Equities dip as interest rates creep higher

New Zealand's main share index took another tumble today with investors nervous about the risk of rising interest rates ahead of the NZ labour market data release tomorrow.

Tuesday, February 2nd 2021, 6:27PM

by BusinessDesk

The S&P/NZX 50 Index fell 52.75 points, or 0.4 percent, to 13,044.5. Within the index, 29 stocks fell, 17 rose and four were unchanged. Turnover was $140.37 million.

In other regions, equity markets bounced back overnight having fallen last week during the GameStop saga. Key indices in the US were up roughly 2 percent, while markets in Europe and Asia were also up more than 1 percent.

The Reserve Bank of Australia kept its cash rate on hold at 0.1 percent until 2024, meeting market expectations. It also decided to purchase an additional A$100 billion of bonds.

The news caused the Australian dollar to initially fall a quarter of a cent against the kiwi dollar, which was trading above 93.90 Australian cents following the announcement.

New Zealand’s central bank, meanwhile, tapered its bond-buying programme, opting to buy $570 million of government bonds this week, nearly $100 million less than last.

Greg Smith, head of research at Fat Prophets, said investors were watching interest rates carefully, as equity markets were priced for ultra-low rates.

The yield curve on NZ government bonds has steepened, with the 10-year swap rate rising to 1.26 percent - its highest level since March - while the two-year rate remained anchored just above 0.3 percent.

Jobs data

Smith said the Reserve Bank of New Zealand may consider ramping down its quantitative easing if it sees a strong result in NZ labour market data due Wednesday.

“RBNZ could be the first in the world to end the great easing,” he said. “The reduction in bond buying it’s a bit of a signal of that.”

It was a mixed day in the local market. A2 Milk led the decline, falling 3.3 percent to $11.10, while Restaurant Brands had the day’s biggest gain, up 2.6 percent to $12.00.

The climate change commission’s draft carbon budget, released on Sunday, has prompted little response from listed equities.

Today, research by Forsyth Barr affirmed the impact over the next decade would be relatively small.

The report said the electricity sector would benefit from increased electrification of the economy, while the oil and gas industry would be an obvious loser.

“Whilst this is no surprise, the recommendation to ban fossil-fuelled light vehicle imports in the early 2030s will have a modest negative impact on our view of Z Energy's long-term value,” the analysts wrote.

Z Energy dropped 1.7 percent to $2.91 on the market today.

Forsyth Barr said the report was “not helpful” for the sale of Genesis Energy’s Kupe oil field, but the firm would benefit from increased electricity demand in the long-term. Its shares were unchanged at $3.88.

Some retirement village operators were a little weaker after Consumer NZ criticised the sector's contracting methods, which they say unfairly favour operators.

Oceania Healthcare dropped 1.9 percent to $1.56 and Arvida Group fell half a percent to $1.84. On the other hand, Summerset Group Holdings rose half a percent.

The kiwi dollar was trading at 71.71 US cents at 5pm in Wellington, down from 71.99 cents yesterday.

The trade-weighted index was at 74.54 at 5pm, from 74.73 yesterday. The kiwi traded at 93.94 Australian cents from 94.07 cents, 75.25 yen from 75.36 yen, 59.36 euro cents from 59.33 cents, 52.36 British pence from 52.40 pence, and 4.6323 Chinese yuan from 4.6508 yuan.

Tags: Market Close