INSIGHTS BLOG

WEEK IN REVIEW: 15 - 19 JULY

Craigs Investment Partners Research Team, 19 July 2019

It was a mixed, yet quiet, week for the local market, with many market participants on leave for the second week of the school holidays. The tone was similar offshore as global investors awaited US quarterly earnings reports and worries over trade and slowing growth continued to drag on sentiment.

The NZ dollar rose against the US dollar after inflation data met expectations. The Reserve Bank of New Zealand aims to keep annual inflation between 1% - 3% over the medium term, with a focus on the mid-point of 2%. The Consumers Price Index (CPI), which is the most commonly used measure for household inflation, increased 0.6% for the June quarter and 1.7% for the year ended June. Inflation has remained stubbornly weak, and the June quarter result marks the ninth consecutive quarter it has been below the midpoint. Petrol prices largely attributed to the rise, increasing 5.8% in the quarter, bouncing back from a 7.0% drop in the first quarter. Rents were also higher, up 1.0% in the June quarter and 2.5% on the year.

Dairy product prices unexpectedly gained 2.7% at the latest Global Dairy Trade auction after four consecutive declines. Milk powder prices strengthened in response to stronger demand from Southeast Asian countries and the Middle East. Whole milk powder, which has the greatest bearing on Fonterra's farmgate milk price, jumped 3.6%, skim milk powder increased 3.8% and butter rose 1.7%.

Across the Tasman, the ASX fell slightly on Tuesday after minutes from the Reserve Bank of Australia’s (RBA) monetary policy meeting dampened the market's expectations of further interest rate cuts. The RBA's board said it will continue to monitor the job market closely "and adjust monetary policy, if needed, to support sustainable growth in the economy." The RBA cut its Official Cash Rate (OCR) in June and July, marking the first back-to-back reduction since 2012. Australia’s OCR stands at a record low 1.0%.

The key piece of corporate news this week related to AMP’s planned sale of its Australian and New Zealand life insurance business. On Monday, the embattled AMP announced that Reserve Bank of New Zealand requirements now mean the sale is unlikely to proceed. In light of this, AMP stated it will not pay an interim dividend and announced a A$700m write-down of the business. The company’s ability to lay out a refreshed strategy, which would require sizeable investment, is also now in doubt. Shares in AMP closed down 16% on the day.

Trade tensions were back in the spotlight this week after US President Donald Trump threatened to impose tariffs on another US$325bn worth of Chinese goods, saying the US still has a long way to go to conclude a trade deal with China. According to reports, progress on a trade deal with China has stalled due to restrictions on Huawei. The Trump administration hasn’t reached consensus on which semiconductor chips and other products can be provided to Huawei, without triggering security concerns or giving the company a strategic edge. US and Chinese trade negotiators spoke on the phone last week but officials didn’t cite any progress afterward.

The global quarterly reporting season kicked off this week, and results were mixed. Netflix’s video streaming service suffered a dramatic downturn in growth in the June quarter, sending its shares down more than 10%. Netflix’s subscriber numbers were weaker than expected with the company, adding just 2.7 million global paid subscribers in the quarter, compared with market estimates of 5 million. The company now expects to add 7 million subscribers globally in the current quarter, compared with market estimates of 6.5 million. Netflix shares have surged 35% this year.