INSIGHTS

THE MARKETS IN MAY

Research Team, 17 June 2016

May was a positive month for all major indices with the exception of the UK. The FTSE100 fell 0.18% for the month and can be partially attributed to the current political risk that the possibility of ‘Brexit is bringing. Brexit is the term being used to describe the possibility of the UK leaving the European Union, and will be decided on the 23 June.

In New Zealand the NZX50 gained 3.21% for the month of May, its fourth consecutive month of gains. The index is now up 11.31% for the year and if the current trend continues, the NZX50 will log its fifth consecutive year of gains, all of which have been more than 10%.

NZX50 Top Performers for May

For the month, Orion Health was the top performer on the NZX50 for May, rising 23.50%. The company has benefitted from a number of large contract wins this year. The company reported its full year results during May and although it made a loss for the year, Orion Health is gaining momentum and expects to be reporting a profit by the 2018.

Metlifecare rose 14.72% during May as the company made solid gains at the beginning of the month. The share price continued to rise in smaller increments for the remainder of the month.

Fisher & Paykel Healthcare was a stand out for the month, rising 14.21%. The market stalwart reported a better than expected full year result and offered a strong outlook for the coming year.

NZX50’ Worst Performers for May

Sky TV was the worst performer for the month, falling 15.57%. The company released subscriber numbers earlier in the month which were far lower than the previous year. The company cited increased competition as well as increased churn due to the Rugby World Cup ending.

Tower Limited fell 14.44% for the month after the company reported its half year result in the last couple of weeks of the month. Tower reported a large IT write down as well as increased provisions for claims arising from the Canterbury earthquakes.

Refining NZ had a tough month with its share price falling 13.71%. The company reported a squeeze on margins due to a planned shutdown of its hydrocracker unit and operational problems that needed repairing.

Refining NZ has also seen some share price weakness as oil prices have increased during the month. During the month oil prices have seen significant appreciation and peaked above the US$50 a barrel mark for the first time this year. This was the fourth month of gains for oil prices as the rebounded from the lows seen in February.

NZD Weakens

The New Zealand dollar weakened off significantly against other currencies with the exception of the Australian dollar. The weakening dollar came from more dovish commentary from the Reserve Bank of New Zealand during the month. The dollar is more than 4% lower against the greenback and down 4.2% lower against the pound.

How did the Australian share market and currency perform in May?

The ASX200 finished 2.41% higher for the month, as the index logged its third consecutive month of gains. For the year the index is also in positive territory, up 4.60%, after a strong second quarter erased the losses from the first quarter of the year.

Earlier in the month the Reserve Bank of Australia (RBA) surprised markets by cutting the cash rate by a further 25 basis points, taking it to a record low. Prior to the announcement the market was pricing in about a 50% chance that there would be a cut to rates, however, analyst chatter was leaning towards the central bank holding.

The surprise change to monetary policy saw share prices rise and the Australian dollar weaken. Later in the month, the RBA released minutes from the meeting which showed that the decision to cut rates was very close.

US Reporting Season results better than expected

May saw the close of the first quarter reporting season in the US. The reporting season was better than expected with more than 50% of companies beating revenue estimates and more than 75% beating earnings expectations. Although this was very positive, it should be noted that estimates in the lead up to the reporting season were revised lower so expectations were very low. Nonetheless, the positive results saw some strength in the corporate sector which, when combined with some positive data points from the US, saw markets climb higher for the month.

The S&P500 rose 1.51% during May, adding to gains from the previous month to put the index ahead for the quarter. The S&P500 is also ahead for the year, up 2.59%. The Nasdaq Composite gained 3.62% although remains in negative territory for the year to date. The Dow Jones Industrial average eked out a marginal gain for May of 0.08%, putting it ahead for both the quarter and the year to date.

In terms of the Federal Reserve in the US, they didn’t have any meetings in May however, they did release minutes from the meeting held late in April. The minutes reflected a more hawkish tone than expected, suggesting that another rate rise was probably closer than previously anticipated and that the June meeting was still in play. The minutes combined with speeches from Fed officials during the month has seen the chance of a June rate hike increase significantly.