Investors will be bracing for another rough day on the NZ sharemarket after US markets fell sharply on Friday following higher than expected inflation data in May.

Wall Street’s S&P500 and Nasdaq indices both recorded their worst week since January, falling 5 percent and 6 percent respectively, as fresh evidence of red-hot inflation and expectations of an aggressive response this week from the US Federal Reserve had investors heading for the exits.

The US government reported on Friday consumer prices had risen at an annual pace of 8.6 percent in May, above April’s 8.3 percent reading and exceeding economists’ forecasts as prices for food, energy and shelter all increased.

The report confirmed investors worst fears that inflation is still yet to peak.


The NZ market also managed to lose most of the gains it had made in the first week of the month with the NZX50 falling 2.5 percent for the week, while Australia’s ASX200 experienced its worst week since April 2020 falling 4.2 percent after an unexpected 50pb hike by the Reserve Bank of Australia.

The local market will likely fall by more than 1 percent today, potentially breaching the key 11,000 level for the first time since May 2020.

Stocks hitting new lows last week included Fletcher Building, which fell to an 18-month low of $5.21 following growing concerns about the health of the wider building sector, severe shortages of some building products and a potential slowdown in building activity due to higher interest rates. The seafood exporter Sanford saw its shares hit an eight-year low of $4.05 in response to renewed lockdowns in China, and ERoad shares fell to a two-year low of $2.05 having fallen more than 30 percent since releasing its year end results last month.

Meanwhile, Sky Television shares fell to a six-month low of $2.31, all but wiping out its recent gains, after announcing it was in discussions to acquire the radio broadcaster Mediaworks, surprising investors who had been led to believe (from Australian media reports) the company itself was being lined up for possible sale.

Despite announcing improving trends in travel bookings that had shaved more than $50 million off its expected loss for the year to June, Air New Zealand shares fell to a new low of 59.5c on Friday. The airline’s shares have now fallen 35 percent since late April following the completion of its recent capital raising.

Harmoney Corp shares closed at a new record low of $1.04 bringing its year to date decline to almost 50 percent. The online direct personal lender, which operates across Australia and New Zealand, is coming under growing pressure as interest rates continue to climb bringing with it the likelihood of increased impairments.

One of the few stocks on the local market hitting a new 52-week high last week was Channel Infrastructure (formerly NZ Refining) which continues to benefit from higher margins as a resulted of elevated oil prices. Its shares closed on Friday at $1.20 have gained almost 25 percent year-to-date.

Cryptocurrencies have certainly lost their shine. Ethereum plunged 20 percent last week to a two-year low of US$1450, while Bitcoin also saw a further 8.5 percent erased from its value ending the week at an 18-month low of US$27,400 having decisively breached a key technical support level at US$30,000.

Brent Crude oil futures were steady at US$122 with petrol prices in the US hitting US$5 a gallon for the first time in history. Locally, the price of 91 is now above $3.20 in some regions.

While the oil price is well known for reversing course in the face of economic weakness, analysts believe the world is facing perhaps the most bullish oil market in history because of the severe supply constraints arising from sanctions being imposed on Russia, a key oil supplier. JPMorgan CEO Jamie Dimon believes oil prices could surge to US$175 a barrel later this year while Goldman Sachs is expecting oil prices to “average” US$140 a barrel in the third quarter of this year.

Gold gained 1.1 percent to US$1871 an ounce after the release of the latest US CPI data.

The NZ dollar fell 2.3 percent ending the week at 63.54 US cents as traders await the release of March quarter GDP this Thursday for signs that the economy is weakening.

Latest US Federal Reserve decision will be pivotal this week

Pressure on the US Federal Reserve ratcheted higher in the wake of the latest US CPI data showing inflation continues to surge higher leading some economists to forecast the Fed may need to hike rates by as much as 75bp this week in response.

The world’s most influential central bank faces a dilemma between being even more aggressive with its rate hikes than it had previously planned to slow economic growth in the US, but potentially increasing the risk of a recession, or sticking to its guns with another 50bp point hike only to have inflation continue to accelerate higher again next month.

Meanwhile, the yield on five-year US Treasuries surpassed the yield on the 30-year bond, an indication the market increasingly believes the Fed’s campaign of raising rates could tip the US economy into recession, while the yield on the two-year Treasury note, which moves with interest rate expectations, rose above 3 percent for the first time since 2008.

The futures market now expects the Fed’s benchmark interest rate to be 3.2 percent by year end, implying half-point increases at the Fed’s next four meetings — June, July, September and November — plus a quarter-point increase in December.

Markets were further rattled last week after the European Central Bank spelt out its own plans for tightening monetary policy. The ECB, which had until now remained unmoved in its accommodative monetary policy stance, signalled that it may lift its main deposit rate above zero in September, which would be its first departure from negative interest rates in eight years.

The ECB also said that it would end net purchases of member states’ debt, sparking fears about the financial stress this would place on the bloc’s weaker economies.

The RBNZ’s next Monetary Policy Review is scheduled for July 12.

Fonterra announces share buy back

Fonterra plans to spend up to $50 million on buying back its own shares from June 30.

The move follows a steep decline in its shareholder fund unit price after the co-op’s announcement on May 6 last year to restructure its capital base.

The units, which can be owned only by farmers, closed the week at $3.14, well up on their record low at $2.22 late last month but down from the high of $4.56 they reached a year ago.

Chair Peter McBride said Fonterra had “looked at prevailing prices” alongside the co-operative’s strategy and overall business performance.

Tesla announces plans to split its shares

Less than two years after last splitting its shares, Tesla looks set to seek approval for a further three-for-one stock split at its forthcoming annual meeting, according to its latest proxy filing,

The company said it wanted to divide its shares to make it easier for employees to manage their stock benefits, which “may help maximise shareholder value”. It also said retail investors “have expressed a high level of interest in investing in our stock”, and that a split would make the shares “more accessible” to these investors.

The announcement comes as its stock has come under increasing pressure amid a broader downturn in the market, in sharp contrast to Tesla’s last stock split in August 2020. The ongoing uncertainty associated with Elon Musk’s on again, off again decision to acquire Twitter has further unnerved investors.

While stock splits do not change the underlying ownership position of a company’s investors, leaving little impact on the inherent value of the shares, many companies argue they make ownership more attractive for small investors.

Tesla’s proposal follows stock splits by Amazon and Alphabet, whose shareholders approved 20-for-one stock splits earlier this year.

Coming up this week 

Tuesday

  • Food Price Index (May) – Stats NZ
  • Rental Price Index (May) – Stats NZ

Wednesday

  • Balance of Payments (March Qtr) – Stats NZ

Thursday

  • Pushpay Holdings AGM
  • Gross Domestic Product (March Qtr) – Stats NZ
  • Vehicle Registrations (May) – Stats NZ
  • Housing Data (March Qtr) – RBNZ
  • Prices Data (March Qtr) – 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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