Craigs Investment Partners Research Team, 8 November 2019

New Zealand investors absorbed a number of results from local companies this week. Overseas, trade news captured market attention, with ongoing trade tensions between the US and China looking to be improving. Markets in the US touched record highs earlier in the week as a result.

Results swayed the local market this week. Trustpower released its interim result on Thursday, with results in-line with market expectations. The gentailer downgraded its expected operating earnings to $200-$215m, from $205-$225m due to weak hydro inflows. Pushpay also announced its interim result for 2020. Operating earnings were up 413% to US$12.7m and total revenue increased 30% to US$57.4m. Dual-listed Westpac released its full year financial results for the year ending 30 September 2019 on Monday. Cash earnings disappointed the market, while the bank cut its dividend and announced a capital raise.

The Global Dairy Trade (GDT) price index climbed for the fourth time in a row. Tuesday’s GDT auction had dairy prices climb well above market expectations. Key product group whole milk powder, which has the largest effect on Fonterra’s farmgate milk price, gained 3.6%. The largest increase was in skim milk powder, up 6.7%. The only products that fell in price were lactose and cheddar, down 1.9% and 0.6% respectively.

Jacinda Ardern announced an upgrade in New Zealand’s free trade deal with China. Goods produced in New Zealand will have faster access to China and tariffs on various paper and wood products will be reduced under New Zealand’s updated deal with China, Prime Minister Jacinda Ardern announced on Monday. The deal concludes three years of negotiations by the New Zealand Government. Ardern said that it was a “significant improvement for our forestry and wood processors”, with China having preferential access to New Zealand’s $3bn wood and paper trade. The upgraded free trade agreement will remain the best that China has with any country. In return, New Zealand will adjust visa rules for some jobs locally, including tour guides and Mandarin language teachers.

Employment growth continues to slow with firms less eager to hire in the face of a slowing economy. New Zealand’s unemployment rate rose back to 4.2% in the September quarter. This was higher than market expectations, up from an 11-year low of 3.9% in the quarter before. While the unemployment rate has returned to the level seen in the March 2019 quarter, it has largely been tracking down since late 2012.

Reserve Bank of Australia (RBA) leaves interest rates unchanged at record-low. RBA Governor Philip Lowe said on Wednesday that the level of inflation, increasing house prices and stagnant wages meant the RBA felt it was not necessary to drop rates lower than the current all-time low of 0.75%. This was widely expected by economists, given that the RBA delivered a third 0.25 percentage point cut in five months at its October meeting. Lowe stated that there was still room for future cuts, as central banks worldwide ease monetary policy in response to low inflation.

Japan’s services sector shrinks for the first time since 2016. Activity in the Japanese services sector shrank for the first time in three years in October as a powerful typhoon and a sales tax hike weighed on demand, a survey showed on Wednesday, raising a red flag for the world’s third-largest economy.

US-China trade deal looks to be pushed to December. All key indices in the US reached record highs on Monday, following positive signs of a “phase one” trade deal between the US and China. US Commerce Secretary Wilbur Ross said on Sunday that the two countries were “making good progress” in negotiations. However, on Wednesday the rally paused following reports that the trade deal signing could be delayed to December as discussions continue over terms and a venue.