Research Team, 2 November 2018

Volatility continued this week with markets again buffeted by the fears of rising interest rates, global trade disputes and concerns of a possible slowdown in corporate profits. A cautious tone has gripped markets and resulted in wild swings in both directions across the globe. Meanwhile, trade tensions remained in focus on reports that the White House is considering more tariffs on Chinese goods by December, if the next round of negotiations between President Donald Trump and Chinese leader Xi Jinping do not end well.

Wednesday marked the end of October and it was a very negative one for global markets. The major US indexes posted sharp declines. The Dow Jones lost 5.1%, its worst performance since January 2016. The S&P 500 fell 6.9%, its worst month since September 2011, while the tech-heavy Nasdaq managed to briefly climb out of correction territory, however, still plummeted 9.2% for the month. Technology stocks have been among the worst performers in October.

This week saw 139 of the S&P 500 companies report. Notably, Amazon produced another impressive quarterly result. Momentum across its various business segments remains strong and earnings have continued to soar. However, all eyes were on management’s fourth quarter guidance, which missed high market expectations, sending the share price down 7.8% on a volatile trading day. Amazon shares are off 22% from their highs, but still up 37% year to date.

Back home, the NZX 50 followed the global trend to finish October sharply lower. The benchmark index fell 6.4%, its worst performance since May 2010. There were also handful of annual meetings, giving local investors plenty to digest in the way of trading updates and earnings results.

Air New Zealand rallied on the back of its monthly investor update which showed passenger numbers increasing 6% for the year. Auckland Airport, meanwhile, affirmed earnings guidance, expecting earnings of between $265m – $275m for the 2019 year. The airport is undergoing major infrastructure upgrades and planning to spend $2bn over the next 10 years. Tourism Holdings held its AGM on Wednesday and provided guidance for the year ahead which beat market estimates.

Sky TV managed to climb off its lows after the High Court ruled that My Box, an internet streaming service which shows pay-tv programmes of which Sky TV had local rights, was unlawful. The judge ruled “My Box has deliberately intervened, with full knowledge of its actions to give users access to protected copyright works which they would not otherwise be able to readily access”. Sky TV is expected to seek millions from My Box, however the hearing is not expected until the new year.

Off the main index, Tilt Renewables released a good result with operating earnings up 36% and declared a final dividend of $1.60. The company approved the $560m Dundonnell project after securing another offtake agreement for the wind farm in Victoria.

This week saw the release of the ANZ Business Outlook survey for October. Headline business confidence lifted one point to a net 37% of respondents reporting they expect general business conditions to deteriorate in the year ahead. Although the figure held steady, it remains near a 10 year low. The agriculture sector was the most downbeat, followed by retail. However, construction intentions also dropped sharply, with residential construction intentions dropping to 4.5% from 24.1% in the month prior, while commercial construction fell to a negative 23.8% in October from a negative 4% in September. Crucially, the Own Activity index, which measures firms outlook for their own activity and is more strongly correlated with actual economic performance, remains positive, with a net 7.4% of respondents expecting increased activity.