INSIGHTS

MARKET SUMMARY: 31 JULY TO 4 AUGUST

Research Team, 4 August 2017

This week saw the end of July and it was positive for most of the world. However, politics took centre stage both here and in the US, as the Labour Party got a new leader and there was more staff turnover for the Trump Administration. The global reporting season continued to drive markets higher while the local reporting season got underway, albeit slowly. Some solid data points from home have made for an interesting week for markets.

New Zealand again had a strong month and the NZX50 rose 1.08%. This is the seventh month in a row of gains for the local bourse and saw it hit fresh record highs in the first week of August.

Metro Performance Glass was the top performer for the month, gaining 11.59%. Kathmandu was close behind, rising 11.27% for the month while this year’s market darling, a2 Milk rose 10.25% as sentiment for the company remains strong. ATM has more than doubled in price since the beginning of the year now.

At the opposite end of the spectrum, Stride Property Group was the worst performer, down 4.62%, followed by market heavy weight Fisher & Paykel Healthcare, down 4.19% as it was adversely affected by a strong NZ dollar.

The US also saw some solid gains for the month with the S&P500 gaining 1.93%. During the month, all three of the main indexes in the US hit record highs, benefitting from some solid results from the global reporting season, and a particularly strong run from the tech sector. The FTSE 100 gained 0.81%, benefitting from recent gains in commodity prices and a weaker pound, while the Stoxx 600 pan-European index fell 0.40%. The ASX200 finished almost flat for the month, slipping 0.02%.

The political scene in New Zealand has definitely been a headline grabber as polling showed that support for the Labour Party had reached 20 year lows under the leadership of Andrew Little. After much speculation, Mr Little stepped down from the top spot, just under 8 weeks out from the General Election and the reins were handed to deputy Jacinda Ardern. Kelvin Davis was named as deputy leader.

In the US, there has been another chapter added to the Trump Administration saga, after Anthony Scaramucci was employed for less than 10 days as the White House communication director. This was the latest in a string of high profile staffing changes, which included the President’s Press Secretary, Sean Spicer and Reince Priebus, Chief of Staff. In addition to this, the replacement bill for Obamacare failed to pass in the Senate with at least three Republicans, including Senator John McCain, voting against the bill. This has cast further doubt over the reforms promised by President Trump during his campaign.

Looking at the economic data released during the week, employment data released was mixed, with the unemployment rate falling to 4.8%, the lowest it has been since the global financial crisis. The participation rate slipped slightly to 70.0%, which saw employment shrink during the period by 0.2%. This surprised markets and ended a six quarter period of gains. Wage growth was being watched closely and showed a 0.4% increase for the quarter while for the year they grew 1.7%. This was slightly better than the previous quarter, which showed an annualised gain of 1.6%. The result saw the NZ dollar stumble and will give further cause for the RBNZ to keep rates lower for longer.

The latest Global Dairy Trade auction saw prices fall by 1.6% on average. This was the biggest movement in prices since May. However the key product group for New Zealand, whole milk powder prices gained 1.3%, its third auction of gains in a row. In addition to this, volumes were significantly higher than in the previous auction with more than 32,000 tonnes sold.

Next week, the local reporting season ramps up while the global one continues. Expectations for the local reporting season is for NZ to fare better than Australia, with the exception of the resources and energy sector.