Research Team, 30 November 2018

There were a number of key events this week which could set the tone for the rest of the year. Two important Federal Reserve speeches took place midweek, while the crucial trade meeting between Donald Trump and Xi Jinping will meet at the G20 summit in Argentina.

US markets rebounded on Monday, led by shares of retailers, with shoppers spending billions of dollars online and in stores over the Thanksgiving weekend. Shares of Amazon gained after the company reported its biggest ever shopping day on Cyber Monday.

Come Wednesday, US indices soared even higher after Federal Reserve Chairman, Jerome Powell, said interest rates are close to neutral. This was in stark contrast to comments made early in October, when he said the Fed’s benchmark rate was a “long way” from neutral. The Dow Jones and S&P 500 went on to post their biggest daily gains in eight months, while the Nasdaq saw its largest advance in just over a month. However, the Fed cautioned that trade tensions, Brexit and troubled emerging markets remain risks to elevated asset prices.

A highlight on the local calendar this week was the Reserve Bank of New Zealand Financial Stability Report. The Bank said financial system risks have eased, but remain high, and that mortgage credit growth and house price inflation have eased to more sustainable rates. But the part that grabbed headlines was the easing of home-lending restrictions to both owner occupiers and investors, to come into effect at the start of next year. The New Zealand dollar rose slightly in response.

Business confidence in New Zealand remained unchanged in November, and still languishes deep in negative territory, with net 37.1% of respondents negative on the outlook. The Own Activity Outlook improved slightly to +7.6, compared with +7.4 last month.

In corporate news, Fisher & Paykel Healthcare announced a record first-half net profit, benefitting from a weaker New Zealand dollar, as well as strong demand for their medical devices. Net profit rose 20% for the half putting the company on track to achieve at least $1bn in annual revenue for the first time in its history. However, the company remains in a legal battle as it contests a patent infringement case in the US, brought by Australia’s ResMed.

Ryman Healthcare’s interim result saw he company post a 14% rise in underlying profit. The company said it was on track for another year of increased underlying profit as strong demand at new villages offset cost and a fading housing tailwind. The company also announced the purchase of its ninth village site in Victoria. Ryman shares are down more than 20% since August.

Off the main index it was another troubling week for Metro Performance Glass. New Zealand’s biggest glass processor saw shares tumble 24.5% on Monday following its interim result. The company downgraded its full year profit expectations citing challenges in its Australian business. It also said it won’t pay an interim dividend. Last week, Metro Performance Glass shares plunged 36.9% after management signalled a competitor of similar size would be entering the New Zealand market mid-2020.

Evolve Education slumped 25% to 30 cents on Wednesday after the company wrote $32.1m off the value of its child activity centres. Net profit, excluding one-off items, fell to $4.6m compared with $7m in the prior corresponding period. Shares of the company remain down 60% this year.