US debt default warning, Oil surges 6% to $100, NZ lift rates 0.5%. Who's next?
APAC Strategy Team
Summary: Crowdstrike shares surge putting cybersecurity in the limelight. Apple and BHP poised to announce share buy backs, which will support further share price growth. Oil rocks back over US$100 lifting oil stocks in New York and Australia. A Twitter shareholder sues Elon Musk for allegedly committing fraud. Iron ore and aluminium are back in vouge, boosting Rio Tinto shares. US defaults to double according to S&P Global. New Zealand makes its biggest increase in interest rates in 22-years.
Co-written by Market Strategists Jessica Amir in Australia, Redmond Wong in Hong Kong.
What’s happening in equites that you need to know?
US stocks fell for the third day. The S&P 500 (US500.I) and the Nasdaq 100 (USNAS100.I) lost 0.3%. As always, there were bright sparks at the stock level. The world’s biggest cybersecurity company, Crowdstrike (CRWD) rose 3.2% to US$223.51 (its highest level since November last year), after Goldman Sachs upgraded the stock to a buy. We’ve previously mentioned Crowdstrike as a stock to watch. It makes 94% of its money from subscriptions, and we like businesses like these, given they are set to benefit from elevated demand to address cyberattack fears. The market also likes Crowdstrike with 93% of analysts rating the stock as a BUY. Goldman Sachs expects Crowdstrike’s shares to rise to $285 in a year. Also in MegaCaps, Apple (AAPL) shares jumped over 1% after whispers that Apple could announce a buyback of US$80-$90 billion (and buy backs support share price growth).
Hang Seng Index (HSI.I) and CSI300 (000300.I) are little changed. Hang Seng Tech (HSTECH.I) was up 0.6%. Energy and mining stocks outperformed. Zijin Mining (02899) surged 7%. Jiangxi Copper (00358), China Molybdenum (03993), MMG (0128) rose more than 5%. CNOOC (00883) rallied 4% and China Coal was up from the 6%. In A shares, logistics names outperformed while real estates, airlines, online entertainment led declines.
Twitter (TWTR) shareholders sue Elon Musk (TSLA CEO). A Twitter, shareholder sued Elon Musk for allegedly committing fraud by delaying the disclosure of his ownership of more than 5% of Twitter, so Musk could buy more shares at a cheaper price. The investor said Musk should have disclosed his holding by March 24, instead of April 1. Twitter shares rose 27%, from $39.31 on April 1, to $49.97 on April 4. Twitter shareholder, Marc Bain Rasella is also looking to represent a class of investors who sold Twitter shares from March 24 to April 1.
Crude oil (OILUKJUN22 & OILUSMAY22) jumps 6% to $101, as OPEC said the obvious, that’s it’s impossible to replace supply losses from Russia, while China also hints of restrictions easing. This supports gains in oil stocks in the US overnight and in Australia today.
The Australia share market more (ASX200) rose 0.2% by 1pm local time with energy and mining stocks fueling the market higher. Also of note, Rio Tinto (RIO) rose 2.2% after the aluminium and iron ore price extended their rebound. Both prices are important to Rio as it makes 58% of its revenue from iron ore and 22% from aluminium . Also consider demand for aluminium is expected to grow with company’s like Apple and Nestle's Nespresso to use more of the material to reduce CO2 emissions.
Iron ore (SCOA) rebounded yesterday rising 2.5%, but today it’s about 0.9% lower, but holds 8-month highs, at US$154.25. It comes as China again pledged to stabilise its economy and this brightened the outlook for steelmaking ingredient. BHP (BHP) shares are holding at $51.71, and remain in their long term uptrend. So it's worth keeping an eye on BHP. BHP is also touted to annouce a record profit this year and a share buy back, which also supports share price growth.
What you need to consider
US defaults to double according to S&P Global. S&P Global Rating anticipates the US’s default rate will swell from the current 1.5%, to 3% by year-end, amid financial conditions tightening. In China, the S&P Global Ratings expects more property developer defaults, with $18 billion in maturing debt and the likelihood of home sales falling 15-20%.
Inflation is uncomfortably high. March CPI hit 8.5% year-on-year. The hottest inflation since 1981. Core CPI moderated a bit, mostly due to a cooling of oil prices, and rose 6.5%. This is still the highest rate since 1982. The largest prices rises were in; fuel oil (70%), gas (48%), used cars (35%), hotels (29%), airfares (24%) and utility gas (22%) on a year on year basis. See the full list here (scrolling to pdf page 9). Simply this tells us, the US Federal Reserve is behind in fighting inflation, so expect a 0.5% interest rate hike at the May FOMC meeting, with rates to hit 2.6% at the end the year.
In RMB terms, March China exports rose 12.9% while imports fell 1.7%. In USD terms, March exports climbed 14.7% from a year ago and imports declined 0.1%. Trade surplus increased to USD47.4 billion (vs consensus $21.7bln, Feb $30.6bln).
New Zealand makes its biggest increase in interest rates in 22-years, while also announcing quarantine free travel. The RBNZ increased interest rates by 0.5% to 1.5%. The surprise caused the New Zealand stock market to fall 0.4% with their tech stocks falling 1.4%. However, as NZ announced quarantine-free travel, the travel industry got a kick, Auckland International Airport (AIA) shares rose 1.1% higher.
Trading ideas to consider
Aussie dollar and Kiwi ‘up and at em’, amid travel boost. The Australian dollar (AUDUSD) is back in vogue, rising for the second day, after Australian business confidence rose to its highest level in 5 months. While the NZ dollar (NZDUSD) also rallied for the second day, heading toward 0.69 US. It’s worth watching these two currencies as travel takes off as well between the two nations.
Travel stocks. Air stocks like Air New Zealand (AIZ) and Auckland International Airport (AIA), and Qantas (QAN), Singapore Airlines (SIAL), China Eastern Airlines (CEA) could be worth watching as they have not recovered from the covid falls in 2020. If China restrictions ease and tourism reopens, it’s worth keeping these on your radar.
For a global look at markets – tune into our Podcast
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.