With only four trading days remaining this month, August has already inflicted considerable damage to local investors’ share portfolios after falling for a fourth straight week.

The NZX50 looks set to finish the month down almost 5 percent, its worst month since January 2022 which marked the beginning of last year’s market slump. Year to date the local market has wiped out all its gains for the year and is now in the red with a loss of 1 percent.

Given bank term deposit rates are currently averaging around 6 percent, the effective loss for equity investors is even greater based on the ‘opportunity cost’ involved by remaining in a market where returns are increasingly lagging bank rates.

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As the August earnings season draws to a close, Ebos has been one of the few companies to surprise on the upside after the healthcare and animal care products company posted strong profit growth, with annual revenue topping A$10 billion for the first time and net profit lifting 25 percent on the previous years. Ebos shares were one of the few bright spots of the week closing up more than 5 percent for the week.

The dramatic turnaround in Air New Zealand’s financial performance had already been well flagged to the market which meant its shares were little changed at 77.5c after it announced a $1 billion turnaround in net profit for the year to end of June.

While Auckland International Airport doubled its annual revenue to $626 million, net profit fell 77 percent to $43.2 million. Operating earnings were up 175 percent to $397.1 million well ahead of its guidance. Its shares fell below $8 for the first time since December as investors focused on the significant capital expenditure the company will be incurring in the near term with the construction of a new domestic terminal.

The energy sector was also weaker with Genesis shares falling 9c on Friday to $2.50 after reporting an 11.8 percent fall in net profit due to record low thermal generation, while Meridian shares were also weaker ahead of their full year result today closing at $5.29, down almost 3 percent for the week.

Seafood exporter Sanford said pricing for wildcatch, salmon and mussels remained strong but sales volumes were down for the three months ending June. Its shares continue to languish around the $4 mark where they have been for more than a year now.

Retirement village operator Summerset Group reported a 5.7 percent lift in its first half underlying profit to $87.1 million and a strong rise in development margins to 33.5 percent from 28.1 percent, though its shares were little changed closing at $9.91.

The kiwi dollar fell for a sixth week closing at 59.03 US cents. Since peaking at 64.1 US cents in early July the NZ dollar has fallen almost 8 percent which has seen 91 petrol prices spike above $3 a litre in many places in recent weeks.

US economy begins to weaken as rate hikes bite

After a remarkable summer of robust consumer spending and financial-market resilience, the US economy is widely expected to slow in the coming months as the Federal Reserve continues its historic inflation fight.

In his highly anticipated speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Federal Reserve chair Jerome Powell said on Saturday (NZ time), “there may be significant further drag in the pipeline” that the economy hadn’t felt yet, and he cautioned that it was unclear when those effects could take hold.

If the economy does moderate, that would be a good sign for the Fed as it attempts to slow the momentum without ushering in a recession.

US Treasury yields and the dollar rose after Powell said the central bank would consider another interest rate rise, and that it intends to hold policy at a restrictive level to temper inflation.

Reiterating his earlier stance that US inflation “remains too high” Powell said the central bank would either be holding rates at their current level for an extended period or raising them to bring inflation down to its 2 percent target.

Until recently, the majority of market participants believed the Fed had finished raising its benchmark federal funds rate, which is currently in a range of 5.25 to 5.5 percent, but recent economic data has signalled the labour market remains tight, and that consumer spending is still relatively healthy, though there are early signs that things are beginning to weaken.

Borrowers feel the pain

Morgan Stanley, an investment bank, said the resilient economic data would likely begin to falter as consumers and employers feel the pressure of persistently high borrowing costs.

“The consumer is definitely starting to hurt,” it said in a recent note. “Certain cohorts of consumers that we track are already going back to pre-Covid levels of delinquencies.” These had slowed down during the pandemic due to government stimulus and increased savings rates.

Reflecting this growing financial pressure, American consumer’s credit card addiction is growing as their savings accounts have dwindled. Recent research from the San Francisco Fed predicts that the excess savings Americans accumulated from pandemic-related stimulus payments and not spending during lockdowns will run out by the end of this quarter.

“In the next six months we think you will start seeing data surprise to the downside” it said.

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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