WEEK IN REVIEW: 2 - 6 DECEMBER
Craigs Investment Partners Research Team, 6 December 2019
Mixed messages around trade talks between the US and China meant volatile global markets this week. Closer to home, the New Zealand market looked towards highly anticipated announcements from the Reserve Bank and the Commerce Commission.
The Reserve Bank of New Zealand (RBNZ) released its final decisions around capital requirements for banks. On Thursday, the RBNZ announced it will keep its capital requirements largely as proposed, in order to make the banking system more resilient, and to ensure bank owners have a meaningful stake in their businesses. However, some details have been softened and the time period has been extended, with changes to be implemented over seven years (instead of five), allowing time for banks to minimise any potential adjustment costs.
Commerce Commission recommends new regulation for fuel companies. The Commerce Commission published its final report on the fuel market on Thursday, with the report stating that "fuel companies have been making persistently higher profits over the past decade than we would expect in a competitive market." The Commerce Commission has recommended changes to New Zealand's fuel market to increase competition and benefit consumers as a result of the study.
Black Friday shopping weekend breaks records. According to electronic data from Paymark, which processes a large proportion of New Zealand’s debit and credit card transactions, domestic spending on Black Friday was a record $253m. Retailers in the core retail group processed payments for $71.4m worth of goods on the Friday, up 22.5% on last year, as well as overtaking Boxing Day in 2018 where $63.8m worth of payments were processed on retail goods.
Dairy prices break five-auction winning streak. The Global Dairy Trade auction on Wednesday morning showed the overall price index losing 0.5%, breaking a five-auction winning streak. Key product whole milk powder marginally rose 0.1%, while rennet casein had the largest increase of 4.9%. Anhydrous milk fat had the largest fall, down 5.1%, while butter also fell 4.9%.
Transpower announced the commencement of remaining project works, with help from Meridian and Contact. Under a new agreement, both Meridian Energy and Contact Energy will separately contribute $5m to Transpower’s programme of further work on its Clutha to Upper Waitaki Lines Project. The aim is that the remaining projects will be completed by June 2022. Transpower stated that once the works are complete, existing constraints will be alleviated and the risk of renewable electricity not being dispatched would be significantly reduced should Rio Tinto decide to close its Tiwai Point aluminium smelter in the future.
Manufacturing data was released around the globe this week. Better than expected manufacturing data for November was released from China on Saturday, boosting investor sentiment throughout Asia. China’s official PMI was 50.2 in November, up from 49.3 in October to hit its highest level since March. Meanwhile, Investor sentiment fell in the US following the release of the US ISM Manufacturing Index on Monday, coming in at 48.1 in November, down from 48.3 in October. This was below market expectations, particularly in inventories and new orders.
Offshore markets were mixed with varied trade news. Investors became more anxious about the prospect of the US and China reaching a trade deal throughout this week, with many mixed messages being sent. On Tuesday, the US House of Representatives passed a bill demanding a tougher response from the US Government over reports of mass detention centres run by the Chinese Government in Xinjiang. China said the passing of the bill would affect bilateral relations in “important areas.” Also on Tuesday, US President Donald Trump said that trade talks with China may have to wait until after the 2020 election, however, on Wednesday announced that trade discussions were “going very well.”