Craigs Investment Partners Research Team, 25 October 2019

It’s been a mixed week for global markets as third quarter global reporting season ramped up with around a quarter of S&P 500 companies reporting results. Brexit uncertainty dragged on, while a number of events and annual meetings kept local investors busy.

Shares in SkyCity and Fletcher Building traded lower after the major fire that broke out at the convention centre in downtown Auckland. The blaze is the latest in a long line of woes for the centre, plagued by setbacks since its approval. Auckland's Mayor Phil Goff said it was unlikely the centre would be ready in time to host major world leaders for the Asia-Pacific Economic Cooperation (APEC) meeting in 2021. The construction project, undertaken by Fletcher Building at a cost of $703m, is the largest underway in New Zealand. Shares in Fletcher slipped 2.3% to a seven-week low on Wednesday, while SkyCity shares fell 1.2% to a four-month low.

Rio Tinto to review the future of Tiwai Point smelter. Shares in New Zealand electricity companies fell sharply on Wednesday, wiping out $2 billion in value after Australian mining giant Rio Tinto said it may close its Tiwai Point aluminium smelter due to a weak aluminium market and high energy costs. The smelter uses 13% of the country’s electricity and if shut down, would trigger a substantial fall in electricity prices, resulting in a decline in profits for the sector. The smelter is Southland’s biggest employer and up to 1,000 jobs could be on the line. Additionally, 3,500 people depend on the flow-on opportunities of the business. Rio Tinto said its review of the smelter will be complete by the end of March. Contact Energy posted the biggest loss, down 9.7% to $7.69 to close at its lowest in over two months. Meridian Energy tumbled 8.7% to $4.95, Mercury shed 8.4% to $5.00, Genesis lost 6.1% to $3.06 and Trustpower while 3.0% to $8.34.

Air New Zealand ends LA-London service after 36 years. The airline said it will drop its Los Angeles-London route in October next year, and at the same time introduce an Auckland-New York route. The national carrier's acting Chief Executive Officer, Jeff McDowall, said that while it was difficult to farewell the London route, the airline must zero in on the best opportunities for long-term profitable growth. The New York flight will take 17 hours and 40 minutes southbound and 15 hours and 40 minutes northbound. The flight will be offered three times a week starting in October of 2020.

The global reporting season was in full swing this week and has generally been well received. Tesla rallied more than 20% in after-hours Wednesday after the electric car maker reported a surprise quarterly profit and said its key projects, including the next vehicle in its line-up, were ahead of schedule. Meanwhile, Microsoft’s result also beat market expectations with revenue up 14% on the prior year while earnings increased 21%. Shares of the tech giant didn’t change much on the result, however are up about 35% since the beginning of the year.

Johnson & Johnson announced last Friday that it is conducting a voluntary recall in the US of a single lot of the company’s Johnson's baby powder. The recall is due to FDA results indicating the presence of sub-trace levels of chrysotile asbestos contamination (less than 0.00002%). The samples were derived from a single bottle purchased from an online retailer and produced and shipped in 2018. The company emphasised the low levels of asbestos present in the samples but ‘out of an abundance of caution’ initiated this recall and has immediately commenced an investigation with the FDA to determine the integrity of the tested sample and the validity of the test results.

In Europe, UK lawmakers voted in favour of Prime Minister Borris Johnson’s Brexit plan. However, they rejected his attempt to fast-track the legislation to take the country out of the EU by the end of the month. Meanwhile, there are reports that suggest Downing Street will push for an election if the Brexit deadline is delayed until the end of January next year.