Research Team, 29 March 2019

The New Zealand sharemarket had a stellar week with a plethora of companies within the top 50 index hitting all-time highs. Through the month of March, the index has closed at nine record highs, and at the time of writing, is up 10.1% for the year.

On Wednesday, the Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) unchanged at 1.75% for the 16th straight meeting.

However, what really stole the attention was when Reserve Bank Governor Adrian Orr said that the likely direction of our next OCR move is down, given the weaker global economic outlook and reduced momentum in domestic spending. He said employment is near its maximum sustainable level. However, core consumer price inflation remains below the 2% target mid-point. The central bank said the global outlook has continued to weaken, in particular amongst some of our key trading partners including Australia, Europe and China. Domestic growth slowed in 2018, with softness in the housing market and weak business investment contributing. He expects ongoing low interest rates, and increased government spending and investment to support economic growth. This caused the New Zealand dollar to tumble 1.6% against the US dollar following the release.

In other economic news, New Zealand posted a merchandise trade surplus of $12m in February.

This beat expectations for a deficit of $200m following the $914m loss in January. The rise in exports was led by milk powder, butter, and cheese, and a new record month for lamb exports.

In corporate news, Kathmandu came under pressure in the wake of its half year result.

The outdoor clothing and equipment retailer reported 1.3% lift in net profit to $13.6m, however investors were left disappointed at the lack of outlook offered by the company. The result beat Kathmandu’s January downgraded guidance that caused a near 15% one-day fall in the company’s share price.

Synlait Milk announced it had switched on New Zealand’s first large-scale electrode boiler, located at its Dunsandel site in Canterbury.

The electrode boiler, which stands seven metres tall, provides renewable process heat to Synlait’s advanced dairy liquids facility in a bid to reduce the company’s energy footprint.

Outside the benchmark index, Abano Healthcare tumbled more than 23%.

This came after reporting 12% decline in net profit amid challenging conditions in Australia. The company expects operating earnings for the year ending May 31 to increase by about 1.9% to $33m, but net profit to fall to $9m, compared to $10.3m in the previous year.

It was a mixed weak for global markets as investors debate the outlook for the global economy.

Late last week, an important part of the US yield curve (the 3mth – 10yr) inverted for the first time since August 2007. This phenomenon has proved a reliable predictor of a looming recession in the past, although the predictive timing is much less clear and the collapse in longer-term rates likely reflects an expectation the Fed will be forced to cut interest rates later this year.

Turning to the UK, Theresa May said she would quit as UK Prime Minster to get her Brexit deal over the line..

This would allow a successor to take the lead on future negotiations with the European Union. However, the Northern Irish party which is crucial to getting the agreement through parliament were unmoved and said they would reject it again. May’s gesture is the latest dramatic turn in the UK’s three-year Brexit crisis, but it remains uncertain how, when or even whether it will leave the EU. Although May’s departure would not alter the terms of the Withdrawal Agreement, it could give Conservative eurosceptics who have opposed it a greater say in negotiating the terms of Britain’s future relationship with the EU.