INSIGHTS

MARKET SUMMARY: 15 TO 19 JANUARY

Libby Sharp , 19 January 2018

The first full week of trading for 2018 saw the NZX finish lower. However, this trend has reversed this week with the index again moving higher. Positive corporate newsflow has been a key driver for the local bourse over the week, along with some solid economic data and positive movements from global peers.

It has been a mixed week for the dairy industry, starting off with Fonterra’s Global Dairy update. The key takeaway from the update was the significant decrease in milk collection for December. With many rural areas facing drought conditions at the moment, production levels for dairy herds has decreased which has seen a drop off in collections. Fonterra has lowered its forecast milk collection for the current season by 3%.

In early December, Fonterra revised its forecast farmgate milk payout to $6.40 as prices for dairy products took a fall. However, at the latest Global Dairy Trade auction, held Wednesday, the headline index rose for the second consecutive auction. The two price increases have been driven by the slowdown in production as drought conditions persist. The two key product groups for New Zealand, whole milk powder and skim milk powder, saw solid gains, rising 5.1% and 6.5% respectively.

a2 Milk (ATM) this week announced that it would be expanding its US distribution network. Currently ATM distributes its products in California and the South East region and sales in these areas have now reached a level the company sees as able to support the expansion in to the North East. Both ATM and peer Synlait Milk have had a soft start to year however, this announcement has seen them on the rise again.

The Quarterly Survey of Business Opinion for the December quarter showed a continuation of the themes we have been seeing in the ANZ business outlook survey. There has been a marked decrease in business confidence following the General Election. This is not an abnormal phenomenon, with the uncertainty surrounding an election generally causing some unrest. This was compounded with the change of leadership, which created policy uncertainty. The decline in business confidence was broad based with all sectors registering a fall in confidence. Retailers and manufacturers were particularly downbeat. However, it is also worth noting that when businesses were commenting on their own businesses, they were more positive with a net 10% reported a lift in trading, although this is lower than the previous quarter.

The Real Estate Institute of New Zealand’s latest survey showed median house prices increased in the year to December by 5.6%. Auckland house price increases were more muted, rising only 1.7%. The strongest price growth came in the Waikato, with an 11.4% increase and the Bay of Plenty, which recorded a 20.4% increase. The number of days to sell increased marginally while volumes fell significantly, falling 10% on a year on year basis and 16% from November.
Elsewhere in the world, the US market has continued to go from strength to strength. The recently passed tax reform and the start of the corporate earnings season have been the key drivers for the stellar performance. The Dow Jones Industrial average crashed through yet another threshold this week, rising above 26,000 for the first time, a mere seven trading days after it reached the 25,000 mark.

The Australian index had started 2018 with a solid run, however, commodity prices have pulled back with the weaker US dollar, creating a headwind for the index. Although crude oil prices reached above US$70 a barrel during the week, at the time of writing it had dipped below that level.