Research Team, 7 September 2018

It was a rollercoaster for markets this week as heightened worries over international trade conflicts curbed investor appetite. South Africa entered a recession for the first time in nine years, sparking fears over emerging markets. This sent investors flocking toward the safe haven US dollar, causing the New Zealand dollar to fall to its lowest since February 2016.

South Africa’s economic growth slowed unexpectedly in the second quarter, pushing the country into a recession for the first time since 2009. Gross domestic product fell by 0.7% in the second quarter, missing expectations of a 0.6% gain. The contraction was partly driven by a poor performance in the South African agricultural sector, which declined by 11% after a major drought affected parts of the Western Cape earlier this year.

Back home, the Global Dairy Trade index dropped 0.7% at its latest auction, marking a sixth decline out of the last seven auctions. The index is now at its lowest point since October 2016. New Zealand key product group, whole milk powder fell 2.2%, while skim milk powder gained 2.2%. The most dramatic moves at the auction saw cheddar gain 4.2%, rennet casein rise 3.7%, while butter declined by 2.8%.

After reaching record highs last week, Fisher & Paykel Heathcare dragged on the index this week after it said it will contest patent infringement allegations made against it by ResMed in the US. ResMed is seeking an order that could prevent FPH selling its Eson and Simplu range of face masks (used to treat obstructive sleep apnea) into the US. The company downgraded NPAT guidance to $205m - $210m, after previous guidance of $215m, due to the legal costs expected to be incurred.

Across the ditch, the Australian economy expanded by 0.9% for the quarter ending June, and up 3.4% for the year. The growth exceeded economists' expectations for quarterly growth of 0.7% and an annual improvement of 2.8%. The annual growth rate marked the sharpest since September 2012, when the mining boom reached its peak.

Meanwhile, banking stocks had another turbulent week after fresh investigations into Australian financial institutions, have put investors on edge. Australia’s superannuation regulator is opening fresh investigations into the sector, following revelations of widespread wrongdoings in the banking royal commission inquiry. Additionally, Australia’s Westpac agreed to pay a A$35m fine after admitting to wrongly assessing people's ability to repay mortgages.

The United States had a shortened week following a public holiday on Monday. However a sharp sell-off in tech pushed the Nasdaq Composite and S&P 500 lower on Wednesday after Twitter CEO Jack Dorsey and Facebook COO Sheryl Sandberg testified in front of Congress, addressing online election meddling and how to stop abuse on social platforms. Investors also braced for another round of trade negotiations between the US and Canada, following Canadian Prime Minister Justin Trudeau comments that the country would not bow to certain requests from the US.

Emerging market shares also fell broadly as investors fretted over the dire state of the Argentine and Turkish economies. Emerging markets have also been under pressure lately as the US Federal Reserve tightens monetary policy, which have partly boosted the dollar, and as the Trump administration takes a more protectionist approach to trade.

In company news, Nike dropped 3.2% amid backlash over a campaign featuring Colin Kaepernick, a former San Francisco 49ers quarterback. Amazon briefly hit US$1 trillion market cap on Tuesday, before falling off and leaving Apple as the only public listed company above the benchmark. Amazon recently launched into the grocery industry with the purchase of Whole Food Markets as well as posting strong growth in its Amazon Web services. Amazon’s share price has gained more than 70% in 2018 and has more than doubled in the last 12 months. That dwarfs gains of the S&P 500 index which has increased 8% over the year to date.