INSIGHTS

MARKET SUMMARY: 23 TO 27 JULY

Research Team, 27 July 2018

Reporting season has been front of mind for investors this week, with a plethora of results from some of the world’s largest companies. Trade has again dominated headlines for markets while Theresa May took control of Brexit talks.

President Trump’s twitter account showed no signs of slowing down this week, as he intensified the trade battle with China as well as accusing other countries of currency manipulation. The President said he was prepared to impose tariffs on all Chinese goods imported to the US, following the US$34 billion worth of tariffs recently enacted. While investors hope the two largest economies will patch things up, a trade war between the two countries could significantly aggravate a global economic downturn.

Conversely, Trump met with European Commission President Jean-Claude Juncker in Washington on Wednesday, with both leaders aiming to lower tariffs and trade barriers between the US and Europe. The Europeans agreed to lower industrial tariffs on a range of imports but have yet to finalise an agreement on car tariffs. Investors cheered the concession which sent US markets soaring. The tech-heavy Nasdaq climbed to an all-time high, while the S&P 500 closed within 1% of a record high.

US reporting season remains a key focus in markets with over 170 S&P 500 companies reporting this week. So far, performance has been very strong with 90% of companies posting stronger than expected earnings and 76% beating revenue estimates. Earnings are up 21% on the prior year, which would mark the second-highest growth rate since the third quarter of 2010.

One of the key results was Google’s parent company Alphabet. Expectations were high and the tech giant delivered. Alphabet’s share price jumped 3.9% after revenue beat expectations, driven by strong momentum across all business segments.

Facebook also posted an all-time high ahead of its result on Wednesday. However, following the second quarter result, the share price plummeted more than 24%, wiping US$130 billion off the company’s market value. The company beat on earnings, as expected, but missed on revenue as well as reporting lower daily active user counts in Europe. Company executives also spooked markets by saying revenue growth was forecast to decline and margins will weaken.

Back home, the local reporting season kicked off this week, with full year results from Abano Healthcare and Oceania Healthcare. In addition, a number of companies held their AGM’s which provided investors with an insight of how well companies are performing.

Oceania Healthcare reported a lift in all key financial results for the year ending May, after just over a year as a publicly traded company. The result exceeded IPO forecasts with a strong earnings boost. Annual profit jumped 72% on the back of higher revaluations and strong operating performance. Oceania and other retirement village operators are expanding their businesses to benefit from increased demand as the population ages.

Abano Healthcare also produced a good result. The company reported record revenue and earnings, beating market expectations. The company continues growth through the acquisition of dental practices in New Zealand and Australia and noted Australian conditions had improved on last year.

Over to the UK, Prime Minister Theresa May is taking personal control of Brexit talks with the EU with Dominic Raab deputising for her. Raab replaced David Davis, who quit in protest over May’s Brexit proposal. The UK has voted to leave the European Union on Friday 29 March 2019 and have provisionally agreed on how much the UK owes the EU. Talks are now focusing on what happens to UK citizens living in the EU and EU citizens living in the UK.