INSIGHTS BLOG

WEEK IN REVIEW: 23 - 27 SEPTEMBER

Craigs Investment Partners Research Team, 27 September 2019

It was a mixed week for global sharemarkets, with political tensions continuing to sway markets. Locally, Spark’s share price bounced back after a bad start to the telco’s Rugby World Cup coverage, the OCR remained unchanged, and Fonterra reported another large loss.

The Rugby World Cup coverage Sparks headaches. Spark’s Rugby World Cup streaming debut got off to a rocky start following its poor-quality coverage of the first All Blacks match. Spark was forced to play the second half of the game on free-to-air TV after many customers had issues with their stream. The stock sunk early Monday following the fiasco, however, has since recovered, with news the network is testing 5G in Alexandra.

The Reserve Bank of New Zealand announced the Official Cash Rate (OCR) is to stay at 1.0%. This announcement was in-line with market expectations, following the widely unexpected record 50 basis-points cut in August. Governor Adrian Orr said reduced demand for local goods and services, in combination with overseas political tensions, continued to weigh on the economic outlook.

Another loss for Fonterra. Fonterra reported a $605m loss on Thursday, with CEO Miles Hurrell saying the year was “incredibly tough”. Its share price is down more than 26% so far this year. The dairy co-operative recognised a significant write-down on assets, although announced a new strategy that will see it employ a more back to basics approach. The focus for the co-op coming up will be on domestic milk production.

The Governor of the Reserve Bank of Australia (RBA) says monetary policy has become less effective in Australia. Philip Lowe raised concerns of softening consumer spending, saying monetary policy has become less effective and that there has been no growth at all in consumption per person. Lowe said that this was an “unusual outcome at a time when employment is growing strongly”. However, he still expects Australian house prices to rise further as people use interest rate cuts to reduce debt instead of increasing consumer spending. Many are expecting the RBA to follow global trends and cut interest rates again in the future.

Investors remain highly sensitive to trade war headlines and political tension. Tensions appear to have increased in relation to the US and China trade war, with China scrapping its US farm tour and President Trump saying he will not accept a “bad deal” in trade talks. Meanwhile, US House Speaker Nancy Pelosi announced the launch of formal impeachment proceedings against the President on Tuesday alleging that Trump asked Ukraine’s President to investigate political opponent Joe Biden. Across the Atlantic, UK Prime Minister Boris Johnson’s suspension of parliament was deemed ‘unlawful’ by Britain’s Supreme Court and faced angry MPs upon his return to parliament.

Germany’s Purchasing Managers Index fell to its lowest level since the Global Financial Crisis. The German Manufacturing PMI fell to a post-GFC low of 41.4, while the Eurozone equivalent wasn’t much better, falling to 49.1, its lowest in nearly seven years. The decline in these key PMIs highlights the slowing of the European economy.

Travel firm Thomas Cook collapses. After 178 years of operation, UK tour operator Thomas Cook announced that it would be liquidating its assets and filing for bankruptcy on Monday. Around 600,000 travellers worldwide were stranded following the downfall. Thomas Cook had debts of £1.7bn, which the CEO called “insurmountable”. Despite Thomas Cook sinking, some saw this as an opportunity for rivals and travel stocks leaped following the news.