Craigs Investment Partners Research Team, 1 November 2019

New Zealand shares were largely steady in a shortened trading week due to Labour Day on Monday. Overseas, central bank announcements filled headlines, and the ongoing global reporting season continued to sway markets.

Doubts are growing surrounding the Reserve Bank of New Zealand’s (RBNZ’s) future interest rate decision. RBNZ Assistant Governor Christian Hawkesby’s speech in Sydney on Monday has resulted in analysts second-guessing another interest rate cut. Some now expect the RBNZ to leave the cash rate at 1% in November. The RBNZ stated that recent domestic data may not justify a cut, while global sentiment is improving, and overseas central banks have indicated they take will pause. Market expectations for further interest rate cuts by the Reserve Bank of Australia have also declined, with figures showing inflation rose in the September quarter to 1.7% annually.

Freightways buys refrigerated trucking firm Big Chill Distribution. Courier and data management company Freightways is moving into refrigerated trucking. Big Chill operates a fleet of more than 200 refrigerated trucks and trailers which delivers chilled and frozen produce around the country. Freightways will pay an initial $117m upfront, representing 80% of the total purchase price, with the remaining 20% to be paid in 2022 based on Big Chill’s earnings performance.

In Australia, Woolworths reported an impressive set of numbers for the first quarter of FY20. Same store sales growth in the core food business came in at 6.6% for the quarter. This is especially impressive in the context of key competitor, Coles, reporting flat sales growth over the same period. Increased sales were driven by a step-up in foot traffic, along with customers spending more at each trip. Online sales increased 43%, outpacing Coles’ growth at 24%. Following a wage review, Woolworths has flagged wage underpayment for salaried employees since 2010. The estimated cost for the back-payment is $200-300m.

Global reporting season continues to occupy Wall Street’s attention. This week we saw better than expected results from Alphabet and Amazon. Alphabet’s revenue of US$40.5bn was up 21.3%, while operating income of US$9.2bn increased 6.4% on the prior year. Amazon produced another impressive top-line performance through the third quarter driven by strong take-up of the company’s new one-day shipping offering. Operating income of US$3.2bn was ahead of guidance, despite declining 15.8% on the prior year.

Positive news for Johnson & Johnson. J&J announced on Wednesday that new tests found no asbestos in the same baby powder bottle that triggered a recall. 15 new tests found no traces in a bottle of baby powder that the US Food and Drug Administration said tested positive for trace amounts of asbestos, a finding the agency stands by. Shares in the company rose after the news.

UK lawmakers agreed to hold a general election on Dec 12. The people of Britain will vote in the month of December for the first time since 1923. It will be the fourth time they have voted in less than four years. MP’s backed Prime Minister Boris Johnson’s fourth attempt to secure an early general election, betting his government and Brexit on the vote. The last national vote in 2017 ended in a ‘hung Parliament’, making it difficult for the government to pass legislation. Polls currently suggest that Johnson’s Government could be well placed to improve its situation in an election.

The US Federal Reserve cuts rates again. The Federal Reserve on Wednesday cut interest rates for the third time this year to help boost US growth. However, the announcement signalled there would be no further reductions unless the economy takes a turn for the worst. Federal Reserve Chair Jerome Powell said in a news conference after the announcement that the Fed believed monetary policy is in a good place.