Business & Investing: Strong US economic news should break the NZ market’s longest run of falls since the peak of Covid in March last year. Plus all the week’s market news.

After closing lower for eight days on the trot, the New Zealand sharemarket should get a lift today following a strong rebound on Wall Street on Friday.

Inflation concerns spooked investors last week after Wednesday’s US consumer price index (CPI) revealed a much stronger than expected 4.2 percent annual rise, sending equity markets globally sharply lower.

While a burst of inflation in the US economy was always inevitable after huge monetary and fiscal stimulus in response to the Covid-19 pandemic, the US Federal Reserve had been insistent that any uptick in inflation would be temporary and will not push them into raising rates prematurely.

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Investors initially had their doubts, sending the S&P500 down as much as 2.1 percent following the release of the CPI data to record its biggest one-day fall since February, though by week’s end prices had recovered somewhat with the index finishing down 1.4 percent at 4175.

The local market wasn’t so fortunate with the NZX50 finishing the week down 2.9 percent at 12,368. Since May 4, when the market last closed higher, the NZX50 has fallen 4.2 percent, its longest losing streak since March last year at the peak of the Covid-19 selloff. A2 shares proved to be a major drag on the index after slashing its earnings outlook for a fourth time (more below).

Across the Tasman, the ASX200 ended the week down 1 percent after continued gains in the price of iron ore helped cushion the index’s fall.

On commodity markets, gold continued its recent strong run finishing the week up 0.8 percent at US$1843 an ounce. The precious metal has now gained more than 10 percent since its low in late March as potential inflation concerns increased its appeal for investors.

Brent crude oil futures also edged higher, gaining almost 1 percent for the week to US$68.82 a barrel and looking increasingly likely to push through US$70 a barrel in coming weeks. Oil prices have almost doubled since November which is also feeding into inflation concerns.

The biggest loser of the week was Bitcoin, following comments from Tesla founder Elon Musk who tweeted that he had changed his mind on accepting the cryptocurrency as a form of payment for vehicle purchases, citing environmental concerns. That saw the price of Bitcoin plunge 13 percent last Wednesday, its biggest one day fall since January, closing down 16 percent for the week at US$48,800.

The closely watched US 10-year Treasury yield spiked up 2.7 percent for the week while the NZ dollar fell 0.3 percent for the week against the US dollar to finish at 72.52 US cents.

Week in Review

A2 Milk slashed its earning guidance for a fourth time since September sending its shares plunging 21 percent for the week, briefly trading below $6 for the first time since August 2017, before closing at $6.03 on Friday. Its shares have now halved in value since January while the company’s market cap has dived from $14.4 billion in May last year to $4.5b. A2 said it is now targeting revenue for FY21 in the order of $1.2 billion to $1.25b, down from its $1.4b forecast in February and $2b in December. In addition, the company said it would undertake a strategic review, writing down inventory levels further. A2 plans to increase its marketing spend to rebuild its brand profile in China. It also alluded to plans for a possible share buyback to be announced at its annual meeting in August.

2degrees posted a record operating profit for FY20, with service revenue of $545 million, up 7.4 percent on the previous year, while its pre-tax, interest and depreciation earnings were $171m for the same period. Its owner, Toronto-listed Trilogy, said in March it was considering dual listing 2degrees on the NZX and ASX in the second half of this year. 2 degrees also paid a combined $40 million in dividends to its shareholders after a positive period of profit and cashflow. It is the first time in the telco’s 10-year existence it has paid a dividend.

Heartland Group raised its earnings guidance for the year ending June. The company now expects full-year net profit to be between $85 million and $86m, an increase on its previous guidance of $83m to $85m and from the $72m it reported for the year ended June 2020. The updated guidance does not include any write-back in its Covid provision which it said remains under continuous review by Heartland’s board. The bank also slashed its floating mortgage rate to 1.95 percent from 2.5 percent, its one-year fixed rate to 1.85 percent from 1.99 percent and its floating revolving credit rate to 2.35 percent from 2.75 percent.

Pushpay Holdings said its annual net profit nearly doubled as revenue grew much faster than costs and margins increased. The company, which provides donation software for the faith-based sector, said its net profit for the year ended March rose to US$31.2 million (NZ$42.9m) from US$16m the previous year, while revenue grew 39 percent to US$181.1m. Costs rose just 9 percent and its gross margin increased to 68 percent of sales from 65 percent. Pushpay also announced that former chair Bruce Gordon would leave the board in June after seven years, including 18 months as interim chief executive and five years as chair. Its shares closed down 6 percent for the week at $1.62.

Sacred Hills Vineyard has been placed into receivership just weeks after appointing liquidators to its wholly-owned distributor, Quench Collective. In a brief statement the Marlborough based winemaker said the receiver BDO would undertake an urgent assessment of both companies’ financial positions to determine the options available going forward.

Transpower said hydroelectricity generation recently reached its lowest level in several years as generators continued to preserve water and turn to coal and gas. The national grid operator said in its weekly report to May 9 that hydro made up only 46 percent of the generation mix, down from 50 percent in the first week of May; the lowest proportion seen for a number of years. This was due to thermal generators working near full capacity, with a strong contribution from wind farms. As a consequence of both the high thermal contribution and strong wind generation, weekly total hydro generation dropped to 360 gigawatt hours.

Tilt Renewables shareholders will end up pocketing an annual return of about 40 percent when it’s taken over according to chief executive Deion Campbell. In what was likely to be the company’s final earnings briefing as a listed company, Campbell told analysts those who participated in the demerger will end up with a “fairly healthy” annual return of 40 percent, including dividends, from the initial investment in the $3.07 billion deal from the Powering Australian Renewables consortium and Mercury NZ. The $8.10 per share offer is more than twice the $3.92 price Tilt traded at before cornerstone shareholder Infratil announced it was considering offers for its stake in the renewable energy company.

Xero shares fell sharply after the ASX listed online accounting software provider said its annual customer growth had slowed to 20 percent as a result of the Covid pandemic, however the number of subscribers added in the second half was a record. The company reported a $19.8 million net profit for the year ended March, up nearly six-fold on the previous year’s $3.3m with revenue up 18 percent to $848.8m. It added 456,000 net new subscribers for the full year, down 2 percent, but 288,000 were added in the second half, taking the total to 2.74m. Subscriber growth in 2020 was 26 percent. Xero shares ended the week down 16 percent at A$112.50.

The Warehouse Group upgraded its outlook and is now expecting net profit after tax of more than $160 million for the full financial year, after reporting $80.7m net profit after tax in the previous financial year. It said its third-quarter sales rose 35 percent to $791.2m when compared with the same time last year. Sales growth had been underpinned by significant growth in Noel Leeming sales up 21.2 percent and Torpedo7. The company opted to predominantly compare its results to the third quarter of FY19 as the FY20 quarter was strongly affected by Covid-19, which caused disruption to operations and store closures.

BNZ – BusinessNZ seasonally adjusted Performance of Manufacturing Index (PMI) came in at 58.4 in April. It was the second-highest result since July 2020 when NZ came out of lockdown. Despite being 5.2 points lower than March it remains firmly in expansionary territory and is still well above the PMI’s long-term average of 53.1.

KiwiSaver default providers were slashed from nine to six with five of the existing providers being removed from Dec 1. The government announced two new providers Simplicity and NZX’s Smartshares have been included while Bank of New Zealand, Booster, Westpac’s BT Funds Management and Kiwibank’s Kiwi Wealth retain their default status. The five who will lose their default status are AMP, ANZ Bank (currently the largest provider) ASB, Mercer and Fisher Funds.

My Food Bag shares fell to a new low of $1.40 last week ahead of its full year results announcement this Friday. The company’s shares are yet to trade above their issue price of $1.85.

The Week Ahead

Locally, it’s a busy week for earnings results.

Monday: Trustpower (Full Year to March)

Wednesday: Argosy Property, Infratil and Serko will all announce full year results to March

Thursday: Plexure Group (Full Year to March)

Friday: My Food Bag, Metro Performance Glass & Oceania Healthcare will all announce full year results to March, while Sanford will announce its half year results.

Look out for vehicle registrations for April on Tuesday and business price indexes for the March quarter on Wednesday from Stats NZ, while the Reserve Bank will release Household Inflation Expectations data on Thursday and Credit Card spending in April on Friday.

US investors will see whether stocks maintain their newfound momentum into the week ahead, as major retailers, including Walmart and Home Depot, report earnings and housing data dominates the calendar.

The Federal Reserve may also play a role. Minutes from its last meeting will be released on Thursday (NZ time) and after April’s hotter than expected consumer and producer inflation, its views will be closely studied.

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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