Craigs Investment Partners Research Team, 28 June 2019

New Zealand shares traded higher this week with the benchmark NZX 50 reaching new highs. There was plenty of domestic corporate newsflow for investors to digest as a slew of companies within the top 50 closed at record highs.

The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged at 1.5% but signalled that further cuts could come later this year. Governor Adrian Orr said "The weaker global economy is affecting New Zealand through a range of trade, financial, and confidence channels." Still, the RBNZ is upbeat on the economic outlook. "We expect low interest rates and increased government spending to support a lift in economic growth and employment. Inflation is expected to rise to the 2% midpoint of its target range, and employment to remain near its maximum sustainable level," Orr said.

In corporate news, Tourism Holdings announced an $80m equity issue designed to provide balance sheet headroom and flexibility, plus fund short-term opportunities through TH2. The company sees a stronger balance sheet as prudent given headwinds in some markets. The tourism operator also updated its FY19 guidance and management is now guiding for net profit after tax of $25m – $27m (previous guidance was $25m - $28m). At this stage Tourism Holdings has not provided any guidance for FY20.

The a2 Milk Company CEO Jayne Hrdlicka this week played down concerns that new Chinese regulation would hurt its position within China's infant formula market. She said the company was listening to regulators and talking to key leaders in the market to ensure its position.

ANZ New Zealand said they will work with the Reserve Bank of New Zealand on independent reviews of its capital models and attestation process, in the wake of David Hisco’s departure.

Retirement village operator Arvida announced it has entered into agreements to purchase Bethlehem Country Club, Bethlehem Shores and Queenstown Country Club for approximately $180m. The acquisition and transaction costs are to be funded through a combination of new equity and debt.

Fletcher Building announced that it will undertake a capital return to shareholders of up to $300m through an on-market share buyback. The buyback will commence following release of the company’s full year results. Fletcher Building warned of lower than expected full-year earnings in Australia due to a sharp decline in the Australian residential market. The construction company confirmed FY19 guidance of operating earnings of $620m to $650m following its downgrade in early June.

Sky TV CEO Martin Stewart reaffirmed the company’s focus on streaming services. The company has announced that in August it will be launching a new sports app, with new pricing, content and features.

It was a mixed week in the US after Federal Reserve Chair Jerome Powell said the central bank is assessing whether current economic uncertainties call for lower rates. Powell noted the Fed will take a wait-and-see approach given how rapid recent economic changes have been. The central bank also believes US inflation will return to 2%, albeit at a slower pace than expected. Powell also said the Fed remains independent of “short-term political interests.”

Meanwhile, Treasury Secretary Steven Mnuchin lifted expectations of a potential trade deal between China and the US. Mnuchin said that there was "a path to complete" a trade deal between the US and China. He also said that a deal had previously been "about 90%" done. Additionally, Trump told reporters that a US-China trade deal was possible, but noted he is “very happy with where we are now. We’re taking in a fortune, and frankly [it’s] not a very good thing for China, but it is a good thing for us.”