Shares in Mainfreight fell 5% after its second half result fell short of its own expectations, blaming slowing economic conditions, declining inventory activity and a reduction in sea and air freight rates. Photo: Supplied

Investors have been slammed as the New Zealand sharemarket recorded its worst week since September, slumping more than 2 percent.

Disappointing earnings results from market heavyweights Mainfreight and F&P Healthcare, which saw its shares fall 6 percent on Friday, along with growing nervousness about the possibility of a US debt default, had investors heading for the exits.

Adding to the anxious tone the kiwi dollar nosedived 3.6 percent for the week to a 7 month low and is now threatening to fall below 60 US cents after the Reserve Bank blindsided markets by indicating it did not expect to hike rates any further in the near term and would likely pause at its next meeting in July.

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The sharemarket had started the week on a downbeat note after wholesale interest rates had priced in an expected ‘double hike’ by the Reserve Bank following an expansionary budget announcement from the Government and surging migration data.

However, following the central bank’s announcement of a lower than expected 25 basis point hike, taking the official cash rate to 5.5 percent, the NZX50 rallied sharply gaining more than 100 points immediately following Wednesday’s decision.

In stark contrast to its previous announcement in April, the central bank said it had even contemplated a pause, which two voting members of the Monetary Policy committee had supported, not the outsized 50 basis point move markets had been expecting.

Significantly, the Reserve Bank also lowered its official cash rate track from late 2024 and into 2025, factoring in deeper rate cuts – though not for a while yet.

“Relative to the February statement, higher net immigration, a slower decline in house prices and higher government spending are offset by the lower starting point level of GDP and consumer price inflation as well as a more negative outlook for our goods exports” the Reserve Bank said in its statement.

Unsurprisingly, the Kiwi dollar fell sharply in response to the dovish outlook and looks set to weaken further according to Kiwibank Chief Economist Jarrod Kerr.

“Our long-held forecast for the Kiwi is for it to be at 55 US cents by year end. A softer terms of trade (export prices), weakening growth and compliant inflation means lower interest rates, and narrowing interest rate differentials.”

Infometrics principal economist Brad Olsen was critical of the central bank’s inconsistency in recent months.

“The challenge we have is that the Reserve Bank’s tone has been more unpredictable recently. In November 2022 the Bank took a stronger stance; in February a weaker stance; in April a stronger stance; in May a weaker stance and now a likely pause in July.

“The lack of consistency in forward views by the Bank underscores the continued up and down reactions in the markets as it tries to decode what the Bank is saying, what they’re intending to do, and what they actually end up doing.”

The Reserve Bank will announce its next Monetary Policy Review decision on July 12.

Mainfreight warns of tougher times ahead

Shares in Mainfreight fell 5 percent for the week, despite the global transport and logistics company posting another record result.

An 8.8 percent lift in revenue and a 20 percent rise in net profit of $426 million for the 12 months ending March will see the company pay a final dividend of 87c a share taking its full-year dividend to $1.72, a 21 percent increase on last year’s result.

However, Mainfreight said that its second half result fell short of its own expectations blaming slowing economic conditions, declining inventory activity and a reduction in sea and air freight rates as supply chain congestion eased, for the underperformance.

Additionally, it forecast macroeconomic conditions would likely continue to deteriorate further and freight rates are also expected to decline in the near term.

The company said trading in the new financial year had continued to show weakness in volumes and activity with international air freight kilos falling 8 percent, while container freight slid 7 percent.

“Whilst management of overhead cost structures and the implementation of freight rate reviews have been successful, it is expected to be a challenging first six months of trading,” the company said.

Mainfreight said it would focus on managing margins and overhead costs.

The company’s decentralised structure gave branch leaders responsibility for their profit and loss accounts and that had seen recruitment reduce significantly over the past three months across all regions, it said.

F&P Healthcare earnings fall as pandemic surge ends

A return to more normalised trading conditions post the Covid-19 pandemic has seen Fisher & Paykel Healthcare’s profitability slump 34 percent for the year.

Net profit for the 12 months ended March was $250.3 million, well down from the $376.9m profit it reported in the prior year.

The company experienced a significant lift in profit and revenue during the pandemic as hospitals sought specialist high-flow nasal therapy machines and related consumables used to assist breathing.

“We are coming out of three financial years that were impacted by the Covid-19 pandemic which required us to work tirelessly to meet global demand surges,” said chief executive Lewis Gradon.

Revenue for the hospital products group fell 15 percent to $1.02b with hospital hardware sales falling more than 50 percent in constant currency terms from the prior year, which was more heavily impacted by global covid surges.

The company will pay a final dividend of 23 cents per share for the second half of the year, taking the annual return to 40.5 cents per share, an increase of 3 percent over the 2022 financial year.

Looking ahead, F&P Healthcare expects operating revenue of $1.7b at current exchange rates in the March 2024 financial year, a gain of 7.6 percent.

Its shares ended the week down 6.4 percent at $23.98, all but wiping out all its gains for the year.

Debt ceiling agreement far from a done deal as markets await final vote

Brace for another volatile week on global financial markets despite an in-principle agreement on America’s protracted debt ceiling being reached over the weekend.

House Republicans and the White House clinched the deal late Saturday (US time) to raise the nation’s borrowing limit, though the agreement now has to be voted on by Congress with the outcome still far from certain as both parties now work to consolidate support around the emerging package.

The agreement – which would raise the debt ceiling for two years, freeze spending on domestic programs, increase spending on defence and veterans issues, impose some new work requirements on federal food assistance programs and change some rules around energy permitting – was meant to include provisions that could sway members of both parties to vote for it.

Yet even ahead of the deal’s announcement, House members on both the left and right were already balking at some of the details said to be included in the package. Republicans who had demanded larger spending cuts threatened to withhold their support, while Democrats voiced concern that new rules on social safety net programs would send more Americans into poverty.

Meanwhile, hard-line Republicans in the ultra-conservative House Freedom Caucus have already warned they are prepared for a furious battle if they consider the compromise a major retreat from the Republican position. Ahead of the deal’s announcement, they raised alarms over the length of the proposed debt ceiling hike and the push to roll back spending to 2023 levels, when many wanted to cap spending at 2022 levels.

US Treasury Secretary Janet Yellen has warned the US will be unable to meet its financial obligations after June 5, leading to the prospect of the US facing its first ever default.

Despite the high stakes negotiations, stocks in the US finished the week at a nine-month high propelled by solid economic data and increasingly bullish results from chip manufacturers as interest in AI continues to surge.

Meanwhile, Treasury yields rose, with traders boosting their bets that the Federal Reserve would continue to increase interest rates, as data showed the US consumer — the biggest engine of the domestic economy — appeared resilient. The 10-year US Treasury yield ended the week at 3.81 percent.

Adding to the likelihood of further interest rate rises in the US, the Federal Reserves preferred measure of inflation came out stronger than expected in April. The core personal consumption expenditures index, which strips out volatile food and energy costs, rose 0.4 per cent in the past month, surpassing expectations it would match its 0.3 per cent increase in March.

Other data showed orders for long-lasting goods also rose more than expected in April defying expectations for a contraction.

“I do worry that once the debt-ceiling issue gets resolved, investors are going to wake up to the fact that interest rates are rising again. That should create some headwinds once we move into the month of June” one trader told the Financial Times on Friday.

Technology stocks power higher as AI boom gains momentum

Among stocks, the technology sector remained a bright spot following blowout chipmaker earnings.

Shares in Marvell Technology jumped more than 32 percent after it said its AI revenue was expected to double in the next 12 months compared with the previous year. The announcement came a day after fellow chip maker Nvidia reported a blowout quarterly earnings result due to soaring demand for chips used in generative artificial intelligence systems. Its shares also surged more than 30 percent in response resulting in an all-time record increase in market capitalisation for a stock in a single day.

Nvidia produces complex AI chips designed for specialist data centres that cost around US$10,000 each, though its latest and most powerful version sells for far more.

The US Philadelphia Semiconductor index has added about 40 per cent since the start of the year, driven by the booming AI industry.

However, analysts point out that the sharemarket advance is currently very narrow with technology stocks largely being responsible for most of the market’s gains this year.

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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