Guns

Big guns warn investors of growing risks

Company

Business and investment: Investors fear the Fed will continue to hike interest rates, JP Morgan CEO warns of an ‘economic hurricane’ and oil prices rise 50% in the first six months of the financial year ‘year

Local investors were feeling bullish last week after the New Zealand stock market had its best week since February, gaining 3.2% and making it one of the best performing markets in the Asian region.

But this week promises to be the real test for the local market.

Heading into the half of the year, the New Zealand market has yet to make consecutive weekly gains as investors have increasingly shifted their approach from ‘buying the dip’ to ‘selling the recovery’ .

The shortened trading week is set to start on a pessimistic note after a better-than-expected U.S. monthly jobs report on Friday worried investors that the Federal Reserve is likely to continue to aggressively raise interest rates, which should drive up the US dollar. and the lower kiwi.

In another troubling sentiment, comments in recent days from JP Morgan CEO Jamie Dimon, one of Wall Street’s most experienced and influential investment bankers, and Tesla founder and CEO Elon Musk, have added to an increasingly murky outlook for the world’s largest economy.

Dimon said he was preparing America’s largest bank for what he described as an “economic hurricane”.

“You know, I said [previously] there are storm clouds out there but I’m going to change that…it’s a hurricane,” Dimon said last week at a financial conference in New York. While conditions appeared “good” at the moment, no one knew if the hurricane was “a minor hurricane or Superstorm Sandy,” he added.

“You better get ready,” Dimon told a roomful of analysts and investors. “JP Morgan is preparing and we are going to be very conservative with our balance sheet.”

Meanwhile, Musk told Tesla employees in an email that he had a ‘super bad feeling’ about the economy and that the automaker might need to cut up to 10% of its workforce. (about 10,000 jobs). Tesla shares fell more than 9% in response to the comments.

Adding weight to their concerns, falling stock prices in recent weeks, even as bond yields eased, underscore growing fears of a recession as investors worry that corporate earnings will be down. increasingly threatened.

With only three weeks remaining in the quarter for US companies (and for the half year for New Zealand companies with a June close date), earnings reports in August will be in the intense spotlight for signs that the economy slows in response to rising inflation and falling consumer confidence.

And companies that report insufficient results can expect to be punished by a market with growing intolerance for below-average performance, although a growing number no longer provide earnings guidance given the growing economic uncertainty.

Friday’s release US inflation figures for May will make markets nervous. Year-on-year inflation is expected to remain unchanged at 8.30%, while core inflation is expected to edge down to 5.90%.

The price of oil continues to rise

The continued rise in the price of oil, with Crude Brent oil futures hit $121 a barrel last week, a 10-year high, despite promises from Saudi Arabia and the United Arab Emirates to increase supply.

The price of oil has already jumped more than 50% in the first six months of the year compared to a rise of 50% for the whole of last year.

This time last year, the U.S. Energy Information Administration forecast oil prices to average US$60.74 a barrel in 2022.

Opec+ last week agreed to increase production in July and August to 648,000 bpd from the previously agreed 432,000 bpd, with the increase in allocation split among all of its members. However, with most of OPEC unable to meet its current targets, only Saudi Arabia With Saudi Arabia, the United Arab Emirates and possibly Iraq having no sort of spare capacity, and Russia under sanctions, the result has been described by some commentators as largely window dressing.

Morgan Stanley says markets are at an inflection point

According to US investment bank Morgan Stanley, global markets are undergoing a fundamental shift after nearly 15 years of low interest rates and cheap corporate debt.

Co-chairman Ted Pick said the transition from the economic conditions that followed the 2008 financial crisis to everything after that will take “12, 18 or even 24 months,” Pick told a financial conference at New York.

“It’s an extraordinary moment; we have our first pandemic in 100 years, we have our first invasion in Europe in 75 years and we have our first major inflation problem in 40 years,” he said.

“When you look at the combination, the intersection of pandemic, war and the inflation issue, it signals a paradigm shift, the end of 15 years of financial repression and the start of a new era to come.

Eurozone inflation picks up

Eurozone inflation soared to a record 8.1% on the year to May, increasing pressure on the European Central Bank to accelerate the pace of its exit from ultra-loose monetary policy.

The jump in price growth in the euro zone, to 7.4% in April, was much higher than expected by economists, who had expected a rate of 7.7%.

The core figure, which excludes more volatile energy and food prices and is closely watched by ECB policymakers, also beat expectations, rising from 3.5% to 3.8%.

The higher-than-expected core measure, which signals that price growth is accelerating across most categories of goods and services, could tip the scales at the ECB meeting in Amsterdam this week in favor of raising interest rates at a more aggressive pace than currently expected.

The rumor mill is growing over a possible takeover of Sky Television

Speculation from the Australian Financial Review that Sky Network Television was actively courting a private takeover deal sent its shares up almost 10% last week.

The article said Sky advisers had encouraged selected takeover companies to ‘crush the tyres’ in preparation for a possible Recovery offer.

Sky Television had not responded to speculation at the close of trading on Friday and its shares ended the week at $2.64, up 5% for the week.

Coming this week…

Wednesday

  • Scales Corp AGM
  • Standard and Special Interest Rates for Residential Mortgages – RBNZ

Friday

  • Business Employment Data (March Quarter) – NZ Stats
  • Company Financial Data (March Quarter) – NZ Stats
  • Electronic card transactions (May) – Stats NZ