages of Australian/NZ agri-businesses include the exporting nations being in close proximity to Asia, a “clean & green” image with high quality produce, and trade agreements.

3 Things Markets Will be Watching this Week

1.   Tit for tat tariffs, particularly as retaliatory measures between the US and China continue to sway investor sentiment.

2.   A number of US Federal Reserve members make speeches late in the week.

3.   Closely watched US inflation data is released at the end of the week.

Australia and New Zealand Market Movers is provided by Australasian Trading Management. ATM is an independent research house covering stock analysis across major markets including the ASX, NZX and US markets. We make our research easy to understand and concise, taking complex issues and simplifying them so that you can make informed and accurate decisions. We have no conflicts of interest and our only goal is to generate positive returns for our members. We run transparent model portfolios to track performance and invest where we see the most value, in companies of all sizes across all industries, and often in smaller companies.

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Categories: Australian Stocks, New Zealand Stocks

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