INSIGHTS

MARKET SUMMARY: 17 TO 21 SEPTEMBER

Research Team, 21 September 2018

Market movement was mostly positive this week, despite escalation in the tit-for-tat trade war, with a new round of tariffs placed on US and Chinese goods. However, sentiment got a boost as investors deemed that the trade war between the two largest economies will not be as bad as previously feared.

On Wednesday, the NZX 50 closed 17.6 points shy of its all-time high, reached on August 29. The local sharemarket has seen a number of companies trading at all-time highs this week, namely Meridian, Mainfreight, Chorus and Oceania Healthcare. Meanwhile, the New Zealand economy expanded at its fastest pace in the past two years in the second quarter, led by farm production and household spending. Gross Domestic Product (GDP) gained 1.0% over the June quarter, making a 2.7% gain for the year, beating forecasts and sending the New Zealand dollar higher.

Results from the latest Global Dairy Trade (GDT) auction saw dairy prices drop for a tenth time out of the past 12 auctions. The headline index fell 1.3% with rennet casein the only product to see a gain at the event. Key product group, whole milk powder, was down 1.8%, while skim milk powder fell 1.1%. Fonterra has suggested increased supply from other key regions like Argentina, Europe and the US has been a factor of the decline, and that we could see further weakness if the trend continues.

In company news, Synlait reported another impressive result with NPAT up 89%, driven by strong infant formula volume growth. The company also announced it has entered into a conditional agreement to acquire Talbot Forest Cheese assets. Despite the strong result, its share price closed 6.6% lower on the day.

Kathmandu also produced an excellent full-year result this week with EBIT up 31% and revenue up 11.7%. The company continues to outperform the retail market and management is executing well with a more targeted promotions strategy and better product management.

Despite no recent news, Comvita’s share price has gained momentum and is now trading back at levels last seen in May, with some investors expecting a better year ahead following two seasons of poor harvests.

At the end of the scale, Sky TV fell to an all-time low this week and remains down 18.5% this quarter, as it struggles to compete for customers and content. Tourism Holdings has also been facing headwinds after management flagged the potential for further offshore acquisitions causing some investor nervousness. However the company remains in good shape, demonstrating solid management and offshore earnings.

Across the ditch, the ASX 200 is on course for its second worst month of the year. A Royal Commission into the aged care sector was also announced this week after a string of allegations of abuse, neglect and failures within the sector. Meanwhile, minutes from the Reserve Bank of Australia's September policy meeting highlighted that global tensions from trade policy presented a ‘material risk’ to an otherwise upbeat outlook for global and local economies. Separately, a government report showed that house prices in Australia were down 0.7% sequentially in the second quarter, in line with expectations and unchanged from the prior quarter.

Trade remained in focus this week as the United States and China plunged deeper into a trade war. Beijing added a further US$60bn of tariffs on US goods in retaliation for President Donald Trump’s planned levies on US$200bn worth of Chinese goods. The tit-for-tat measures are the latest escalation in an increasingly protracted trade dispute between the world’s two largest economies. Both countries’ tariffs come into force on September 24, despite both sides saying they are open to talks.

Looking ahead, the latest ANZ Business Outlook survey is due for release this week. Last month, a net 50% of respondents said they expect general business conditions to deteriorate in the year ahead. Business confidence is at decade lows and markets will be watching to see if sentiment bounces or slips further.