Craigs Investment Partners Research Team, 26 July 2019

The NZX continued to grind higher this week, as the current low interest rate environment attracts investors to the sharemarket. A slew of companies within the index are trading at record highs, including market heavyweights, The a2 Milk Company and Mainfreight, with shares up 54% and 37% respectively so far this year. The NZX 50 is up a healthy 22.7% year to date. Meanwhile, the New Zealand dollar declined 0.4% against the US dollar on Wednesday after the Reserve Bank of New Zealand said it was refreshing its strategy for unconventional monetary policy.

In corporate news, Oceania Healthcare reported an increase in operating revenue of 2.9% due to increased aged care occupancy, a greater number of premium rooms and good performance from its retirement village operations. Underlying net profit after tax from continuing operations of $49.7m was slightly down on last year. Improved development margins were offset by increased wage costs, along with higher interest expense to fund development activity. The company declared a final dividend of 2.6 cents per share.

Meanwhile, enterprise software company, Gentrack downgraded operating earnings guidance from slightly above $31m, to a range of between $27m and $28m. The company said the decrease in guidance was due to delays in customer projects and contracts. Its shares traded down as much as 15% following the result.

In Australia, the materials sector came under pressure as miners BHP and Rio Tinto were dragged down by falling iron ore futures in China. Chinese iron ore futures fell nearly 5% on Wednesday after Brazilian miner Vale SA won approval to resume some processing operations, easing concerns over supplies. Meanwhile, gold miners surged as the price of gold surpassed US$1,450 an ounce, for the first time since May 2013. But gains were pared later on in the week due to strength in the US dollar.

Boris Johnson won the leadership of Britain’s Conservative Party, paving the way for him to become Prime Minister. Johnson, 55, has promised to lead Britain out of the European Union with or without a deal by the end of October, even though lawmakers say they will bring down any government that tries to leave without one.

US President Donald Trump was quick to extend an invitation to Johnson to visit the White House after they spoke on phone last week. “I like Boris Johnson. I always have,” Trump told reporters. “He’s a different kind of a guy, but they say I’m a different kind of guy too. I think we’ll have a very good relationship.” On Theresa May, Trump said she had done “a very bad job” and “I think Boris will straighten it out.”

Turning to the global reporting season, more than 100 components of the S&P 500 announced results this week and overall, the earnings season is off to a good start. At the time of writing, 77% of companies reported have beat earnings estimates while 63% of those have beaten sales forecasts.

Shares in Boeing dropped 3.1% after the company posted a significant quarterly loss due to higher costs as its 737 Max jet remains grounded. It also warned that it could suspend production of the aircraft if delays worsen. Meanwhile, Caterpillar shares slid 4.5% after reporting weaker than expected earnings and revenue amid rising costs.

Staying in the US, Treasury Secretary Steven Mnuchin said the US and China remain far apart on key concerns on trade, ahead of meetings in Shanghai next week. "I would say there are a lot of issues," Mnuchin said ahead of the highly anticipated meetings, which are set to include US Trade Representative Robert Lighthizer. Mnuchin said that he expects trade negotiations between the US and China to continue in Washington after the trip. The meeting will mark the first high-level negotiations between the two sides since nearly a dozen rounds of talks fell apart in May.