INSIGHTS

MARKET SUMMARY: 26 TO 30 JUNE

Research Team, 30 June 2017

This week marks the end of June and the end of the second quarter of the year, providing us with a great opportunity to take stock of the events of this month and how markets have performed.

Starting with the NZX50, June has been a very positive month for the kiwi index, up more than 3% at the time of writing. This is the sixth consecutive month of gains for the index and is the biggest monthly gain of the year. For the quarter the index is up 6.3%, a slightly better performance than in quarter one.

The top performer for the month and the quarter is the a2 Milk Company, which is up more than 19% for the month and 35% for the quarter. Air New Zealand follows closely, up 15% for the month and 34% for the quarter. SkyCity is the weakest performer for June down more than 7% while Comvita is the weakest for the quarter, falling more than 30% following the discovery of Myrtle Rust in New Zealand.

Economic highlights from the quarter include migration, which continues to set records and remains a talking point for the New Zealand public. Migration hit a new record high in May with net migration hitting 73,300 for the month.

Dairy prices have increased substantially this year and have been particularly strong this quarter rising almost 12%. During the quarter there have been six auctions, and all but one saw a rise in dairy prices. In conjunction with this, Fonterra announced a lift in this season’s farmgate milk price of 15 cents per kilo of milk solids taking it to $6.15. The company also announced the opening forecast for next season at $6.50 per kilo of milk solids.

The Reserve Bank of New Zealand has kept the official cash rate on hold for the quarter and, after the June statement, we are expecting this to remain the case through to at least next year, with the statement saying that monetary policy will remain accommodative for a considerable time. First quarter GDP was released during the quarter and was lower than expected, however the outlook for growth is positive and expectations are for second quarter GDP to be stronger.

The New Zealand dollar gained strength during the quarter, with the trade weighted index increasing almost 3%. The kiwi strengthened against the Aussie dollar and at 95 cents, is near where it started the year. The NZ dollar gained further strength against the greenback, now sitting at 73 cents, and the British pound, now close to 57 cents. For the quarter, we have lost some ground against the euro.

Offshore, it has been a tough quarter for the Australian index, with plenty of market moving events keeping investors on their toes. Although the ASX200 looks set to finish in positive territory for June (at the time of writing was up 1.5%), it looks set to finish the quarter slightly lower.

The energy sector has been the weakest performer for the month on the ASX as it has been on numerous other markets, as oil prices reached their lowest level for the year during June. Brent Crude prices dropped to below US$45 a barrel, the lowest it has been since November last year. Fears of a supply glut have been the driving force behind the declines, as inventory levels in the US have continued to grow despite OPEC implementing a production cap.

The US S&P500 has risen for the month, up more than 1%, and is up more than 3% for the quarter. Political issues have continued to dominate news flow from the US with President Donald Trump continuing to cause controversy.

The FTSE 100 in the UK has fallen in June, however after a very strong May, looks set to finish the quarter in positive territory, but only just. The British election threw up a surprise for markets when the incumbent Conservative party lost the majority in Parliament. The snap election was called by Prime Minister Theresa May to strengthen the party’s mandate however, it had the opposite affect and forced the Tories to go into coalition. Following this there were calls for Theresa May to be replaced at the helm of the party but at the moment she remains in charge and has proceeded as planned with Brexit negotiations.