INSIGHTS

MARKET SUMMARY: 13 TO 17 NOVEMBER

Libby Sharp, 17 November 2017

There was a lot less on the agenda for investors this week with the AGM and reporting season again the focus for New Zealand and Australia. Falls in commodity prices have also pushed many markets across the globe down, while the uncertainty around proposed tax legislation changes in the US has weighed on sentiment.

Although this is the quietest of the reporting seasons locally, it comes with a number of annual meetings for shareholders. These often contain more accurate updates to forecasts and guidance, as they come following the first quarter of trading. Australian based Ramsay Health Care held its annual meeting, reaffirming full year guidance of 8-10% earnings growth. It expects continued strong growth from the core Australian business, despite industry data pointing to ongoing softness in volumes. However, French and UK conditions remain challenging. The market rewarded the confirmation of guidance which saw its share price rally.

One of the most noteworthy results from this reporting season came from Xero, with the company announcing its intention to delist from the NZX and consolidate its ASX listing. The announcement overshadowed the otherwise solid half year result and saw the share price come under significant pressure, although this has been moderated by a rebound this week.

Mainfreight also released its half year result. While better than the prior comparable period, earnings missed company and market expectations. The biggest impact to the result was an increase in costs that were largely driven by the disruptions caused by the Kaikoura Earthquake. These disruptions and additional costs are expected to decrease in the second half of the year and management expect an improved performance. Mainfreight’s valuation in the lead up to the result was fairly lofty, so the reaction from the market was negative. However these losses were pared back later in the day.

In the US, market sentiment took a hit as the Senate Finance committee issued an iterance of the proposed tax reform legislation. The tax plan would both repeal the Obamacare mandate and give permanent tax cuts to US corporates only. These changes saw the bill lose support from some Republicans, putting the highly anticipated tax reform in jeopardy. One of the driving factors of the market rally this year has been the promise of tax reform from President Trump, however, much like the promised healthcare reform, these are now in jeopardy, which has weighed on sentiment and has seen markets decline.

Commodity prices came under pressure this week, weighing on mining stocks across the globe. Oil prices fell after the US government reported an unexpected increase in crude and gasoline stockpiles. The decline was exacerbated by the International Energy Agency’s report that there would be slower growth in global crude demand, slashing prior estimates by 100,000 barrels a day.

The Australian index was hit hard, as the resource heavy index felt the brunt of these declines. However, this was pushed aside as political issues again took the spotlight. The results of the historic non-binding referendum on same sex marriage were announced during the week and saw 61.6% of voters saying yes to marriage equality. Prime Minister Malcolm Turnbull has said that he would like this acted on by Christmas and the bill will now be debated in Parliament. This still presents a major hurdle for Australia, with a significant number of MPs opposing the bill.

Economic data in Aussie was mixed, with consumer confidence rising, although still missing expectations. Meanwhile, wage growth was much softer than expected, with quarterly growth of 0.48% coming in well below forecasts for a 0.7% increase. For the year wages grew 2.01%, also missing expectations. Employment growth also slowed in Australia with just 3,700 jobs added in October, although this still saw the unemployment rate fall to 5.4%. All three of these events impacted the Aussie dollar and saw it lose ground against all major trading partners.