INSIGHTS

MARKET SUMMARY: 25 TO 29 JUNE

Research Team, 29 June 2018

Global markets have been on a roller-coaster ride in recent weeks as investors remain concerned that trade tensions between the US and its major trading partners, such as China and the European Union, could develop into a big drag on the global economy.

There are increasing concerns surrounding US President Donald Trump's tariff threats as he targets US$200 billion worth of Chinese products, as well as sending mixed signals on foreign investment in the US tech sector. US Treasury Secretary Steven Mnuchin tweeted that news of the Trump administration planning to curb Chinese investment in US tech shares was ‘fake news’ but also said that restrictions will apply to ‘all countries that are trying to steal our technology.’ Trump has also raised the possibility of a 20% tariff on European cars.

Considering the mixed cues from global markets, the NZX 50 has held up relatively well. The local bourse has been trading near all-time highs this week, after reaching a record high of 9,008 earlier this month. The benchmark index currently around 8% higher this quarter, with Synlait Milk, Tourism Holdings and Fisher & Paykel Healthcare all reaching record highs during the week.

Data from the ANZ business confidence survey has fallen for a fourth consecutive month, plunging to a seven-month low in June, as costs, credit and capacity weigh on firms. 39% of the 341 firms surveyed expect general business conditions to deteriorate this year. Business confidence has been falling since June last year as economic headwinds have strengthened. Retailers remain the most pessimistic, while manufacturers are the most upbeat. Employment intentions have fallen from +7% to +1% with the most negative sectors being construction and agriculture. The lack of skilled employment was the most prevalent problem, followed by regulation, competition and low turnover.

The RBNZ kept the official cash rate unchanged at 1.75% on Thursday, which was in line with market expectations. However, Reserve Bank Governor, Adrian Orr, signalled that he is prepared to cut if needed, as economic growth slows and inflation remains below target. He also commented the Bank is well positioned to manage change in either direction – up or down.

New Zealand’s foreign trade surplus increased notably in May, compared to the same time last year, as exports grew faster than imports. The trade surplus rose to $294m in May, from $62m the previous year. Exports surged 10.4% from the prior year, while imports climbed 5.7%. It was a strong month for meat exports, with both lamb and beef increasing in quantities.

In corporate news, Kathmandu surged 20% this week, after substantially upgrading its FY18 profit forecast following strong support for its autumn and winter promotions. The outdoor clothing retailer lifted full-year earnings guidance after tax to $48 - $52 million for the year ending July. Current sales for the year-to-date are up 7.7% from that of last year. Under CEO Xavier Simonet, the clothing retailer has been discounting less, selling more product at full-price and achieving a higher average selling price. Kathmandu will release its full-year earnings on September 18.

Synlait closed at a record high after announcing Leon Clement will join the organisation as Chief Executive Officer from mid-August. Prior to this, Clement was formerly Fonterra Cooperative Group's Managing Director of Fonterra Brands NZ, having worked with the company since 2002.

Trade Me CEO, Jon Macdonald, announced he intends to step down from the company in around six months time. He has been with the company for 15 years, including 10 years as CEO.

Precinct Properties rose this week after a revaluation on its property portfolio. It now values its property portfolio at approximately $202 million, an 8.8% uplift, increasing its portfolio to around $2.5 billion.