INSIGHTS

MARKET SUMMARY: 2 TO 6 JULY

Research Team, 6 July 2018

It’s been a mixed week for global markets as trade tensions continued to weigh on investor sentiment. The NXZ 50 reached a record high on Tuesday but fell later in the week, following global peers, ahead of President Donald Trump triggering US$34 billion worth of tariffs on Chinese goods. China has said they will ‘absolutely not’ fire the first shot in the trade war and will not be the first to levy tariffs. The trade spat between the world’s largest economies has been in the spotlight for about three months and has riled global markets.

Meanwhile, the European Union (EU) is reportedly considering holding international talks to cut a deal on car tariffs. The EU currently imposes a 10% tariff on imports of passenger cars, compared to the 2.5% duty imposed by the US. President Trump has called this unfair and has threatened to impose a 20% tariff on all car imports from the EU which could upend the industry for selling cars into the United States.

Additionally, investors in the region breathed a sigh of relief after German Chancellor, Angela Merkel, reached a deal on migration. The deal also ended a political standoff with her interior minister who was threatening to walk off the job. Meanwhile, the euro area unemployment rate held steady at its lowest level since 2008. The unemployment rate remained unchanged at 8.4% in May; the expected rate was 8.5%.

Across the Tasman, Australia's Central Bank held the official interest rate on hold at its record low of 1.5%, for the 23rd month in a row, as expected. The bank said its stance remains consistent with sustainable growth in the economy.

Locally, the results from the latest Global Dairy Trade auction were announced and the index tumbled 5.0% from its previous auction two weeks ago. The fall registered the biggest this year, and a third consecutive drop for the dairy price index. Key product group, whole milk powder, dropped 7.3%, while skim milk powder declined by 4.6%. Butter milk powder marked the biggest gain, up 6.4%, followed by rennet casein, which rose by 3.6%. Cheddar and butter both slipped, down 4.3% and 4.0%, respectively.

The latest NZIER Quarterly Survey of Business Opinion has showed a continued decline in business confidence. 19% of businesses now expect a deterioration in economic conditions, from 10% in the previous quarter. This follows the ANZ business confidence survey which fell for a fourth consecutive month, plunging to a seven-month low in June.

In corporate news, EBOS soared this week, hitting fresh new highs, after winning the exclusive rights to distribute pharmaceutical products to more than 400 Chemist Warehouse and My Chemist stores in Australia. Both parties expect to enter into a five-year agreement. With the potential for an extension for a further three years. EBOS estimates that sales to Chemist Warehouse Group will generate approximately A$1 billion in revenue in the first year of the agreement.

Meanwhile, The a2 Milk Company announced it extended its supply agreement with Synlait Milk. The revised agreement provides a new minimum term of five years, with a rolling three-year term from August 2018. The agreement will see an increase in volume of infant formula products which Synlait already has exclusive supply rights to, and an increased committed production capacity from Synlait. Synlait Milk rose to an all-time high off the news.

On Wednesday, Gentrack announced it intends to raise $90 million of new equity through a fully underwritten entitlement offer to support future acquisition and growth opportunities. On June 21, the company entered into an agreement to acquire Evolve Parent Ltd and Evolve Analytics for $44.2 million. Proceeds raised through the offer will also be used to pay down existing bank debt.