Craigs Investment Partners Research Team, 2 August 2019

All eyes were on the US Federal Reserve this week after the central bank cut interest rates for the first time since the financial crisis more than a decade ago. Trade was also back in focus, with the US and China resuming face-to-face talks in Shanghai. Although negotiators left the table without a deal, both sides called the talks “constructive.” The global quarterly earnings season remains in full swing, with more than half of the companies in the S&P 500 having reported. Locally, the only release of note was the ANZ Business Outlook survey which showed business confidence has fallen to its lowest level in nearly a year.

In corporate news, Mainfreight provided a quarterly trading update at its annual shareholders meeting on Tuesday. While all geographies are still providing positive growth, the company has begun to see some softness in its New Zealand and Australian operations. In contrast the Europe and the USA have remained strong.

Sky TV and Spark Sport announced a surprise partnership to help pubs and clubs stream the Rugby World Cup. Sky TV shares finished the session 4.1% higher, while Spark rose 1.3% on the news.

In economic news, the ANZ Business Outlook Survey showed sentiment in the construction sector has plummeted to its lowest level since 2009, while overall confidence has dropped again. The ANZ Business Outlook for July showed a net 44% of businesses expect conditions to deteriorate in the year ahead, up from 38% last month. This marks the lowest level of confidence since August last year. Agricultural related businesses were notably negative, but the sharpest fall in confidence was in the construction sector where both the residential and commercial divisions are expecting less business ahead and planned to cut staff.

Across the Tasman, Australia’s benchmark index hit an all-time high on Tuesday. It took 11 years and nine months for the Australian market to climb back to the highs it reached prior to the financial global crisis. US shares made it back to their 2007 high in 2013, global shares in 2014 and New Zealand shares in 2016. At the time of writing, the ASX 200 is up more than 23% this year.

The Federal Reserve lowered its benchmark rate by a quarter point on Wednesday, to a range of 2% to 2.25%. It was the first rate cut by the central bank in more than a decade. Fed Chair Jerome Powell cited signs of a global slowdown, simmering trade tensions and a desire to boost low inflation in explaining the central bank’s decision. 2008. The Fed left the door open to future rate cuts, saying it will “act as appropriate” to sustain the expansion. The quarter-point cut was widely expected. The initial reaction from the US market was muted, but shares fell heavily toward the close.

Meanwhile comments from US President Donald Trump this week suggested that US-China trade negotiations are not going well. In a series of tweets, Trump tweeted “China is doing very badly.” “Worst year in 27 - was supposed to start buying our agricultural product now - no signs that they are doing so. That is the problem with China, they just don’t come through,” Trump said.

Meanwhile, China’s factory activity shrank for the third month in July, underlying the need for more stimulus to support an economy hard hit by the trade war with the US. The official Purchasing Managers’ Index (PMI) was at 49.7 in July, slightly higher than 49.4 in June. The 50-point mark separates expansion from contraction on a monthly basis.

Finally, the British pound hit a 28-month low as fears of the UK leaving the EU without a deal escalated. Prime Minister Boris Johnson said the current divorce deal was dead unless the EU agreed to renegotiate.