INSIGHTS

MARKET SUMMARY: 1 TO 5 MAY

Research Team, 5 May 2017

It has been another action packed week for investors as the global reporting season continued and the local reporting season got underway. There was also a large number of economic releases both locally and abroad as well as two important central bank meetings. The market also looked toward the second round of the French election, which will be held Sunday in France.

The global reporting season had another busy week with more than 100 of the S&P500 companies reporting. At the time of writing 62% of those that had reported had beaten revenue forecasts while 78% has exceeded earnings estimates. The tech sector has been a standout with 93% of the companies that have reported beating earnings estimates, and helped the Nasdaq Composite push to a record close during the week.

Apple was one of the companies that reported during the week and despite beating both revenue and earnings expectations, saw its share price decline. The market was disappointed with the number of iPhone sales for the quarter with just 50.8 million sold. Expectations were for 52.3 million to be sold during the period, however, it appears that people are holding out for the highly anticipated iPhone 8 due for release in September. Although nothing has been confirmed about the upcoming release, rumours are rife that it will be drastically different to the iPhone 7.

The local reporting season got underway this week and although it is a quiet one in terms of numbers of results, some of the biggest companies from the ASX and NZX are due to report or hold AGMs. ANZ was among those to report this week and disappointed investors, which saw its share price dip and dragged its banking peers lower also, with concern over lower margins.

The biggest event on the local calendar was the release of first quarter unemployment data. The unemployment rate fell to 4.9% in the March quarter from 5.2% in the fourth quarter last year. There was a slight uptick in the participation rate at 70.6% and employment growth continued to outpace population growth. The unemployment rate for men fell from 4.8% to 4.2% while for women it held steady at 5.7% with construction, accommodation and food service leading the filled jobs by sector. Disappointingly annual wage inflation remained stagnant at 1.6%, a figure which is well below the current inflation rate of 2.2%.

The latest Global Dairy Trade auction saw another increase in the average price of dairy. The 3.6% gain was the fourth consecutive price gain for dairy, although volumes dipped around 1% for the auction. Whole milk powder saw a 5.2% price rise, while skim milk powder saw yet another price decline of 0.9%. The continuation of gains has boosted sentiment in the dairy sector which is set to receive a payout that is above the published breakeven point for the first time in three seasons.

The Reserve Bank of Australia (RBA) was the first of two central banks to meet this week. As was expected, the RBA left rates on hold at the historic low of 1.50%. This is the eighth meeting in a row without change and the market is expecting the cash rate to remain on hold for the remainder of the year at least. The RBA acknowledged that the economy is continuing to pick up, however underlying inflation remains below the targeted 2-3% at around 1.75%. The expectation is that inflation will continue to pick up as the economy strengthens.

The other central bank to meet this week was the US Federal Reserve. The Fed also remained on hold keeping the fed funds rate at a range of 0.75 – 1.00%. It reaffirmed previous guidance that there would be two more rate hikes this year, and the market is now pricing in a 90% chance of the next hike coming at the June meeting. The Fed addressed the disappointingly low first quarter GDP saying that this was transitory and that the labour market remains strong with inflation likely to stabilise around 2% over the medium term.