Business & Investing: Cryptos drop as much as 20 percent in past week and NZ housing market downturn intensifies

After another punishing week that saw global stock markets fall for a sixth straight week, markets closed on Friday offering investors a small glimmer of hope that stocks may have bottomed out … for now.

The NZX50 cut its losses for the week to 3.8 percent after being down as much as 5 percent on Wednesday with F&P Healthcare and Ryman rebounding from their earlier lows. The local market has now fallen more than 15 percent year to date making it the worst start to the year on record.

It was a similar story in the US where the benchmark S&P 500 index rallied on Friday (US time) trimming its losses for the week to 2.4 percent, having been down as much as 6 percent at one point.

Friday’s rebound meant the S&P 500 narrowly avoided falling into bear market territory (when an index declines 20 percent from its recent highs), though few market watchers would be prepared to call Friday’s move an end to the recent volatility.

The FTSE All-World index has now recorded its longest weekly losing streak since the middle of 2008, equalling in duration the decline before the subprime mortgage crisis led to the catastrophic collapse of US investment banking giant Lehman Brothers.

As the Financial Times reported over the weekend, the amounts that have so far been lost in the six biggest US companies are simply eye-watering.

Those with market caps exceeding a trillion dollars – Apple, Microsoft, Amazon, Alphabet (Google), Meta (Facebook) and Tesla – have so far collectively shed US$3.6 trillion in market cap since hitting their respective peaks. The falls vary from Amazon’s fall of $808 billion to Tesla’s decline of $473b.

For context, each of the companies has shed more value than the entire market cap of America’s largest retailer, Walmart (US$410b).

Central banks have been forced to fight inflation with higher interest rates putting pressure on stocks since the start of the year. The yield on 10-year US Treasuries, which eased slightly last week for the first time since late March, has nearly doubled since January reducing the relative appeal of riskier assets such as stocks while also weighing on the valuations of corporate bonds.

New data out last week showing that price rises in the US barely slowed in April only added to concerns the US Federal Reserve would be unable to achieve a “soft landing” that avoids an economic contraction.

Locally, almost half of NZ listed companies are now trading at 52-week lows, while in the US that number surpassed 4,100 at one point last week, its highest level since March 2020 during the height of the Covid-19 selloff.

The NZ dollar fell as low as 62.2 US cents last week – its seventh straight week of declines. The kiwi has now fallen more than 10 percent since early April when it traded at 70.3 US cents.

This week investors will be keen to hear from several leading listed companies reporting results including Infratil, Ryman Healthcare and seafood exporter Sanford. My Food Bag’s full year result is also likely to be closely scrutinised for signs that increasing food costs are potentially cutting into its profit margins.

Crypto’s shock plunge wipes billions from investors’ portfolios

Crypto investors were left reeling after Bitcoin and Ethereum plunged as much as 20 percent this past week following the collapse of a token called luna which last month peaked at US$116.

The token was snapped up by buyers including enthusiastic retail investors only to see its value slide to zero after TerraUSD, a sister token, collapsed in value, despite being designed to track the value of the US dollar.

The demise of luna and terra has shocked the global US$1.3t cryptocurrency market. While coins come and go (thousands have died since Bitcoin was invented in 2009), the collapse in the price of terra, in theory, wasn’t supposed to happen given that it was designed to be a so-called stablecoin – a staid, unremarkable token that simply tracked the US dollar.

Stablecoins are digital tokens pegged to the value of traditional assets, such as the US dollar. But TerraUSD was described as an algorithmic, or “decentralised”, stablecoin, and was supposed to maintain its dollar peg via a complex mechanism that involved swapping it with another free-floating token.

The dramatic collapse of luna and terra at a time when crypto valuations were already sliding, has sparked new questions over the functioning of the entire crypto market which has seen its combined value more than halve since November.

In just one week, the valuation of US crypto exchange Coinbase, which listed last year, slumped as much as 60 percent at one point, having fallen 80 percent since November, while Bitcoin prices fell below US$30,000 for the first time since last year and tether – the largest of the stablecoins, deemed to be almost risk-free – failed to maintain its US dollar peg.

The collapse in cryptocurrencies has now seriously undermined claims that crypto assets can provide a hedge against inflation or behave as a form of digital gold or its larger boast that it will form the basis of a new global financial system. Clearly, after the events of this past week, that it is now still some time away.

House prices continue to weaken

The housing market downturn intensified in April according to the REINZ’s latest update.

The House Price Index (HPI) fell a further 1 percent last month, while annual house price growth has slowed dramatically to 6.3 percent, from just over 30 percent eight months ago. The median house price has fallen to $875k, down $50k from its peak in November.

Transaction levels also slowed last month with a total of 4,860 sales recorded, down 35 percent on last year and well below the 30-year rolling average for April of 6,500. The median number of days to sell a property also lifted to 39.

While equity markets are facing plenty of headwinds, so too is the property market including increasing housing supply, investor-related tax changes and much tighter lending conditions.

Mortgage rates rose sharply last month as financial markets anticipate ongoing and aggressive OCR hikes to be delivered by the RBNZ this year and next. The two-year fixed mortgage rate across banks is now about 5.8 percent compared with less than 3 percent a year ago.

The Reserve Bank is likely to increase the OCR by a further 50pb later this month, targeting a cash rate of 3 percent by year end.

Kiwibank chief economist Jarrod Kerr increased his forecast house price decline to around 10 percent this year from a 5 percent drop previously.

Wheat prices look set to double

Global wheat production is likely to fall for the first time in four years, according to a closely watched US government forecast of the upcoming crop season, confirming fears of a further tightening of supply and rising food inflation.

Wheat prices spiked higher after the US Department of Agriculture (USDA) issued its first world estimates for the 2022-23 crop season. Futures for the new crop for September delivery rallied as high as $12 a bushel, up 8 percent on the week, and more than 80 percent since September last year.

The US supply estimates and the rise in wheat prices on Thursday point to continuing food inflation at a time when the UN Food and Agriculture Organisation’s food price index is already at record highs.

Wheat output in China, the world’s largest producer, was forecast to fall 1.4 per cent to 135m tonnes, the USDA said. The agency said production is also likely to fall marginally in other important exporters including the EU, Argentina and Australia.

Abnormally hot weather has raised concerns about smaller crops in producing countries such as France and India, while drought conditions in the US and Canada are also worrying farmers, analysts said.

Over the weekend, India announced it would be banning wheat exports completely, just days after saying it was targeting record shipments this year, as a scorching heatwave curtails output and domestic prices soar to an all-time high. The move also comes in response to growing food security problems of its own and will further exacerbate already severe shortages arising from Russia’s war against Ukraine, which has significantly hampered exports from one of the world’s leading grain producers.

Xero reports a loss for the year on higher revenues

Wellington-based, Australian-listed online accounting software company Xero announced it had achieved more than $1b in revenues for the first time in the year to March but reported a $9.1m net loss compared with its $19.8m net profit last year.

Xero said its subscriber numbers climbed 19 percent for the year from 2.74m to 3.27m, while average revenue per user increased by 7 percent.

The company attributed its profit slide to its headcount, which increased to 4,784 – a 31 per cent increase, or 24 percent excluding acquisitions – while product design and development expenses increased by 49 percent to $372m.

Its shares fell 11.6 percent on the ASX following the announcement but subsequently recovered to close at A$84.16, down 2.6 percent for the week. After peaking at A$156, Xero shares have almost halved in value since November.

Ampol set to list on the NZX this week

Following its successful acquisition of Z Energy earlier this month, Australian fuel retailing giant Ampol is set to establish a secondary listing on the NZX this Tuesday giving local investors an opportunity to gain exposure to its New Zealand and Australian business.

In addition, of its extensive network of service stations and retail convenience stores throughout Australia, Ampol also supplies fuel to international customers including Seaoil Philippines Inc in the Philippines, a business in which Ampol holds a 20 percent equity interest.

Coming up this week …

Monday

  • Manawa Energy Full Year Result

Tuesday

  • Ampol secondary listing on NZX

Wednesday

  • Serko Full Year Result
  • Argosy Property Full Year Result
  • Residential Mortgage Lending by Debt-to-Income (Mar) – RBNZ

Thursday

  • Budget Day
  • Briscoe Group AGM
  • Sanford Half Year Result
  • Infratil Full Year Result
  • Goodman Property Trust Full Year Result
  • Business Prices Index (March qtr) – Stats NZ
  • Household Inflation Expectations (June) – RBNZ

Friday

  • Ryman Healthcare Full Year Result
  • My Food Bag Full Year Result
  • Oceania Healthcare Full Year Result
  • Overseas Merchandise Trade (April) – Stats NZ
  • Credit Card Spending (April) – RBNZ

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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