US officials’ economic concerns add to worries over the Omicron variant’s effect on business activity worldwide
Business & Investing: Volatility returned with a vengeance to global equity markets this past week undermining investor confidence and sending cryptocurrencies plunging, while the NZ dollar slumped to a 12-month low of 67.5 US cents having fallen almost 6 percent in less than a month.
Aside from the implications of the new Omicron Covid variant having been confirmed in more than 40 countries, markets were unsettled by hawkish comments from US Federal Reserve chair Jerome Powell suggesting the central bank could speed up its plans to cut back on, or taper, its bond purchase program ushering in the potential for interest rate rises sooner than had been expected.
In testimony to Congress, Powell also noted for the first time that the Fed had “retired” the use of the word ‘transitory’ to describe current inflation settings implying the US central bank had changed its outlook, further unnerving investors
In addition, the latest jobs report from the US Bureau of Labour Statistics showed the world’s largest economy added just 210,000 new jobs in November, far fewer than the 550,000 forecast by economists in a Refinitiv poll. But while the economy added fewer jobs than expected, the unemployment rate still fell to its lowest level since the pandemic began, giving the Fed further ammunition to accelerate its tapering programme.
US markets fell sharply for a second week with the benchmark S&P500 index declining a further 1.2 percent to 4538, while the tech-heavy Nasdaq 100 index fell almost 2 percent to 15,712. Meta (Facebook) shares entered bear market territory for the first time since March last year, having fallen more than 20 percent from their high in September.
Declines in tech stocks have accelerated in recent weeks as investors increasingly anticipate interest rate rises next year will weigh on growth stocks by discounting their future cash flows.
Locally, the NZX50 managed to close out the week with a small gain of 0.3 percent, it’s first positive close in more than a month, despite another selloff in a2 Milk shares which have fallen for seven days straight, ending on Friday at $5.76, down 8.2 percent for the week. Fonterra Shareholders’ Fund units also fell to a near one-year low at $3.55, after the dairy co-op announced an all-time record high farmgate milk price of between $8.40 and $9 per kgMS which will reduce its earnings.
Oil fell for a sixth week, closing at US$69.87 a barrel, down 4.1 percent, while gold eased 0.4 percent to US$1783 an ounce.
US Treasury yields slumped as investors continued to switch from equities to bonds in response to the market selloff, with the 10-year yield slumping 9.2 percent to 1.35 percent, its biggest weekly fall since August 2020.
However, the biggest loser of the week was Bitcoin which plunged 14 percent in value to US$49,700 after trading as low as US$42,000 on Saturday (NZ time). More than $570 billion was wiped off the value of cryptocurrencies over the weekend after rumours surfaced once again of impending regulations by central banks, with one economic forecaster predicting Bitcoin could eventually fall below $20,000. After reaching a high of US$69,000 less than a month ago, Bitcoin has since fallen almost 30 percent in value.
WEEK IN REVIEW
Fonterra expects to pay its farmer shareholders an all-time record $8.70 per kilogram of milk solids in the current season after lowering the top end of its earnings guidance range slightly. Chief executive Miles Hurrell said the higher milk price was the result of consistently strong demand for dairy at a time of constrained global supply. The new forecast payout range of $8.40-$9.00 per kgMS, is up from a prior forecast of $7.90-$8.90 per kgMS and will result in an injection of around $13.2 billion into the NZ economy. The higher milk price has meant it has revised down its earnings guidance to 25-35 cents per share from 25-40c per share.
Hurrell said he remained optimistic farmers would vote in favour of the dairy giant’s proposed capital restructure at a special meeting this Thursday in Invercargill following the co-op’s annual general meeting. The latest version of the proposal, which caps the size of the Fonterra Shareholders’ Fund at 10 percent and sets a new minimum shareholder requirement of one share per three kilograms of milk solids produced, down from the current one-for-one requirement, needs government support to amend the Dairy Industry Restructuring Act (DIRA). Agriculture minister Damien O’Connor has previously said that he wouldn’t support the proposal as it stands.
Radius Residential Care reported a 35.4 percent fall in its first-half net profit as costs grew faster than revenue. Net profit for the six months ended September fell to $1.3 million from $2.1m in the same six months in 2020 with revenue rising 8.4 percent. However, costs increased almost 10 percent due to a rise in employee costs. Executive chair Brian Cree said the company continued to see costs across the business rising, particularly for labour, food and consumables.
Oceania Healthcare reported a $36.9 million net profit for the six months ended September with underlying operating profit up 19.7 percent. The residential aged care and retirement village operator said that due to a change in its balance date, there wasn’t a comparable result for the same six months last year, but the proforma comparison was a 22 percent increase. The company said its aged care business continued to perform well, despite Covid-19 disruptions, and sales volumes for both independent living apartments and villas and care suites were up almost 11 percent.
Refining New Zealand completed a $39 million share placement to fund the expansion of refined oil storage at Marsden Point. The company believes providing more storage will improve its growth prospects when it ends oil refining and moves to an import-only model. It said consideration by the government of establishing a strategic oil reserve policy to create a supply buffer should an oil shock occur was also another potential opportunity. Refining NZ shares were placed in a trading halt last week to complete the Forsyth Barr-underwritten placement at a floor price of $0.82 per share.
Rua Bioscience said it would issue $10 million in shares at 41 cents a share to acquire Zalm Therapeutics, giving it the opportunity to fast track access into Australian-made product. Australian medicinal cannabis company Cann subsidiary Botanitech is as an 8.4 percent shareholder in Zalm Theraputics. Cann has research and cultivation facilities in Melbourne and is in the process of commissioning one of Australia’s largest indoor growing facilities at Mildura, Victoria, expected to begin production in January.
Plexure Group’s recently acquired TASK business announced it had been selected by Venues NSW to deploy its transaction management platform across the Sydney Cricket Ground (SCG) and the new Sydney Football Stadium precinct. The project will involve the implementation of new point of sale technology as well as several customer facing applications and web delivered system admin tools. Plexure shares are down more than 30 percent since announcing the acquisition of TASK in September, closing on Friday at 42c.
NZME announced it had entered into a conditional agreement to acquire the BusinessDesk news website business and assets from publisher Content Limited for $3.5 million payable in cash on completion, subject to customary adjustments plus an earn-out amount of up to NZD$1.5 million over two years.
Stats NZ data showed a total of 4,043 new homes were consented in October. New consents continued to track upwards through October, rising 26 percent to 47,715 new homes for the 12 months. Auckland accounted for almost 40 percent of the approvals with 1,614 consents issued during the month and bringing total consents for the past 12 months to 19,936. Around half of all new consents were for multi-unit, or terrace housing developments and apartments, with 2,099 stand-alone houses. ASB senior economist Mike Jones said he was expecting house prices to begin easing from the second half of next year, on the back of booming residential construction, tighter credit conditions and higher mortgage rates.
Synlait Milk said it remained confident that it could generate a lift in profitability over coming years but anticipates A2 Milk’s orders for infant formula will only edge up at best. Speaking at the company’s AGM last week, chief executive John Penno said he was not expecting large increases in A2’s production and Synlait would focus on developing new customers.
KiwiRail shareholding ministers Grant Robertson and David Clark announced the appointment of former Westpac New Zealand CEO David McLean as KiwiRail’s new chair saying McLean’s experience would provide “additional governance oversight” for the state-owned rail operator. KiwiRail has had an acting chair since May following the death of former chair Brian Corban. The government allocated a further $1.3 billion for rail in this year’s Budget.
COMING UP THIS WEEK….
- PGG Wrightson AGM
- Delegat Group AGM
- Fonterra AGM and Capital Restructure SGM
- Business Employment Data (Sept)
- Marlborough Wine Estates AGM
- Electronic Card Transactions (Nov)