INSIGHTS

MARKET SUMMARY: 24 TO 28 JULY

Research Team, 28 July 2017

The global quarterly reporting season has given us plenty to monitor over the past week, with a number of large corporates reporting earnings for the second quarter of 2017. There has been a number of corporate events locally as well, with numerous AGM’s on the NZ corporate calendar. Add to this a number of important economic events and a Federal Reserve meeting and we can see there has been plenty for investors to process.

The most watched event of the week was without a doubt the US Federal Reserve’s two day July meeting. Although this meeting would not result in a change to forecasts, nor would it result in a change to rates, the commentary was going to be watched for clues on the central banks path.  As expected the Fed funds rate range remained on hold after being raised by 0.25% last month to 1.00 – 1.25%.

The commentary was positive albeit cautious as the committee continues to see economic activity rising, however inflation remains subdued and this is of concern. The committee expects to begin implementing its balance sheet normalisation programme soon, unwinding the massive quantitative easing programme it undertook following the global financial crisis.

The overall cautious tone of the commentary has seen expectations of another rate hike this year fall again. At the last meeting the Fed reiterated that it still anticipates a further rise in rates later this year. The market has grown increasingly cynical of this and prior to this meeting was pricing in around a 50% chance of a hike by the end of the year. This has been pared back further following this meeting, with the most economist anticipating that rates will remain on hold until at least March in 2018.

The corporate reporting season continues this week and has been largely positive. For the S&P500, of the 197 companies that have reported 77% have reported earnings growth while 75% have beaten revenue estimates. This has translated into some solid gains on the share market, pushing all three of the main indexes in the US to record highs.

One of the stand out performers for the week has been The Boeing Company after it beat expectations for both earnings and revenue. The company also raised guidance for its full year. The positive outlook was certainly cheered by investors and the share price rose almost 10% in the following trading session. Other notable wins include McDonald’s, which also beat expectations and provided a positive outlook for the remainder of the year. McDonald’s was also suitably rewarded with a substantial leap in its share price for the day.

It has been busy on the corporate front in New Zealand with a large number of companies holding AGM’s during the week. We have had a few companies reporting results as well, however the local reporting season will really get underway next week. TrustPower held its AGM this week and upgraded full year guidance as trading conditions remain strong and customer numbers have continued to increase.

Retirement village operator Ryman Healthcare held its AGM this week and said that trading is in line with expectations, however it expects to report limited growth in the first half of 2018 as development earnings are weighted to the second half of the year. The company gave an update on a number of developments with Brandon Park, its second Melbourne village, seeing strong early demand.

In other news on the local front, Fonterra increased the forecast payout for the 2017/18 year by 25 cents per kilo of milk solids to $6.75. The company said that this was reflective of the ongoing rebalance of supply and demand in global dairy markets.

Next week, we will be continuing to watch the global reporting season as it continues to push global share markets higher. The local reporting season will really ramp up next week also, while second quarter unemployment will be the headline grabber.