New Zealand’s services sector is not rebounding at the pace expected by BNZ, plus Sky City to lose three top executives by March.

SkyCity to lose three senior execs
Meat scare in China has officials scrambling
East & West economic recoveries on different trajectories
European companies urged to recognise climate change implications

The services sector remains sluggish, growing only modestly last month, which has come as a surprise.

The BNZ-BusinessNZ performance of services index increased just 1 point to 51.4 in October, from a month earlier and below the historical average of 54. A reading above 50 indicates expansion.

Given there were no lockdowns in place and consumer spending has remained reasonably buoyant, the result suggests the economic recovery may be more tempered than it appears.

“The service sectors should arguably have been exhibiting a stronger rebound, from the winding back of Covid-19 restrictions over September and into October, after the pinch point of August” BNZ said in a statement.

The employment sub-index was the survey’s weakest measure, remaining in contractionary territory at 49.5.

The composite measure — which combines manufacturing and services — indicated economic growth in line with BNZ’s current forecast for a rebound in the third quarter.

“We remain wary of elements of the economy that have yet to adjust to the Covid context before a sure base is found” BNZ said.

SkyCity to lose three senior executives in the next four months

SkyCity Entertainment had some explaining to do yesterday after three members of the company’s senior leadership team, including chief executive Graeme Stephens and chief financial officer Rob Hamilton, announced they are leaving the company between now and the end of March.

Stephens will retire at the end of this month with chief operating officer Michael Ahearne stepping in as chief executive from today, the company said in a statement.

Stephens has been in the role less than four years.

Hamilton had been a contender for the top job, and having missed out, announced he would step down on February 26.

Chief marketing officer Liza McNally, who will step down on March 31, is leaving the company because she is returning to Adelaide. SkyCity wants its CMO to be based at its Head Office in Auckland.

In a trading update, the company said NZ domestic revenue in the four months ended October is at 88 percent of the same four months as last year with improved operating margins.

NZ earnings before interest, tax, depreciation and amortisation and cashflow are materially ahead of what the company had been expecting in June when it raised $230 million, the company said.

It expects 2021 ebitda will be above that reported for 2020 but still well below pre-covid-19 levels.

The NZ businesses continue to perform well when open but SkyCity is not expecting the border to reopen until June next year, meaning few international high-roller customers or other tourists.

SkyCity shares ended the day down 3.5 percent at $3.04.

Meat scare in China has officials scrambling

The Ministry of Foreign Affairs and Trade has received no official confirmation from Chinese authorities of coronavirus being detected on frozen meat products out of New Zealand amid reports suggesting contaminated beef and tripe products were discovered in Jinan.

Officials are working to determine the origin and veracity of the reports.

China is easily the largest market for NZ beef and associated products. For the June year, China accounted for $3.7 billion of NZ’s red meat exports, almost a quarter more than the previous year, as China’s demand for red meat protein spiked after African swine fever saw a massive cull of China’s pig herd.

While the industry is aware of the reports that some imported frozen beef have traces of genetic Covid-19 material, it is awaiting further information from Chinese authorities and notes the risk of Covid-19 transmission from food or food packaging is ‘negligible’.

That view is borne out by the World Health Organisation, which advises the dominant pathway for Covid infection is via transmission by airborne droplets and aerosols.

China is monitoring food imports closely having picked up genetic Covid material on several batches of imported food products in recent weeks according to media reports.

East & West economic recoveries on different trajectories

Japan reported yesterday its economy expanded 5 percent in the July-to-September quarter, allowing it to emerge from recession. That translated to an annual rate of expansion of 21.4 percent, the fastest pace on record for the world’s third largest economy.

Hours after Japan’s announcement, China released data showing its recovery is also continuing to pick up steam. Industrial production in the world’s second-largest economy rose nearly 7 percent last month, beating estimates from economists. Retail sales rose by slightly more than 4 percent — the fastest pace this year.

The promising news out of Asia stands in sharp contrast to the West, where many nations are grappling with a resurgence of Covid-19 and have been forced to impose restrictions once again in an attempt to bring their outbreaks under control. Federal Reserve Chairman Jerome Powell reiterated last Thursday that the US economy will need more stimulus from both the government and the central bank to get through the crisis.

The Bank of England warned earlier this month of a double-dip recession for the UK economy as the country re-entered national lockdown. The European Union is facing a similar fate.

Most major European economies are expected to have shrunk this quarter because of new Covid-related restrictions. The United States may record a hit to its growth, too, even if the government there does not lock businesses down.

The challenge now in Asia is how to keep the momentum going, given the slowing growth among major trading partners.

European companies urged to recognise climate change implications in their accounts

More than 30 of Europe’s largest companies, including Anglo American, BMW, EDF and Lufthansa, have been urged to include climate change risks in their financial statements as concerns grow that corporate accounts no longer reflect the longer-term outlook.

A group of 38 investors overseeing more than US$9 trillion in assets have written to the chair of the audit committee at each of the companies, calling on them to ensure their financial statements reflect the implications of the Paris Agreement, which aims to limit temperature increases to well below 2 degrees Celsius.

Investors are concerned corporate accounts have become disjointed from businesses’ public statements on climate change, with many groups setting out plans to cut their carbon emissions but not reflecting this position in their financial outlook. The investor letter, which was signed by JPMorgan Asset Management, Fidelity International and M&G Investments, said: “The accounts are key to how capital is deployed by management as well as investors. If the accounts leave out material climate risks, too much capital will go towards activities that put shareholder capital at risk. Worse still, this puts all our futures at risk.”

Some companies have already changed their financial outlook because of climate risks, following investor pressure. Earlier this year, BP said it would slash up to $17.5bn from the value of its oil and gas assets on the expectation of lower long-term oil prices. Royal Dutch Shell and Total also adjusted accounting judgments, resulting in material impairments. 

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.

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