Market Commentary | Rally Grinds to a Halt

A five-day rally in Asian equities came to a halt as commodity and interest rate developments put a bit of a damper on recent optimism. Stocks in Hong Kong hit an 8-month high before retreating slightly. In Europe the DAX followed suit hitting a yearly high boosted by good corporate results.

Central banks in New Zealand and South Korea reviewed their monetary policy stance albeit in different directions. The Reserve Bank on New Zealand did indeed cut rates to a record low of 2%, but it indicated a shallower easing path throwing off most analysts’ expectations. The kiwi – market speak for the New Zealand dollar – rose dramatically as a result, as much as 1.7% against the US dollar at one point, although it has given up almost half of those gains by this morning. The Korean won on the other hand fell after the Bank of Korea showed a willingness to cut rates from the current record low.

In Europe, Munich Re rose over 8% as it said the hit to its latest quarterly profit was smaller than expected and that its full-year profit forecast is still on track. A rise in core operating profit for the second quarter helped telecoms group Altice surge by 15%. Prudential plc also reported positive second quarter results. Danish jeweller Pandora and investment management and insurance firm Legal & General were the notable underperformers, as their stock price declined significantly after disappointing second quarter results. Earnings in Europe have been largely in line or above expectations, although analysts have warned that Brexit-led effects may not yet be that apparent and may be a drag in the next round of earnings.

In the US, oil continued to retreat after a pop higher at the beginning of the week. Increasing US stockpiles were enough to offset the rally brought about by expectations of a potential cap on supply. Energy stock, down by around 1.4%, dragged the main indices down but US bourses in general still remain close to yearly highs. The S&P 500 in particular, has hit intraday record highs four times already in August. Earning continued to pour, and shares in reporting companies saw swings in both directions. Shake Shack and Perrigo reported weak earnings but JD.com and Walt Disney were in the green after good corporate results.

Sun Ain’t Shining

SunPower Corp, the second-largest solar panel producer in the US, made the day’s headlines – for all the wrong reasons. It swung to a second-quarter loss, citing decreasing demand for utility-scale projects and lower prices due to increased competition. Revenue forecast for the full year were unchanged, but gross margins were revised downwards. The company also said it would restructure, closing a manufacturing plant in the Philippines and reducing its workforce by around 15%. The shares tanked, falling by a massive 30%, the most in almost eight years. The fall also affected other companies in the sector, such as First Solar Inc and Canadian Solar Inc, down around 7% and 9% respectively.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.