Business & Investing: The low unemployment rate and momentum in key stocks boosts the NZX
The NZ sharemarket finally found some momentum last week, notching up its best performance in almost two months as investors returned to the market after weeks of underperformance and new data showing unemployment falling to a low of just 4 percent.
The NZX50 gained 1.4 percent for the week to close on Friday at 12,770 after earlier attempting to push through the 12,800 level.
Z Energy ended the week up 3 percent closing at $3.05, a seven month high, after Refining NZ shareholders voted to approve the conversion of its Marsden Point refinery to a fuel import terminal which will directly benefit Z as a 15 percent shareholder.
Chief executive Mike Bennetts said the move opened several areas of value to Z, both operationally and financially, including a significant reduction in working capital as a result of holding less crude, and reduced earnings volatility due to no longer being exposed to changing refining margins.
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Homewares retailer Briscoe Group saw its share price jump more than 4 percent to a new all-time high of $6.00 after upgrading its first-half net profit saying it will be at least $46 million, while reporting a 22 percent increase in first-half sales.
Stocks in the US continued to grind higher after better than expected monthly jobs data for July saw investors remain bullish on the market’s outlook, supported by positive quarterly earnings results.
The S&P500 index gained 0.9 percent for the week ending at 4436, a new record high. Monthly employment data for July showed the US economy added 943,000 jobs last month, bringing the unemployment rate down to 5.4 percent.
On commodity markets prices slumped with oil experiencing its sharpest weekly drop since March on worries that travel restrictions to curb the spread of the Delta variant of Covid-19 will derail the global recovery in energy demand.
Crude oil futures also came under pressure ending the week down 6.5 percent to US$70.27 a barrel as the dollar strengthened following the better than expected jobs data. A stronger dollar makes greenback-denominated oil more expensive for buyers in other currencies.
Gold also experienced its lowest close since early April, falling 2.8 percent for the week to US1764 an ounce after the precious metal reacted adversely to rising interest rates and a strengthening US dollar as a result of the strong jobs data.
The better than expected monthly jobs data also pushed US treasuries sharply higher with the 10 year yield jumping 6 percent for the week to 1.3 percent, its biggest move higher since March.
The NZ dollar gained 0.6 percent for the week against the US dollar to 70.1 US cents as investors await the outcome of next week’s Reserve Bank monetary policy statement. All indicators point to the central bank lifting the OCR for the first time in seven years with the majority of economists now expecting two further rate rises before the end of the year.
Bitcoin continued its strong rebound gaining a further 8.3 percent for the week to US$44,200. Since hitting a low of $29,786 on July 20, the cryptocurrency has since gained almost 50 percent in value.
WEEK IN REVIEW
Villa Maria Estates is set to be acquired by Indevin Group for an undisclosed sum. The Marlborough-based winemaker has signed a conditional agreement to buy the shares of the iconic family owned wine business concluding a nine-month sale process. The acquisition follows the Fistonich family’s holding company FFWL being placed in receivership last year. Indevin chair Greg Tomlinson said adding Villa Maria to its portfolio fitted its long-term growth strategy and would complement its existing business.
Goodman Property Trust, in a related development, announced it had entered a conditional agreement to buy 34 hectares of land near the Auckland airport from Villa Maria winery for $75 million. The company had put the Mangere land parcel up for sale last November but would retain its head office, winery, restaurant and bottling operations on its remaining 10ha site. The land is zoned light industrial, and Goodman is proposing it as a future site for an urban logistics estate.
Genesis Energy confirmed a $53 million one-off hit to its operating earnings after a surprise loss in a dispute over liability for carbon emissions produced by natural gas bought from one of its suppliers. The electricity and gas provider said pre-tax and depreciation earnings (ebitda) for its financial year to June has dropped to $358m, although the company said it was “unlikely” to reduce its final dividend payment. The dispute related to a long-term gas supply agreement with Beach Energy, which took over the 50 percent of the Kupe offshore gas field previously owned by ASX-listed Origin Energy. Since April, Genesis Energy shares have traded in a narrow range between $3.30 and $3.57 closing on Friday at $3.38, down 0.5 percent for the week.
Afterpay, the Australian based buy now, pay later success story has been acquired by Twitter founder Jack Dorsey’s Square in a US$29 billion deal. Dorsey said the sale would speed up Square’s plans for its Seller and Cash app businesses and plans to integrate Afterpay into them, increasing its reach to include “smaller merchants” Square said. Afterpay has grown its global reach from Australia to become the leading platform in the buy now, pay later sector, which allows consumers to take immediate possession of purchases while staggering payments over instalments. Afterpay shares surged more than 30 percent on the news of the Square acquisition. Shares in NZ based, ASX listed buy now, pay later provider Laybuy also jumped 30 percent last week on news of Afterpay’s acquisition closing at 55c after steep falls in recent months
The Reserve Bank said its loan-to-valuation ratio restrictions imposed to date haven’t reduced risky lending enough, so it plans to tighten them further. Deputy governor and head of financial stability Geoff Bascand said the central back was focused on ensuring borrowers are “resilient to a range of future economic and financial conditions.” The RBNZ said it was particularly concerned about those who have borrowed in the past 12 months at high LVRs and high debt-to-income ratios (DTIs). “If house prices were to fall, some buyers could face the possibility of negative equity – which means the value of their property is below the outstanding balance on their mortgage,” Bascand said.
Unemployment fell sharply in the June quarter, indicating the labour market has all but returned to pre-Covid levels. The unemployment rate was 4 percent versus 4.6 percent in the prior quarter. It was the largest fall in unemployment numbers since the Household Labour Force Survey began in 1986 and exceeded most economists’ forecasts of around 4.4 percent. The result confirmed recent weekly employment data and reports from employers complaining of labour shortages. The number of unemployed fell by 12.4 percent over the June quarter to reach 117,000 – the same level as a year ago.
NZX halted trading on the NZ stock exchange on Thursday due to a problem with its network connection. The NZX said it had identified participants had been disconnected and consequently put the market into a trading halt. The exchange operator said it was continuing to investigate what had caused the problem, though it confirmed it was not due to a cyber-attack. The outage is the latest in a spate of technical issues affecting the exchange in the past 18 months.
Air New Zealand now expects to post a loss for the 2022 financial year of $530 million after predicting a $450m loss in June. The national carrier said the eight-week suspension of the quarantine-free travel bubble with Australia had forced it to reassess earnings expectations. It now expected demand on the Tasman may be slower to recover and there remained a risk of future suspensions. The airline said operating cashflow had also been reduced by the bubble pause and as a result it would be required to draw down more of its government loan facility before the end of August. Air NZ shares ended the week down 1.3 percent at $1.48 and have now fallen 16 percent year to date.
Plexure Group shares plunged 25 percent last week following news the company’s CEO Craig Herbison had unexpectedly resigned with immediate effect. Herbison said the past few years had been demanding for him personally including significant amounts of international travel and his decision to resign reflected a desire to focus on other priorities. Chair Phil Norman said the Board respected Herbison’s decision and said a search for a replacement CEO would begin with immediate effect. Plexure shares have now fallen almost 60 percent this year.
COMING UP THIS WEEK….
- Electronic Card Transactions (July)
- Vital Healthcare Property Trust full year result
- Precinct Property full year result
- Rakon AGM
- Promisca Healthcare AGM
- Food Price Index (July)
- Rental Price Index (July)
- Expectations Survey (RBNZ)
- Household Inflation Expectations (RBNZ)