US stocks rally after US Federal Reserve announces wider money printing plan to start buying corporate bonds in market, while New Zealand’s services industries were weak in May
More printing: The US Federal Reserve announced this morning it would expand its buying of US corporate bonds to include buying bonds directly in the secondary market, rather than just through exchange traded funds. It is seen as crossing a new ‘Rubicon’ by the world’s biggest central bank as it prints money to buy Government bonds and corporate bonds from banks and fund managers.
Don’t bet against the Fed: US stock markets rallied more than one percent, confident that the US Federal Reserve was still keen to bolster asset prices in the wake of a slump late last week on fears about second waves of Covid-19 cases. The Fed could buy up to US$750 billion through the programme.
Rubicon crossed: It announced on March 23 it would buy buy corporate bonds directly from companies, which was seen as a watershed moment in the financial history of the Covid-19 crisis, turning around sentiment at a crucial time. It has yet to actually start that programme, but the latest announcement is seen as a step closer to printing money and giving it directly to large companies, as opposed to banks.
Seriously? Many critics of these quantitative easing programmes have described them as ‘QE for the rich’ and have called for central banks to print and give money directly to consumers and Governments, rather than just financial institutions. Highly leveraged companies have seen their share prices and bond prices surge on talk of the Fed’s bailouts. For example, American and United Airlines were able to borrow heavily in junk bonds overnight.
Service sector sluggish: The BNZ-Business NZ Performance of Services Index (PSI) rose to 37.2 in May, up 11.5 points from its lowest ever reading in April, when the country was in lockdown. A reading above 50 points indicates growth, and below contraction. While the rise is positive, the services sector continues to operate below its pre-Covid levels.
Weak Q2 GDP expected: Economists pointed out that the current level for the PSI is well below the lows of around 45 recorded during the 2008-2009 recession. Combining the PSI results with similarly weak readings from the Performance of Manufacturing Index through April and May suggests that June quarter GDP is likely fall 15-18 percent. Electronic spending through May, although up on April data, was still down on this time last year.
A man of his word: Tony Gibbs, best known for his role at Guinness Peat Group where he was an ardent critic of the plans to demerge the company, has died at the age of 72. Beginning his career at GPG in 1993, his unauthorised public statement in 2010 criticising the demerger plans resulted in his sacking by GPG chairman Ron Brierley.
A watchful eye: In 2007 Gibbs was also a vocal critic of a bonus scheme NZX had in place for former chief executive Mark Weldon. Under the plan, Weldon would have ended up owning a large chunk of the company as well as being responsible for regulation of the NZX. Gibbs believed the conflict of interest was too great and the NZX eventually backed down.
Honoured: Also renowned for growing mandarin oranges under the EZY peel label, Gibbs (pictured above with the mandarins) received the Companion of the New Zealand Order of Merit in 2009 for services to business, recognised for establishing trans-Tasman relationships to create value in exports, employment, and investment returns to many New Zealand citizens.
Stepping down: Struggling utilities software provider Gentrack now faces another setback with the announcement that executive chairman John Clifford (pictured above) has resigned due to personal health reasons. Clifford, one of the company’s major shareholders, assumed the role in February, after CEO Ian Black unexpectedly resigned just days before the company’s AGM.
Interim Chair & CEO: Gentrack has faced problems in recent months due to the collapse of some UK customers which lead to the company downgrading its earnings guidance. A search for a new CEO is ongoing. Independent director Fiona Oliver will become the board’s acting chair while CFO James Spence will become interim chief executive until a replacement is found. Gentrack shares closed down 3.75 percent at $1.54. Gentrack is set to be dropped from the S&P/NZX 50 Index, effective from next week.
Take two: Having been rebuffed previously, ASX-listed Centuria Capital is making a second attempt at acquiring Augusta Capital, offering $1 a share for the 76.7 percent it doesn’t already own; half the per-share amount it was prepared to pay in January. The new offer on the table is 20 cents cash and 0.392 Centuria securities per Augusta share valuing Augusta at $169.5 million compared with the earlier offer that valued the company at $180 million. Augusta raised $45 million in May from a placement and rights issue priced at 55 cents per share, which is how Centuria gained its existing stake.
Don’t sell: Centuria has between 14 and 30 days to make the offer formal. However, Augusta managing director Mark Francis and fellow Augusta founder, Bryce Barnett, have agreed to a lockup agreement with Centuria for their shares, taking Centuria’s interests to 42.1 percent. In the meantime, Augusta’s directors are telling shareholders not to sell their shares until further notice while the board appoints a committee of directors to oversee the response and to appoint an independent adviser.
The outcome: Augusta shares surged more than 30 percent on the news to close at 90c. The shares peaked at $2.19 in February.
Taking the hit: Environmental groups will be cheering BP’s news that it will write down the value of its assets by as much as US$17.5 billion (NZ$26.9B) as a shift away from fossil fuels is accelerated by the coronavirus pandemic. The UK oil company said in a statement that the health crisis could have an “enduring impact on the global economy,” resulting in less demand for energy over a “sustained period”. It cut its assumed average price for Brent crude from 2021 to 2050 by 27 percent to US$55 per barrel.
New targets: The company said in February that it would reorganize its business to achieve net zero emissions by 2050 or sooner. It announced last week that it would cut 10,000 jobs, nearly 15 percent of its workforce, to reduce costs.
Going Green: British-Dutch consumer goods giant Unilever plans to invest €1bn (NZ$1.75b) over the next decade in environmental projects that will improve the “health of the planet”. Unilever, which owns more than 400 brands including Marmite, Dove, Comfort and Sure, said that in response to the “scale and urgency of the climate crisis”, it was also setting a target of net-zero emissions from all its products by 2039.
Less plastic: The company has already promised to reduce the mountain of plastic rubbish that its products generate. Last week, the FTSE 100-listed company announced that it had picked London as its HQ in an about-face on the company’s 2018 decision to opt for Rotterdam, which was abandoned after an outcry by British shareholders.