INSIGHTS

MARKET SUMMARY: 16 TO 20 JULY

Research Team, 20 July 2018

The past week has been action packed with plenty of local economic data to digest and the global reporting season taking the spotlight offshore. In addition to this, US President Donald Trump met with Russian President Vladimir Putin, while Fed Chair Jerome Powell appeared before Congress. Locally, we saw inflation figures for the June quarter come in slightly lower than expected, the Global Dairy Trade index continue to fall as well as the latest figures from the Real Estate Institute of NZ (REINZ).

The local bourse continued to track lower and is nearing a one-month low after reaching a record high of 9,084 at the start of the month. Across the ditch, the ASX 200 hit a 10-year high after seeing a rebound in banking stocks. However, signs of a softening Chinese economy dented sentiment after second quarter economic growth expanded at a slower pace. Furthermore, June industrial output growth was the weakest in over two years.

Back home, the consumers price index (CPI) inflation rate was 1.5% in the June year and up 0.4% for the quarter. This followed a 1.1% annual inflation rate in the March year. The largest contributor to inflation was higher prices for housing and household utilities, however higher fuel prices was also a major driver.

REINZ released its recent figures on Tuesday and showed a sharp downturn in the number of houses sold in June, as winter blues hit the market. Nationwide, 6034 homes were sold last month, down 20% from May’s figure but down just 1.6% compared to those sold in June last year. That trend largely reflected the Auckland market. However sales in other major centres were significantly down in June compared to the prior comparable period. The Waikato region was down 14%, Wellington was down 11%, while Canterbury and Southland were both down 8%. Prices however remained generally flat, with the national average dropping just $2,000 from $562,000 in May to $560,000 in June.

Meanwhile, the Global Dairy Trade auction index fell for a fourth consecutive session this week, down 1.7%. The result would have been much softer had it not been for key product group, whole milk powder, which managed to hold its ground, rising 1.5%, having slipped 7% at the previous auction. Rennet Casein saw the biggest decline, down 9.5%, followed by butter, which slipped 8.1%.

Reporting season is now in full swing in the US, and up until now, more than 80% of the S&P 500 companies that have reported have beaten earnings estimates and 96% have beaten earnings forecasts. Shares in Amazon reached an all-time high and a rebound in Netflix led to a comeback in tech stocks. Netflix initially plunged after reporting weaker-than-expected subscriber growth. The company traded just 5.2% lower after falling as much as 14.1% earlier in the session. A strong earnings result from Johnson & Johnson also bolstered the indices.

In addition, the European Union slapped US giant Google, with its biggest ever antitrust fine of US$5 billion, after the EU ruled that its Android mobile operating system had abused the mobile software's dominance in the industry. Google said it would appeal the decision. Alphabet's share price slipped slightly following the announcement.

Meanwhile, Federal Reserve Chairman Jerome Powell appeared before Congress and stated that the US economy has grown at a solid pace so far this year and noted the latest data suggests economic growth in the second quarter was ‘considerably stronger’ than in the first quarter. With consumer price inflation a little above the central bank's 2% target, Powell said the Fed will continue to weigh a wide range of relevant information and stressed that the central bank's policy decisions will depend on the economic outlook. The Fed also released its Beige Book, noting employment continued to rise at a modest to moderate pace in most districts. The Fed is scheduled to hold a two-day policy meeting at the end of the month, with the central bank widely expected to leave interest rates unchanged.