Craigs Investment Partners Research Team, 31 May 2019

The local NZX 50 drifted lower this week as the market continued to cool following its latest run of record highs. US-China trade tensions weighed over global sharemarkets after President Trump said he wasn't ready to make a deal with China, adding that tariffs on Chinese exports could go substantially higher.

In economic news, business confidence lifted slightly in May but still remains close to historical lows. Residential construction intentions tumbled despite a capital gains tax being ruled out. A net 32% of the 364 respondents expect general business conditions will deteriorate over the coming year, versus 37.5% in April. Regarding expectations for firms' own activity, a net 8.5% anticipate an improvement, compared to 7.1% a month earlier.

Mainfreight shares jumped 4.0% to $37.45 after reporting a solid full year result, however management signalled caution around the global economic outlook. "Aside from increased costs, there is a level of uncertainty in global trade and slowing economies," Mainfreight said. The company announced their best result ever, with net profit up 26% and operating earnings up 19.5% on the prior year.

Fisher & Paykel Healthcare also announced a record result for the 2019 financial year, surpassing $1bn in revenue for the first time. The company declared a final dividend of 13.5 cents per share. Despite the record result, shares traded down 3.5% on the day.

Tourism Holdings updated the market on its USA operations following a decline in vehicle sales over the past year, but tried to reassure investors there is nothing to indicate that the US business model is broken. The company plans to cut US$40m of planned capital spending from the US business and expects to cut 400 vehicles from its US fleet. Tourism Holdings reaffirmed guidance for net profit after tax of $25m - $28m. Shares traded down 3.7% to $4.14 following the news.

Air New Zealand slipped marginally after announcing that its 2019 earnings would come in at the lower end of previously announced expectations of $340m - $400m. At the same time, the airline announced significant investment in its international network and customer experience with commitments to purchase eight Boeing 787-10 Dreamliners. These new long-haul aircraft will replace Air New Zealand’s fleet of eight 777-200 aircraft, which will be phased out by 2025.

Precinct Properties has postponed the opening of its Commercial Bay development in downtown Auckland due to construction delays by contractor Fletcher Building. Chief Executive Scott Pritchard said due to the revised timing the company could incur up to $10m in costs. Precinct Properties closed down 3.0% while Fletcher Building fell 2.6%.

Synlait Milk announced an opening forecast base milk price for the upcoming 2019 / 2020 season of $7.00 per kg of Milk Solids (kgMS). Synlait also announced its forecast base milk price for the 2018 / 2019 season has increased from $6.25 kgMS to $6.40 kgMS. Synlait’s final milk price for the 2018 / 2019 season will be confirmed alongside the annual result announcement in early September 2019. The forecast for the 2019/2020 season will also be updated at this time.

Across the ditch, the price of iron ore surged to US$108 on Tuesday, levels not seen since 2014 on the back of supply concerns. So far this year, shares of mining giant Rio Tinto have risen 38%, BHP Billiton are 12% higher, while Fortescue has doubled in price. Meanwhile, the energy sector has been supported by rising brent crude oil prices, which consolidated above US$70 per barrel.

In Europe, the automotive sector received a boost after Fiat confirmed it proposed a merger with Renault. If agreed, the deal would create the world’s third-largest carmaker.