Research Team, 18 January 2019

The local share market has started 2019 on a positive note following a muted end to 2018.

The NZX 50 ended 2018 up 4.9%, with most (but not all) of the return coming from dividends. At the time of writing, the local benchmark is up 2.5% this year, closing above the 9000 level on Wednesday, the first time since October 2018. Elsewhere, Australia’s ASX 200 is up 3.3%, and in the US, the Dow Jones Industrial Average and S&P 500 both closed at their highest level in a month on Wednesday, having risen more than 10% since Christmas Eve. However, both are still about 10% below last year's record highs.

There was plenty of local economic news flow this week.

New Zealand business sentiment improved in 4Q, according to NZIER's Quarterly Survey of Business Opinion. Headline views on the general business situation improved 10% points, with a net 18% or respondents feeling pessimistic. Separately, investors shrugged off weak data showing overall credit card spending in New Zealand fell 1.9% in December, which was much weaker than analysts were expecting. The fall in spending was due to declines in fuel prices, with pump prices down around 7% over the month. The Real Estate Institute of New Zealand (REINZ) said nationwide December sales volumes sank to their lowest level in seven years, dropping 13%, with Auckland sales volumes down 24% to their lowest in 10 years. Median days to sell increased to 35 from 32 days and the national median price rose 1.5% to $560,000. The report saw 11 out of 12 regions experience an increase over the past 12 months, highlighting continued strength of the property market. The only exception was Auckland.

A better-than-expected result from the latest dairy trade auction.

The second Global Dairy Trade event of the year saw prices rise for the fourth consecutive session, signalling a positive start to 2019. The latest event saw the headline index rise by 4.2%, with skim milk powder (+10.3%) and lactose (+7.9%) driving the lift in price this week. Butter prices increased by 4.6%, while cheddar and anhydrous milk fat rose 4.3% and 3.2%, respectively. Whole milk powder increased by 3.0%. Dairy companies led the charge following the result. Shares in the A2 Milk Company are trading back at levels last seen in September, up 8.5% this year, while peer Synlait is marking an annual gain of 7.3%

Brexit deal rejected before May survives no-confidence vote.

In Britain, the House of Commons rejected the deal May negotiated with EU leaders by a staggering 230 votes. The country is scheduled to leave the EU on March 29. However, the government survived a no-confidence vote on Wednesday brought by Labour Party leader Jeremy Corbyn. May survived the no-confidence vote by 81 votes, leaving the administration intact with Prime Minister Theresa May at the helm. The UK will now resume the predefined Brexit timeline, giving the government until Jan 21 to present an alternative Brexit deal.

The global reporting season swung into action this week and was dominated by the financial sector.

Shares in Goldman Sachs rose 8.2% after the bank topped earnings expectations, boosted by its mergers and acquisitions business. Bank of America climbed 7.5% following its profit beat, the latest example of large lenders benefiting from the Federal Reserve's interest-rate increases. Meanwhile, Netflix led a surge in tech stocks on news it would hike its monthly memberships. Netflix said it would hike its monthly memberships by 13% to 18%. This would be Netflix's biggest price hike since it launched its streaming service more than a decade ago. Shares jumped 7.1%.

Chinese trade data for December saw exports and imports fall unexpectedly

This deepened concerns of a slowdown in the world’s second-largest economy. Chinese exports fell 4.4% from a year earlier, marking the biggest drop in two years. Imports also fell 7.6%, marking the biggest decline since July of 2016. China’s exports to the US also contracted in December, although its overall trade surplus with the US hit a record US$323 billion in 2018. Exports to the US rose 11.3% for the year, despite the tariffs imposed by President Donald Trump.