Craigs Investment Partners Research Team, 16 August 2019

The roller-coaster ride for investors continued this week. The US Treasury yield curve temporarily inverted for the first time since June 2007 on Wednesday, sending the Dow Jones down 800 points, marking its worst day of the year. There were also a number of geopolitical events, including the protests in Hong Kong, the Argentine peso collapsed, as well as the ongoing trade war. Locally, reporting season in New Zealand and Australia ramped up this week with results from Contact Energy, Summerset and SkyCity.

Shares in Fonterra were sold off after the dairy co-op said it expects to lose between $590m - $675m, after writing down the value of more of its assets. The write-down includes $200m on its investment in Brazil, $135m on investments in Venezuela, $200m on China farms, $200m here in New Zealand and $70m on its businesses in Australia. Shares closed down 5.1% to record lows following the news.

Retirement village operator Summerset reported underlying profit of $47.8m, a 6% increase on the first half of 2018, while reported profit was down 4% to $92.6m. Of note, total assets grew to $3.0bn, up 24% on the prior comparable period and the company declared an interim dividend of 6.4 cents per share.

Auckland Airport reported international passengers were up 1.9% compared to June 2018, while domestic passengers grew by 3.4%. United States visitor arrivals were up 7.1%, primarily driven by Air New Zealand’s new Auckland to Chicago route, as well as United Airlines operating year-round on the Auckland to San Francisco route.

Tourism Holdings provided a trading update and said it now expects to exceed the top end of its guidance range for net profit after tax for the year of $25 - $27m, due to a one-off tax benefit in the USA. The company will report its full year results on 27 August.

In Australia, index heavyweight CSL soared 6.6% after the company increased full-year profit by 11% and guided to a strong outlook. Conversely, Pact Group tumbled 16.9% after the company scrapped its dividend and cited a $290m loss following a write-down of its Australian operations. Gold miners were also under pressure as the price of gold dipped back below US$1,500.

The latest REINZ figures showed a slight improvement in house sales during July. On a national level, the number of properties sold across the country in July increased by 3.7%. New Zealand’s median house price increased 4.5%, from $550,000 in July 2018 to $575,000 in July 2019. While the median price for Auckland remained exactly the same as this time last year at $830,000. Nine out of 16 regions saw annual increases in sales volumes. The regions with the greatest increase were Nelson (25%), Gisborne (14.9%), Canterbury (14.6%) and Marlborough (13.7%). On the downside, West Coast fell 19.4%, Tasman was down 18.9% and Southland declined by 17%.

The Dow Jones fell 800 points on Wednesday, its biggest one-day fall of the year, after the yield on the US 10-year Treasury note briefly broke below the 2-year rate. The fall reversed Tuesday’s gains when the Trump administration said it would delay certain tariffs on Chinese goods. The US 30-year yields also plunged, dropping to a record low of 2.015%. Meanwhile, President Trump slammed the Federal Reserve and “clueless” Jerome Powell, blaming the central bank for “holding us back”.

The hefty fall followed weak Chinese data that showed industrial production slowed to 4.8% year-on-year, its lowest level since 2002, while retail sales growth came in at 7.6%, down from 9.8% the month prior and well below market expectations of 8.6%.

Additionally, data out of Germany showed its economy contracting by 0.1% in the second quarter of 2019, the first time since the third quarter of 2018, with weakness in the global manufacturing sector and uncertainty over Brexit weighing on the economy.