Craigs Investment Partners Research Team, 13 September 2019

New Zealand shares came off the boil this week as bond yields rose globally. Optimism over US-China trade talks grew, and Brexit remained the focus in Europe. Back home, a few pieces of corporate news kept investors busy.

On Thursday, Synlait posted record annual profit and revenue driven by higher infant formula sales during the year. Revenue exceeded $1bn for the first time, increasing 17% while net profit lifted 10% to $82.2m. Packaged infant formula volumes were up 21%, in line with its guidance range. The company said it expects profits to continue to grow in the year ahead, with the rate of profitability increasing at least at a similar rate to that of 2019. This was below market expectations and shares traded down more than 9.0% on the news.

Z Energy issued an earnings downgrade saying its operational performance has been negatively impacted by unprecedented levels of discounting and price competition in its retail business. The company downgraded operating earnings guidance to $390-$430m, from $450-$490m and updated its dividend guidance to now be in the range of $0.48 to $0.50 cents per share, from the previous range of $0.48 to $0.54 cents per share. Z Energy’s share price dropped more than 9.0% following the update.

Across the Tasman, data released this week suggests that the Australian housing market is stabilising. Banking shares got a boost on news that mortgage lending jumped 5% in July for both owner-occupiers and investors, the biggest one-month percentage rise in three years. Meanwhile, last weekend's auction clearance rates were back up to 77% in Sydney and Melbourne, higher than a year ago albeit with slightly lower volumes. Overall, demand for mortgages appears to have picked up in response to recent rate cuts.

It was another eventful week in the UK. The British pound fluctuated as embattled British Prime Minister Boris Johnson insisted he wouldn’t ask for another Brexit delay, while lawmakers rejected Johnson’s second bid to hold a general election. Amidst this uncertainty, UK wage and unemployment data beat estimates.

Apple unveiled new iPhones, an Apple watch and an iPad at its annual September product launch on Tuesday, as well as announcing a new TV subscription service. Apple TV+ will debut on November 1 and will cost US$4.99, below the pricing of competitors such as Netflix, Disney+ and Amazon Prime Video. The service will be available in 100 countries at launch, with new shows being added each month.

US President Donald Trump on Wednesday said he was delaying a 5% increase in tariffs on Chinese goods by two weeks, out of respect for the celebration on the 70th anniversary of the revolution that bought the Communist Party to power. “At a request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary on October 1st, we have agreed, as a gesture of good will, to move the increased tariffs on $250bn dollars’ worth of Chinese goods (25% to 30%), from October 1 to October 15,” Trump wrote on Twitter. The two countries are scheduled to hold face-to-face negotiations in Washington in early October.

Meanwhile, oil prices held near their highest levels in six weeks despite small losses on Tuesday after US President Donald Trump fired national security adviser John Bolton.

Looking ahead, markets will be looking at the US Federal Reserve this week. Trump has called on the Fed to push down interest rates to zero or less. "We have the great currency, power, and balance sheet... The USA should always be paying the ... lowest rate. No Inflation!" Trump tweeted. Powell has said he would act appropriately to help maintain the US economic expansion and that political factors played no role in the central bank’s decision process. The Fed cut interest rates in July for the first time in more than a decade. Financial markets expect the Fed to again lower its benchmark rate, currently at 2.00-2.25 per cent, when it meets next week.