INSIGHTS

MARKET SUMMARY: 6 TO 10 AUGUST

Research Team, 10 August 2018

Markets have continued to digest company results this week as the global reporting season starts to wind up and our local reporting season has now begun.

Trade tensions continue to be reflected in overseas markets, and at the end of last week, China retaliated on the US threat of increased tariffs by saying they would impose tariffs of 5-25% on some US$60bn of US goods (including agricultural and chemicals products). While most equity markets traded lower through the week the US market bucked the trend and continues to rise as strong earnings and a solid jobs report offset fears of escalating trade tensions.

Last Friday the US non-farm payroll numbers came in just slightly below estimates with 157,000 jobs added in July. The headline unemployment rate dropped to 3.9% from 4%, in line with expectations, which puts it at the lowest level in decades.

Looking at the global reporting season, nearly 90% of S&P 500 companies have now released their second quarter results. Of those, 71% of companies have beaten revenue forecasts and 83% have exceeded earnings estimates. However, there have been some notable disappointments this season with Facebook losing about a fifth of their value and Disney shares dropping more than 2% after posting weaker than expected earnings and revenue.

Turning to our local market, the Reserve Bank of New Zealand (RBNZ), released its survey of expectations for the September quarter. Results from the survey showed respondents saw a small increase in expectations for short-term inflation, while the unemployment rate was expected to decrease further, and wage growth was expected to rise.

As expected, Reserve Bank Governor Adrian Orr kept the Official Cash Rate unchanged at 1.75% on Thursday. He now expects to keep rates on hold through 2019 and into the second half of 2020, after expectations for a move around in the third quarter of 2019. The New Zealand dollar fell to 66 cents against the US dollar following the announcement.

The latest Global Dairy Trade auction showed no change in the overall index, as dairy prices remained steady. Whole milk powder prices were broadly flat, up only 0.1% at US$2,958 a tonne, after staging a modest recovery at the prior auction.

In Australia, the Reserve Bank of Australia held rates as expected, keeping their official interest rate at 1.5%. The benchmark interest rate has now remained unchanged for a record period of two years, with economists expecting this to continue until potentially 2020.

Locally the August reporting season is now upon us, with a handful of companies reporting this week, before things get very busy over the following fortnight. Sky City reported a rebound in net profit, driven by its VIP international business customers. The company reported net profit of $169.5m for the year to June, up from $44.9m in the prior year. Key drivers were strong growth in international business, continued growth in Auckland and improved performance in Adelaide. Property for Industry also reported, announcing its half year net profit was $29.6m, helped by valuation gains and cost savings.

In Australia, Transurban produced another solid full year result, though FY19 distribution guidance was below market expectations. The company awaits the result of its bid on Westconnex motorways. Commonwealth Bank announced its first full year net profit decline for the first time since 2009 due to regulatory fines.

Next week the New Zealand and Australian reporting season ramps up and we will see Contact Energy, Freightways, National Australia Bank, Cochlear, Summerset and PGG Wrightson report early in the week.