Business & Investing: Investors facing multiple global worries plus the Reserve Bank’s upcoming interest rates decision
September certainly lived up to its reputation for being a volatile month, though NZ investors were spared some of the pain inflicted on markets in the US and Australia which fell by 5 percent and 4.5 percent respectively last month.
It was the first monthly decline for US equity markets since January and the steepest monthly fall since the onset of the pandemic in March last year. By contrast, the NZX50 managed to eke out a small gain, finishing the month up 0.5 percent and reversing a 90-point fall at the open on Friday.
Supply chain disruptions, inflation worries, surging oil prices, concerns about the spillover effects from the potential collapse of highly indebted Chinese real estate development companies and central banks set to unwind accommodative monetary policy, all combined to keep investors on edge.
Add to the mix a looming debt ceiling in the US and a critical legislative agenda promising up to US$5 trillion in additional fiscal spending that is looking increasingly uncertain and October could be set to test investors nerves once again.
Locally, all eyes will be on this Wednesday’s Reserve Bank Monetary Policy Review and the central bank’s highly anticipated official cash rate (OCR) decision which was stymied in August as the country was forced into an unexpected Level 4 lockdown.
Kiwibank chief economist Jarrod Kerr said the risks are now more balanced compared to 12 months ago and while the outlook remains uncertain, a cautious, measured approach by the RBNZ is warranted.
“We expect to see the Reserve Bank kick-start a series of incremental, 25bps hikes from here.”
The dilemma for the Reserve Bank will be the ongoing uncertainty created by Auckland’s continued lockdown, which looks set to enter an eighth week, as cases show no sign of slowing. In addition, parts of the Waikato have been forced back into a Level 3 lockdown after new outbreaks were detected in Hamilton and Raglan at the weekend as well as an additional case in Palmerston North.
There is also a risk that more cases outside Auckland could emerge in coming days, potentially resulting in a situation where the virus is no longer contained within the Auckland perimeter boundary, necessitating a further expansion of the current lockdown restrictions.
Across the Tasman, the ASX200 fell a further 2.1 percent last week as resource stocks continued to lose ground in response to China’s economy continuing to slow. Shares in market heavyweights Rio Tinto and BHP both fell by more than 12 percent in September after the price of iron ore slumped to a one year low having fallen almost 50 percent since early August.
Oil prices continued to push higher with Brent Crude Oil futures briefly trading above US$80 a barrel, a two year high, while gold prices also rallied 0.6 percent to $1760 an ounce.
While the yield on the 10-year US Treasury note fell 0.02 percentage points to 1.46 percent on Friday, it remains up from about 1.3 percent just over a week ago.
The US dollar on Thursday traded at its strongest level in a year against major currencies as traders banked on persistent inflation driving the Federal Reserve closer to its first pandemic-era interest rate rise. The dollar index, which measures the US currency against six others including the euro and British pound, hit its highest level since September last year after central bank officials signalled the end of ultra-supportive monetary policies.
The NZ dollar eased 1 percent against the US dollar to 69.4 US cents after trading as low as 68.6 last week, while Bitcoin enjoyed its best week since late July surging 10.7 percent to US$47,800.
WEEK IN REVIEW
Z Energy said its four-week period for takeover talks with Australian transport fuels business Ampol had been extended for a further two weeks but reiterated there was no certainty that discussions would result in any agreement on a transaction. Z announced the $3.78 offer from Ampol in August saying it was the third such offer received from the Brisbane-based ASX-listed company. Ampol shares have fallen by more than 10 percent since announcing its bid for Z, while Z Energy shares closed on Friday at $3.42.
Synlait Milk has appointed Grant Watson as its new chief executive as it seeks to reverse its recent lacklustre performance that has seen its share price slide more than 70 percent since 2018. Watson will replace acting CEO John Penno, who will take over as the company’s chair, subject to confirmation by shareholders at its forthcoming annual meeting. Current chair Graeme Milne said Watson had a track record of materially transforming and accelerating businesses he led.
ANZ and ASB banks are facing a new class action resulting from breaches of consumer finance legislation that affected more than 150,000 people. The action has been brought under the Credit Contracts and Consumer Finance Act (CCCFA) and argues the banks unfairly profited from their customers by failing to refund them for interest and fees the banks weren’t entitled to keep.
Earlier this year, both banks reached settlements with the Commerce Commission, which had accused them of failing in their responsibility as lenders after failing to properly disclose information on loan variations. ANZ had already paid its affected customers $6 million but agreed to pay a further $29.4m. ASB agreed to pay more than 73,000 of its customers $8.1m.
Rakon has lifted its underlying pre-tax earnings guidance to between $39m and $44 million for the year ending March 31, 2022. Its previous guidance in April was for earnings to in a range of $27m to $32m. In May it posted underlying editda of $23.5m for the year ended March, 2021, up 59 percent on the prior year. Rakon attributed the improved guidance to a fire at a competitor factory that resulted in a lift in sales.
The Warehouse Group reported a record result saying its new business model was meeting changing customer needs more effectively. The company reported an adjusted profit of $175.5 million for the year to August 1, versus $32.1m the year earlier. The adjusted figure excluded a $67.6m wage subsidy repayment and $16.1m of restructuring expenses. Reported net profit was $117.7m versus $44.5m in the prior year. Warehouse shares last week hit an 8 year high, trading above $4 for the first time since 2013 having doubled in value since September last year.
Ports of Auckland confirmed the appointment of Jan Dawson as its new chair. Dawson said her immediate priority would be finding a replacement by the end of the year for controversial former CEO Tony Gibson. Gibson was blamed for a divisive operating culture and a poor health and safety record that resulted in the death last year of port worker Pala’amo Kalati. The port has also faced criticism for backlogs arising from a protracted automation project that has been the subject of multiple delays.
Cannasouth has been unable to raise the full $6 million it was seeking in its latest capital raising to buy out its cultivation joint venture falling $1.5 million short of its target. It had previously entered into conditional agreements to acquire the outstanding 50 percent in Cannabis Cultivation for $3.5m as well as the remaining 40 percent in Midwest Pharmaceuticals. Cannasouth said it would seek to privately place the balance of $1.5m required.
Stats NZ said a total of 4,490 new residential building consents were approved last month – the highest monthly total in more than 30 years. This lifted the number of new homes consented for the year to 46,453, up 24 percent in a year, with a combined value of $19.7 billion, the highest on record. Stats NZ said there was also increased demand for townhouses, apartments and retirement village units with 1,869 consents for the month approved nationally.
Hallenstein Glasson lifted sales by more than 20 percent to $351 million for the 12 months to August following a strong increase in online sales and a particular focus on US based customers. The company, which operates the Glassons and Hallenstein Bros brands, recorded a net profit of $33.3m, compared to last year’s $27.8m. It said the impact of increased freight costs and unfavourable US dollar exchange rates in its trans-Tasman markets had weighed on the final result. A total of $12 million in wage subsidies had been claimed by the company both here and in Australia.
ANZ Investments has announced it will scrap membership fees following pressure from the Financial Markets Authority. The market regulator said it expects to see more providers reduce the fees charged on managed funds – with fixed membership fees top of its priority list. ANZ Investments said it will remove the $18 annual membership fee from its ANZ KiwiSaver schemes and its OneAnswer KiwiSaver Scheme.
COMING UP THIS WEEK…
- Australian Foundation Investment Company (AFI) – AGM
- Reserve Bank Monetary Policy Review
- Meridian Energy (MEL) – AGM
- Household Labour Force Survey (Sept Qtr) – Stats NZ
- Dwelling & Household Estimates (Sept Qtr) – Stats NZ
- Pricing & Housing Data (June) – RBNZ