INSIGHTS

MARKET SUMMARY: 12 - 16 FEBRUARY

Research Team >, 16 February 2018

The roller coaster has continued for markets this week, as investors continue to feel the effects of the huge sell down last week. Indexes in the US, Europe and Asia entered correction territory, defined as a fall of 10% - 20%, late last week, however there have been some sharp rebounds.

Global reporting season is beginning to slow down, with the majority of companies having now released results. It has been overwhelmingly positive with 82% of companies that have reported beating sales estimates, while 79% have beaten earnings estimates. Despite the positive results, markets have been distracted by the recent sell down, which has hidden some of the strong results.

The local reporting season is now underway, albeit slowly. This coming week will see a plethora of results from some of our largest companies, giving investors plenty of corporate newsflow to digest. Across the Tasman, there were two stand out results for the week, which were CSL Limited and Computershare. Both companies provided upgrades to full year guidance at their half year results which came in ahead of expectations, and both companies saw share price rises of around 5%.

There were several big announcements for the local market this week, however the biggest was from Fletcher Building. Following a thorough review of the Buildings + Interiors division, the company announced that losses for the full year in this business segment would be projected at $660 million. FBU also announced that Chairman of the board, Sir Ralph Norris would be stepping down, the interim dividend would be halted and that they would no longer bid for projects within the Buildings + Interiors space. On the plus side for investors, relatively new CEO Ross Taylor is now confident they have provided for the losses fully and is confident that other areas of the business are going well. The share price fell sharply coming out of its trading halt, however these early declines were pared back significantly and the share price ended down 9.27%.

In politics this week, National Party leader Bill English has stepped down from his post. Speculation on who his successor will be rife with a large number of names being thrown around as potential replacements. At the time of writing, three senior party members had nominated themselves, which are Judith Collins, Simon Bridges and Amy Adams. The National Party caucus will make the decision however this hasn’t stopped political pundits from putting their two cents in, and by all accounts it is going to be a fairly even race at this stage.

Housing data released by the REINZ showed that the volume of house sales rose for the first time in seven months, with 2.7% more houses sold in January 2018 when compared to January 2017. The median house price increased by 7.1% to $520,000 while the Auckland median house price decreased by 1.2%. The REINZ House Price Index for New Zealand, which measures the changing value of property in the market, increased 3.4% year-on-year to 2,655. The HPI for New Zealand excluding Auckland increased 6.6% from January 2017 to a new high of 2,491 and Auckland’s HPI increased 0.1% for the same period.

Off shore investors have been watching for the all important inflation data from the US. It was only a couple of weeks ago that markets fears of higher inflation saw bond yields rise rapidly, rate hike expectations saw and equity markets plummet. Although markets have rebounded from these lows, many analysts wondered if higher than expected inflation may be the trigger for the next sell down.

The CPI showed a 0.5% price increase for the month of January, well above the 0.3% expected, while on an annualised figure, prices rose 2.1%, also above expectations of 1.9% growth, but in line with the December reading. However, investors appeared to shrug off the higher than expected inflation figures and instead the market rose, with the Nasdaq Composite recording an almost 2% increase for the day.