Libby Sharp, 10 November 2017

The first week or so of November has been tough for the NZX50 and so far, seems to be as negative as October was positive. The local index has been dragged lower by declines from some of the top performers for the year to date. The NZ dollar on the other hand has seen a bit of a rebound, putting added pressure on exporters.

One of the biggest events on the local calendar was the Reserve Bank of New Zealand’s Official Cash Rate (OCR) decision and Monetary Policy Statement. This was the first meeting for the RBNZ since the formation of the new Government and was expected to include some changes to economic forecasts. The OCR remained on hold at the historic low of 1.75% while the rhetoric confirmed that monetary policy would remain accommodative for some time yet. The RBNZ doesn’t expect to raise the OCR until mid 2019.

Quarterly GDP growth is expected to peak in the first quarter of next year at 1.2% before moderating to 0.7-0.8% growth. Quarterly inflation is also expected to increase in the first quarter of 2017, while the Trade Weighted Index (TWI), an exchange rate measure, is expected to remain stable at current levels.

While this information from the RBNZ was welcomed by the market, the latest Global Dairy Trade auction was not. The average price dropped 3.5%, its biggest decline since March of this year. A decline of this magnitude was not expected, as the dairy futures market was looking for a reasonably flat result. The biggest category decline came from whole milk powder, New Zealand’s largest product group, which fell 5.5% and is now in line with prices last seen in March. At the moment, the forecast payout from Fonterra is sitting at $6.75 per kg of milk solids. However, after this latest result, which is the third consecutive decline, analysts are beginning to question whether a downgrade is coming. The recent currency will likely provide a tailwind for the payout, however this may not be enough to mitigate these recent declines.

There has been plenty of corporate newsflow from the NZ market to keep investors interested this week, with Thursday a particularly busy day. Of those that reported or had annual meetings, Xero’s half year result was probably the one that garnered the most attention.

Xero’s share price has had an exceptional run this year with operational metrics improving and subscription numbers contining to grow. The half year result proved that they were on track to reach this goal, and was in line with expectations. However, the positive news was overshadowed by the company’s decision to delist from the NZX to consolidate its listing on the ASX. The company will remain domiciled in NZ dollars and its headquarters will remain in Wellington.

Looking overseas, this week markets celebrated or lamented, 12 months of Trump. It has been a year now since the US presidential election and this gave an opportunity for many to reflect how the US is getting on. The US share market is having an exceptional run, with all three of the main indexes hitting record highs again this week. In addition to this, they have hit a record number of highs, and a record number of highs set on the same day. The US dollar is beginning to recover now although it is much lower than where it was when Trump took the reins.

However, the President’s approval rating is at an all time low and a larger number of American’s than ever before feel the country is divided on key values. A number of key campaign promises are yet to come to fruition although the tax reform legislation is making significant progress. However, the repeal and replacement of Obamacare has still not occurred.

Social media has dominated the President’s term to date and since being elected, he has increased his twitter following by more than 29 million, or slightly more than the population of Ghana. We have another two years of Trump to come before the 2019 Presidential race. Is it enough time for him to “make America great again”?