Research Team, 15 June 2018

This week was a busy one for central banks around the world. The Federal Reserve announced that it will raise the target range for its federal funds rate by 0.25%, making the new range 1.75%-2.00%. This increase puts it above New Zealand’s OCR for the first time in eighteen years. The Fed also suggested two more increases are likely this year, commenting that the economy is doing very well, noting solid gains in employment, household spending, and business investment could continue. This saw treasury yields rise, pushing bond prices lower.

US markets held steady after President Donald Trump and North Korean leader Kim Jong Un signed an agreement aimed at establishing a peace regime on the Korean Peninsula. However a lack of detail in the agreement was noted.

Meanwhile, the Italian share market surged this week after the Italian Economic Minister, Giovanni Tria, said the new Government has no plans to leave the euro and is seeking to boost growth through investment and structural reforms instead of deficit spending.

The latest REINZ figures showed house prices have set a new national price record of $562,000, up 5%. This was driven by strong growth in Tasman and Northland. House prices in Tasman have gone up 16.2% to $612,000, with the region leapfrogging both Wellington and the Bay of Plenty to become the second most expensive region in New Zealand. Only Auckland, Gisborne and Southland saw a year-on-year price decrease.

The NZX 50 continued to hit fresh new highs this week, following a 3.5% gain last week. A number of companies within the benchmark are trading at or near all-time highs, namely Mainfreight, Fisher & Paykel Healthcare and Ryman Healthcare.

Scales held its annual general meeting on Wednesday and said that its apple crop was much larger than in recent years, with one third of apples now sold. The company commented that overall pricing has been in line with expectations. Management maintained its earnings guidance for FY18 and said they continue to evaluate potential acquisition opportunities.

In corporate news, Restaurant Brands gained after announcing it had entered into a master franchise agreement with Yum! Brands for the continued operation of the Pizza Hut brand in New Zealand.

Off the main index, Tegel’s directors and its auditor are in dispute over the value of the company’s goodwill. The company posted a 24% drop in net profits and Tegel’s directors unanimously recommended shareholders accept a $437.8 million takeover offer from Philippines poultry company Bounty Fresh Foods. However, they point out there is no benefit in accepting the offer early, but if shareholders do, they will still be entitled to the 4.1 cent per share dividend.

Cinema software company Vista Group announced they have signed an agreement with Les Cinémas Pathé Gaumont, leaders of exhibition theatre in France. Les Cinémas Pathé Gaumont who also operate in the Netherlands, Switzerland and Belgium, plan to roll-out the software in 2019. The company’s share price is up 28.82% this year.

Across the Tasman, APA Group, an Australian natural gas infrastructure company, received a non-binding takeover offer from a consortium led by Hong Kong’s CK Infrastructure Holdings. The acquisition offer values the company at A$13 billion. The stock jumped 21% on the news. A transaction would be subject to a shareholder vote and approval from relevant regulators, which may be a stumbling block to the deal.