INSIGHTS

MARKET SUMMARY: 18 TO 22 SEPTEMBER

Research Team , 22 September 2017

For New Zealand investors, attention has been firmly focussed on Election Day, this Saturday. Early voting will play a prominent part in this year’s election with the number of votes cast early well and truly exceeding previous years. The latest tally of early votes, as at Wednesday, is 27% of the electoral roll, already ahead of 2014’s total number of early votes cast.

The final leaders’ debate had more robust discussion around policy, and was held just after the release of the latest poll from Colmar Brunton. This poll showed National ahead with 46%, showing a gain of 6% from the previous poll. Labour lost significant ground, falling back to 37% while the Greens gained 1% to 8%. New Zealand First was the biggest surprise in the poll slipping back to 5%, close to the margin of error.

There is still a poll to be announced prior to the election from Reid Research. The last poll from them also showed National ahead so this will be closely watched to see if there is yet another change in the outcome.

Election coverage will definitely be the hot ticket over the weekend (the All Blacks are not playing), with both TVNZ and TV3 broadcasting results as the votes are tallied. The Electoral Commission is aiming to have results at 11:30pm with updates throughout the night. The official results will be available prior to October 7. If the latest polls are anything to go by, neither of the major parties is likely to have a majority, so in the weeks following the election we will see plenty of negotiation.

Away from the election, the latest Global Dairy Trade auction was held this week and for the eighth auction in a row, there was a price change of less than 2%. The GDT index gained 0.9% at the auction, with whole milk powder accounting for the majority of the rise, up 0.6%. This was the final auction prior to Fonterra’s annual result, to be announced Monday, when the dairy giant will either reiterate or update the forecast payout for the farmgate milk price this season. At the moment the payout stands at $6.75 per kilo of milk solids, which is higher than the payouts from the last three seasons.

Second quarter Gross Domestic Product (GDP) data was released this week with growth of 0.9%. This was above expectations for a 0.8% gain and higher than the upwardly revised quarter one figure of 0.6%. Annualised GDP growth was in line with expectations, growing 2.5%. The Reserve Bank of New Zealand anticipates there will be a further increase in growth over the next two years to average 3.4% growth, as monetary policy remains accommodative.

Net migration remains high in New Zealand, reaching 72,100 for the year to the end of August. Migrant arrivals of 132,200 to New Zealand hit a new record high, while migrant departures reached 60,100. The trend has changed this month with more NZ citizens leaving than arriving. In addition to this, visitor arrivals hit a record high, with 234,000 visitors arriving in August.

The key event for global investors has been the US Federal Reserve meeting. The two day meeting started Tuesday and was watched closely for clues as to when the central bank would begin to shrink its massive balance sheet as well its updated economic projections.

The Fed didn’t disappoint. It announced it would start to reduce its US$4.5 trillion balance sheet in October, which has been dubbed by economists as the great unwind. In addition to this, the Fed Funds rate remained on hold between 1% and 1.25%. This was widely expected. However, with recent disasters potentially impacting economic growth, markets were fairly certain the Fed would forgo previous promises to raise rates at least once more this year. However, this was not the case and the data released shows there is still another rate hike likely this year and then another three in 2018.

Next week, there will be plenty on the local front with the result or lack of result from the weekend’s election likely to take centre stage. In addition to this, the RBNZ meeting mid-week will be the first with interim Governor, Grant Spencer, at the helm.