INSIGHTS BLOG

WEEK IN REVIEW: 21 TO 25 JANUARY

Research Team, 25 January 2019

It was a mixed week for global markets as investors debate the outlook for global growth.

Doubt over foreign trade and politics also continued to dominate. Volumes were lighter than usual with much of the country on holiday for Wellington Anniversary Day on Monday, while markets in America were closed in celebration of Martin Luther King day.

Within the local NZX 50 gentailers (Meridian, Contact and Trustpower) and listed property names (Goodman Property, Precinct Property, Property for Industry) traded within 1% of their 52 week highs. While Mainfreight and Infratil both reached records. The NZX 50 is up 3.3% this year and 2.9% below its record reached in September.

In corporate news, Z Energy shares rose after upgrading its 2019 earnings guidance by $15m. The country’s biggest fuel retailer said a sharp drop in oil prices has allowed the company to improve its position with less pressure on both retail and commercial margins. The company also lifted its dividend range from 32-41 to 38-47 cents per share.

Mercury reaffirmed expectations for FY19 earnings of $515m, ahead of its half-year result next month. The company said it expects to meet full-year guidance despite lower hydro production and the sale of its Metrix business.

The main event on the local economic calendar was the December inflation report.

The consumer price index (CPI) consumer prices rose 1.9% compared to the year prior - unchanged from the third quarter and exceeding expectations for an increase of 1.8%.

China reported that its economy grew at the lowest official pace in 28 years.

China's gross domestic product slowed to 6.6% in 2018, the slowest pace since 1990 and in line with market expectations. Chinese statistics bureau Chief Ning Jizhe told reporters that the country's trade dispute with the US has affected the world’s second largest economy, but the impact was manageable. He said China’s economy has shown signs of slowing but was still being driven by domestic demand. However, economic data from China is being closely watched for signs of damage inflicted by the trade war with America.

Staying in Asia, the Bank of Japan left interest rates unchanged and lowered inflation forecasts for the next two years. The BoJ kept its short-term interest rate target at -0.1% and reaffirmed its plans of buying Japanese bonds to maintain a yield on the 10-year note at around 0%.

The International Monetary Fund (IMF) cut its global economic growth forecasts.

Global equities took a hit this week after the IMF lowered its forecasts for global economic growth to 3.5% in 2019 and 3.6% in 2020, 0.2% and 0.1% below October’s projections. An escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook. The IMF also expressed concerns about a bigger than expected slowdown in Chinese growth, Brexit and the ongoing US government shutdown.

Global reporting season has been largely well received thus far.

Investors are focusing their attention on the outlook for profits and revenue in 2019. At the time of writing, more than 14% of S&P 500 companies have released their fourth quarter results. Of those companies, 73% have beat earnings estimates, but only 59% of those companies have beaten sales forecasts. IBM, Procter & Gamble and United Technologies lifted the Dow Jones Wednesday on the back of strong results. Shares of Johnson & Johnson however, fell 2.4% after its 2019 sales guidance came in below market expectations.