INSIGHTS

MARKET SUMMARY: 30 APRIL TO 4 MAY

Research Team, 4 May 2018

The NZX 50 rose 1.50% for the month of April, recouping losses seen in February and March. There’s been no shortage of economic events happening domestically this week, with the latest Global Dairy Trade auction, unemployment rates and business confidence. Globally, investors are digesting strong earnings results however concerns over the possibility of the Fed raising rates faster than expected have contributed to the shakiness in markets. The NZ dollar dipped back below US$0.70 this week as the US dollar continues to strengthen against all major currencies.

Stats NZ released its latest unemployment data, which saw the unemployment rate fall to 4.4% in March, down from 4.5% the previous quarter. This is the fifth consecutive quarter the unemployment rate has fallen and is the lowest in a decade. Average total weekly earnings for a full-time employee increased 3.9% to $1,205 and was the largest annual increase since September 2011. The number of part-time jobs decreased 4.9%, while full-time jobs increased 2.9%. The Care and Support Worker Settlement Act, which came into effect in July 2017, contributed to higher wages, most notably for the private sector care workers.                                          

ANZ Business Confidence dipped in April, after the business sentiment index fell from -20.0 in March to -23.4 in April. The declines were led by the construction sector while agriculture saw a jump this month. The ANZ Own Activity Index, which asks businesses how conditions are within their own firms, was a mixed bag, slipping slightly from +22 to +18. The Own Activity measure tends to correlate very well with economic growth.

Dairy prices fell at the latest Global Dairy Trade auction following Fonterra’s review of its milk production forecast. Declines were led by rennet casein dropping 10.5%, followed by anhydrous milk fat down 1.9%. Whole milk powder, a key product for NZ, declined 1.5% however skim milk powder rose 3.6%. Synlait Milk continues its stellar run, rising for a third consecutive month and trading at all-time highs.

It’s been another busy week for global earnings with 76% of companies beating earnings estimates and 71% reporting positive sales surprises. Apple reported a solid quarterly result with both revenue and earnings ahead of expectations as well as announcing the largest stock buyback program in corporate history. Despite negative news during the quarter, iPhone results were largely in line with expectations and management’s guidance indicates another solid quarter ahead.

The Fed kept rates on hold at its May meeting, as was widely expected, but signalled for another two hikes this year.  Commentary reiterated the Central Banks previous rhetoric saying that the interest hikes will be gradual as inflation returns to its medium target of 2%. The market is pricing in a more than 90% chance that there will be a rate hike in June although there was no further hints that this would be the case.

A recent rise in Treasury yields has also helped boost the dollar, although the 10-year Treasury yield has fallen back below the psychological 3% level. For April, the Dow Jones, S&P 500 and Nasdaq all declined for the month.

Across the Tasman, the ASX 200 climbed 3.9% in April and is at its highest level since February. The financial sector has been in turmoil as investigations from the royal commission continues. News of the Commonwealth Bank charging fees to dead clients, and in one case for more than a decade, as well as being forced to reveal it had lost the records of almost 20 million accounts, and decided not to tell its customers has rattled the market. Also making headlines in Australia, is AMP, their largest wealth management service, who have been charging customers for advice they never received and lying to the corporate regulator. AMP saw their Chairwoman resign and is trading at its lowest mark since 2012. Meanwhile, in New Zealand, financial authorities have met with the country’s biggest banks seeking assurances they are not engaged in the same sort of misconduct as their Australian parent banks, by a judicial inquiry.