Reserve Bank expected to increase money printing plan after deflation confirmed in June quarter; ECB keeps printing; Markets fall on doubts about China’s rebound 

China fear: US markets are lower this morning after China’s stocks fell five percent overnight, which was the biggest fall in five months. China reported a better-than-expected 3.2 percent rebound in GDP in the June quarter, but retail sales and car sales fell unexpectedly in June, raising doubts about the strength of the recovery in the world’s second largest economy and New Zealand’s largest trading partner.

Tech down too: Shares in major tech companies also struggled overnight as traders digested a mixed batch of corporate earnings and weaker than expected jobs data. Microsoft and Apple fell more than one percent each. Amazon was flat along with Facebook. Netflix is down more than 3 percent for the week.

Banks winners: Bank of America reported better-than-expected earnings for the previous quarter. However, the stock fell more than 2 percent as the company set aside US$4 billion for coronavirus-related losses. Morgan Stanley shares jumped 2.4 percent after the company’s quarterly earnings easily beat analyst expectations on the back of strong trading revenues.


Workers losers: Weekly jobless claims in the US came in slightly worse than expected at 1.3m. Retail sales in the US jumped 7.5 percent in June, topping expectations of a 5.2 percent increase.

ECB on hold: The European Central Bank (ECB) opted overnight to keep its interest rates and emergency coronavirus stimulus program unchanged, while it monitors the economic strength of the euro zone. It said it would continue with its massive stimulus program announced in March to mitigate the economic shock from the pandemic and asset purchases (money printing) would continue to be conducted in a “flexible manner” over time, across asset classes and jurisdictions.

Still printing trillions: Last month, it expanded its Pandemic Emergency Purchase Program by €600 billion (NZ$1.1 trillion). European markets closed down around 0.5 percent, though in London the FTSE edged higher, up 0.37 percent.

Hackers get serious: Twitter experienced an unprecedented hack on Wednesday when bitcoin scammers sent a series of tweets from the official accounts of Apple, Uber, Joe Biden, Elon Musk and hundreds of others, reaping more than US$100,000 and raising serious security questions for the social media platform.

Russia’s vaccine hackers: Meanwhile, British intelligence officials have warned that hackers, backed by the Russian state, are targeting pharmaceutical companies and academic institutions in the UK, US and Canada working on potential Covid-19 vaccines.

Data carve-up: Thousands of companies may have to find new ways of transferring data from Europe to the United States after a court ruled that the current transatlantic agreement does not sufficiently protect European citizens’ data from US surveillance. Europe’s highest court struck down the Privacy Shield agreement between the European Union and the United States, which about 5,000 companies rely on for transferring information across borders.

New Zealand deflation: The consumer price index (CPI) fell 0.5 percent in the June quarter as the Covid-19 global pandemic saw cheaper petrol and falling accommodation prices, Stats NZ reported yesterday. It was the first fall in quarterly inflation since the December 2015 quarter when there was also a drop of 0.5 percent.

More money printing: The result is likely to signal the OCR will remain unchanged near zero percent for an extended period, although economists see the Reserve Bank increasing its quantitative easing programme of money printing to buy Government bonds from its current $60b (20 percent of GDP) to at least $90b and possibly $120b to avoid deflation setting in.

Cheap fuel: Petrol prices fell 12 percent over the quarter – the biggest quarterly fall in petrol prices since the December 2008 quarter. The average price of 91 octane petrol was $1.83 a litre this quarter, down from $2.09 last quarter.

Travel figures suppressed: The Covid-19 restrictions on domestic travel during the quarter meant there were not enough airlines operating so the domestic airfares index was suppressed along with the road passenger transport index. And while there was a rush to stock up on toilet paper and other personal-hygiene products in April during the lockdown, prices remained largely unchanged. The weighted average price of a 12-roll pack of toilet paper was $6.37 in the June 2020 quarter, compared with $6.35 in the March quarter.

Annual inflation up slightly: Food prices rose 1.1 percent in the June quarter. Vegetable prices were up 16 percent over the quarter, with prices for tomatoes, capsicum, and cucumber all up strongly. Overall annual inflation increased 1.5 percent in the year to June, following a 2.5 percent increase in the year to March 2020. Increased prices for rent, and cigarettes and tobacco were partly offset by lower petrol prices.

Cheery result: Wine maker Delegat Group cheered the market yesterday with a result that saw little impact from Covid-19. The company said its profit after tax for the year to June rose 37 percent to $64.1 million.

Wine sales unaffected: Delegat reported case sales rose nine percent to a record 3.3 million cases, which was above above its February guidance of 3.2 million case sales, despite the lockdown and the consequent reduction in restaurant and retail sales. Its operating profit after tax was $60.8 million, up 20 percent on last year’s $50.8 million, and exceeding analysts’ forecasts of $54.2 million. 

Shares lift: Shares in the company closed up 0.94 percent at $12.85, having gained 10 percent in the last 12 months. 

In financial strife: Milk formula exporter Mataura Valley Milk near Gore has confirmed it has breached its banking covenants and said it will require a financial lifeline by December. The Southland processor plunged to a $47.1 million loss on the back of high start-up and loan-servicing costs in the last 12 months. It said it will face a funding shortfall of $26 million in 2020, with an additional funding line now necessary to keep its plant running past December.

A2 link: Mataura is understood to have a relationship with A2 Milk and the co-op has said previously it will transition to processing A2 nutritional milk over the coming two seasons. A2 Milk however hasn’t spoken publicly about whether it is interested in acquiring Mataura. A2 Milk said last month discussions had been held with a “number of parties in relation to potential strategic options relating to participation in manufacturing capacity and capability.”

Embarrassing data breach: Another database breach has seen thousands of New Zealanders’ personal information being left open for months, despite the Office of the Privacy Commissioner being informed of the problem. Wellington-based LPM Property Management left exposed more than 30,000 images of landlords and tenants’ passports, driver’s licences and other personal documents which were stored in an unsecured Amazon Web Services database.

She’ll be right: A cyber security consultancy based in the Republic of Ireland discovered the public database, describing it as one of most the most grievous privacy breaches he had seen. The discovery included several other incorrectly configured databases that allowed public access to what should have been private information. After contacting each of the businesses all of them had resolved the problem within 48 hours, with the exception of LPM Property Management, which did not respond to emails alerting them to the breach.

Moving on: New Zealand Shareholders’ Association CEO Michael Midgley is stepping down after three-and-a-half years as the associations inaugural boss. In a note to members, NZSA chair Tony Mitchell said Midgley had helped to lift the association’s profile during his time in the role, as well as increasing the level of engagement with media and corporates.

UK unemployment warning: One of Britain’s leading business lobby groups has warned that around a third of British companies plan to make job cuts in the next three months as the government gets set to wind down its furlough scheme. Sounding the alarm amid warnings of a steep rise in unemployment, the British Chambers of Commerce (BCC) said 29 percent of businesses in a survey of 7,400 firms planned to cut the size of their workforce in the next three months.

30 year high: The business lobby group said this was the highest percentage of companies planning to make redundancies since it began tracking employment intentions in 1989. It said big companies with more than 250 staff were more likely to be planning job cuts than smaller firms.

Covid-free Clothing: Italian fashion label DIESEL is claiming  to have introduced an innovative denim treatment that physically halts 99 percent of any viral activity. Developed in partnership with Swedish firm Polygiene, the ViralOff application will be implemented across a selection of the brand’s Spring/Summer 2021 denim styles. 

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

Leave a comment