Business & Investing: NZ dollar hits a low of 64.6 US cents, benefiting exporters, though weaker dollar is likely to mean higher petrol prices at the pump
“I Don’t Like Mondays” was a big hit for Bob Geldof and the Boomtown Rats in 1979. Increasingly it is becoming an appropriate refrain for sharemarket investors after another punishing session on Wall Street on Friday (US time), though exporters will be cheering further weakness in the Kiwi dollar.
Technology stocks shed more than 4 percent of their value by the close of trading on Friday (US time) after Amazon become the latest high-profile company to warn of weaker sales in the coming months. Its shares plunged 14 percent as a result.
Marked by stomach-churning volatility and bruising losses in once-popular tech stocks, the S&P500 has now fallen 14 percent, marking its worst start to the year since 1939, while the tech-heavy Nasdaq Composite index has fallen by 21 percent, its biggest four-month decline since its inception in 1971. For the month of April it fell more than 13 percent, its worst monthly performance since October 2008 following the collapse of Lehman Brothers.
Analysts estimate the index has shed more than US$5 trillion in total market capitalisation from its all-time high last November.
Underlining the dramatic change in sentiment, of the big seven tech stocks year-to-date, which comprise almost a quarter of the S&P500, Netflix shares have fallen 68 percent, Meta (Facebook) -41 percent, Amazon -27 percent, Tesla -27 percent, Alphabet (Google) -21 percent, Microsoft -17 percent and Apple has fallen 13 percent after warning of supply chain shortages and Chinese factory shutdowns potentially costing up to $8bn in the second quarter.
Although the NZ sharemarket has fewer listed technology stocks than in the US, it too hasn’t been immune from the selloff with the NZX50 now down 13 percent since peaking in early January.
Of the leading local stocks year-to-date, F&P Healthcare has been the biggest drag on the NZX50 falling 35 percent since the start of the year, followed by Ryman Healthcare -26 percent, Fletcher Building -17 percent and a2 Milk -16 percent. Spark has been one of the few top 10 stocks to remain in the green gaining 9 percent since January.
And the selling may have a way to go yet as surging interest rates, higher commodity prices, labour shortages, supply chain disruptions and falling consumer confidence threaten to further upend financial markets in the coming months.
The only silver lining locally may be the continued fall in the Kiwi dollar which hit a two-year low last week at 64.6 US cents, benefiting exporters, though for motorists the weaker dollar is likely to mean higher petrol prices at the pump as oil imports become more expensive along with a range of other goods including appliances and new vehicles.
It’s also likely the Kiwi dollar could still have further to fall as a resurgent US dollar, which hit a 20-year high last week against a basket of currencies, shows no sign of easing.
US Federal Reserve prepares to finally get tough on inflation
After weeks of market speculation, endless commentary, speeches and intense debate, this Thursday (US time) the US Federal Reserve will finally reveal its hand on its latest monetary policy pronouncement.
Every word of its decision will be closely scrutinised and will have implications for all central banks globally, though the change in tone and subsequent market action in recent weeks suggests investors are now prepared for the Fed to embark on a much more aggressive tightening cycle than had previously been suggested.
Just four months ago, Fed Chair Jay Powell was referring to inflation as “transitory”. But no more. Inflation has become protracted and the problem is growing by the day. The Fed is behind the curve and knows it and now it’s racing to catch up.
With markets having now all but priced in a 50bp hike, with the remote possibility the Fed really puts its foot down for the first time in 26 years with a surprise 75bp hike, the real focus will be on the accompanying commentary and the outlook.
Somehow the Fed has to get tough on inflation without driving the world’s largest economy into recession and pull off a “soft landing” – a feat the central bank hasn’t managed to successfully engineer on several occasions previously.
Another 50bp hike by the Reserve Bank almost a certainty
The Reserve Bank also remains under pressure before its next Monetary Policy Statement on May 25 as the weaker Kiwi dollar will add to existing inflation concerns, driving up prices at a time when consumers are already feeling stretched.
The RBNZ is widely expected to hike the OCR by 50bp for a second time in three weeks, despite business confidence continuing to weaken.
Overall confidence remained low in April according to the latest ANZ Business Outlook survey released this past week, although firms reported that their own activity expectations rose as Omicron disruption eased.
ANZ Bank chief economist Sharon Zollner said the result showed pricing and wage pressure remain intense, suggesting more inflation ahead.
“Firms remain somewhat wary of the outlook and continue to find the profitability picture hard going in an environment of rising costs and now, in some consumer-facing areas, the prospect of softer demand,” she said.
“However, on the plus side, activity levels appear to have picked up as the disruption to labour supply and activity from the Omicron outbreak has passed its peak.”
Zollner noted, however, that with plenty of wage and other cost inflation in the pipeline, it would be some time before the RBNZ could conclude they were getting ahead of the inflation issue.
The RBNZ will also release its half yearly Financial Stability report on Wednesday which is likely to include commentary on the impact of higher mortgage rates on borrowers.
Growing concerns over the health of China’s economy
Somewhat overshadowed by the war in Ukraine and the market ructions in the US, local investors should also be keeping a wary eye on what is being described as a deteriorating situation in China after one of Asia’s biggest private equity investors last week criticised the Chinese government for policies that he says have resulted in a “deep economic crisis” comparable to the 2008 global financial crisis.
In a video viewed by the Financial Times, Weijian Shan, regarded as one of the most high-profile veteran financiers in Hong Kong and mainland China and whose group PAG manages more than US$50b on behalf of investors, said he believed the Chinese economy is in the worst shape in more than 30 years.
“China feels to us like the US and Europe in 2008,” before the onset of the GFC, Shan added.
Given China accounts for around a third of our exports and is by far our largest trading partner, the comments are a reminder of New Zealand’s heightened vulnerability to any downside in China’s economic fortunes.
Shares in Alibaba, China’s biggest online retail business, have more than halved in the past 12 months highlighting weakening consumer sentiment which has been further exacerbated in recent weeks by the country’s extreme zero-Covid lockdown policies.
Buffett provides some optimism amid gloomy market sentiment
Warren Buffett’s annual address to shareholders over the weekend offered plenty of good cheer and bonhomie for investors, despite the gloom that has enveloped markets in recent months.
Speaking at Berkshire Hathaway’s first in-person annual meeting since 2019, the world’s most successful share investor weighed in on the speculative trading binge that Buffett said had turned markets into something akin to a “gambling parlour”.
The Oracle of Omaha as he is widely known, also commented on inflation, building on previous remarks saying that inflation “swindles” equity investors but noted that it “swindles the bond investor, too. It swindles the person who keeps their cash under their mattress. It swindles almost everybody.”
Buffett, 91, and his long-time business partner and fellow nonagenarian, vice-chairman Charlie Munger, 98, fielded shareholder questions on a broad range of issues for several hours.
Cheering investor sentiment, Buffett also revealed that Berkshire had spent more than US$40b on new investments since the start of the year including a boost to its Chevron Corp stake that vaulted the investment into Berkshire’s top four common stock holdings. Buffett also disclosed that the company now holds an expanded 9.5 percent stake in Activision Blizzard Inc, an arbitrage bet on the video-game maker which is being acquired by Microsoft Corp.
Reiterating his longstanding scepticism of cryptocurrencies, Buffett said he would be unwilling to buy Bitcoin for even extremely low prices because it produces nothing of value.
“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said. “It’s got a magic to it and people have attached magic to lots of things.”
Z Energy prepares to delist
Z Energy’s days as a listed company are about to conclude after gaining high-court approval for its scheme of arrangement with Aussie fuel giant Ampol to proceed.
Z Energy said the court order would mean the country’s largest liquid fuel retailer would delist from the NZX on May 10.
However, Ampol has previously said it would be seeking a secondary listing on the NZX giving local investors exposure to its Australian fuel retailing business.
Z informed the NZX that trading in its shares would be suspended on the NZX and ASX at the close of trading last Friday with the record date for the near $2b takeover payment set for today.
Coming Up This Week …
Monday
- Radius Residential Care Special Shareholders Meeting
- Ventia Services Group AGM
Tuesday
- Building Consents (March) – Stats NZ
Wednesday
- RBNZ Financial Stability Report
- Labour Market Stats (March quarter) – Stats NZ
Thursday
- ANZ Banking Group – Half Year Result
Friday
- Banks Core Funding Ratio – RBNZ
- New Residential Mortgages – RBNZ
