INSIGHTS

MARKET SUMMARY: 8 TO 12 JANUARY

Libby Sharp , 12 January 2018

This year has started with a hiss and roar as markets across the globe have already hit fresh record highs, continuing the momentum from the end of 2017. However, trading remains muted as many lucky investors remain on holiday. Although there has only been a few economic data points released, there are a lot of important events to come in 2018 that could make it a very exciting year.

With markets at or very close to all time highs, the global reporting season will be watched very closely. Investors will be looking for companies to justify the current high valuations, with many trading above long term averages. The banks mark the start of the reporting season, with JP Morgan and Wells Fargo expected to report their results Saturday morning NZ time. Next week, reporting will shift up a gear and will get progressively busier as February approaches.

The global reporting season will be followed by the local reporting season and expectations are no different. There have been a couple of updates from NZ companies this week including Summerset Group. Summerset generated exceptional growth in 2017, particularly in the fourth quarter, when the group achieved more than 200 sales. The solid sales figures come after the company raised full year guidance in December.

Central banks will certainly be front of mind for the market. The US Federal Reserve has started its tightening cycle, having now raised the Fed Funds Rate four times since the all time lows it shrank to, following the global financial crisis. The central bank is also expected to begin to shrink its enormous balance sheet, as it begins to reverse the quantitative easing programme it undertook to stimulate the country’s economy.

However, there is also a leadership change for the Fed, with current chair Janet Yellen being replaced by Jerome Powell. Powell is considered to be sympathetic to Yellen’s views, however, that does not mean there will be no change in direction. The January meeting will be Yellen’s last.

The European Central Bank will also be watched closely this year, as economic growth in the region continues to gain momentum. The Central bank has halved its quantitative easing programme as of this month to €30 billion. At this stage the ECB intends to continue this until September 2018, although remains flexible on this as an end date, with plenty of potential risks emerging in the region.

A major risk for the Eurozone is the Italian election, to be held at the beginning of March. It is widely regarded as one of the hotspots for unrest for the European Union with more than 50% of the population currently unhappy with being part of the EU. This could give way to the populist Five Star Movement party, currently polling higher than the incumbent.

Brexit remains a risk for both the European Union and the UK this year, as negotiations on divorce proceedings continue. This event is front of mind for the ECB as well as the Bank of England, which saw a single rate rise at the end of 2017. However, it appears that this was a one and done scenario and the expectation is that they will now remain on hold for now.

The Reserve Bank of New Zealand will also be watched for changes this year with a change of leadership occurring in March. Adrian Orr was appointed Governor by Finance Minister Grant Robertson. Orr has been the Chief Executive of the New Zealand Superannuation Fund. In addition to the leadership change, the government will work with the RBNZ to update the Reserve Bank Act.

As has been the case through much of the last quarter of 2017, cryptocurrencies have continued to dominate headlines this year. This week, KODAK announced that they would be creating their own cryptocurrency, KODAKcoin to provide photographers a better platform to sell their services online. The company’s share price, which has been under significant pressure, doubled on the back of the announcement.