Shares fall as investors call RBNZ's bluff

The Reserve Bank of New Zealand’s promise to keep monetary policy ultra-loose fell on deaf ears in the market as bond yields continued to rise, pushing shares lower and the kiwi dollar upwards.

Wednesday, February 24th 2021, 6:30PM

by BusinessDesk

Today, the central bank reiterated prolonged monetary stimulus remains necessary and held the official cash rate at a record low 0.25%, saying the economic outlook was still “highly uncertain”.

However, investors were unconvinced the RBNZ would really hold interest rates at that low rate for as long as they had promised.

Head of fixed income at Fisher Funds, David McLeish said the absence of an official cash rate projection was “very telling”.

“That indicates to me that they didn’t want to tell us what everyone really knows; which is that the chance is for an official cash rate rise next year –– and a very slight chance of one this year –– have risen dramatically,” he said.

The yield on a 10-year government bond climbed above 1.7% after the announcement, rallying from a short-lived dip overnight.

Even short-dated bonds spiked, with the 2-year rate hitting 0.34% after trading at a midpoint of 0.255% for the past two months.

McLeish said this still doesn’t fully price in rates rising to 0.5% in that period, suggested further yield increases are likely.

A hike in interest rates would “spoil the equity party” which has seen valuations climb as investors swapped out of term deposits and fixed interest rate investments in search for better yield.

Shares got a brief boost from the RBNZ’s headline announcement, which reiterated prolonged stimulus was still necessary, but the short recovery quickly gave way to a deeper decline.

The S&P/NZX 50 Index ended down 106.42 points, or 0.9%, at 12,282.42. Within the index, 29 stocks fell, 19 rose, and two were unchanged. Turnover was $179.3 million.

Exporters were among the weakest stocks on the market after the RBNZ’s statement gave the local currency even more strength. The kiwi dollar jumped 15 basis points to 75.80 US cents, up from 75.33 cents yesterday.

Fruit company Scales Corporation led the market lower, dropping 7% to $4.48, followed by Fisher & Paykel Healthcare which declined 3.5% to $29.50.

Pushpay Holdings, which also earns US dollars, slipped 3.5% to $1.68.

The trade-weighted index was at 75.81 at 5pm, from 75.33 yesterday. The kiwi traded at 92.28 Australian cents from 92.46, traded at 77.71 yen from 76.84 yen, 60.61 euro cents from 60.14 cents, 52.02 British pence from 52.00 pence, and 4.7556 Chinese yuan from 4.7257 yuan.

Among the equity market decline, there were a handful of winners. Vista Group International leapt 7.1% to $1.66 ahead of its full-year result next Monday.

Auckland International Airport was up 2.2% to $7.30 after a bout of weakness following its first-ever full-year financial loss.

Other moves were dominated by a raft of earnings results, such as Meridian Energy falling 2.1% to $5.50 after it reported a 9% decline in first-half operating earnings.

The electricity generator also revealed plans to spend $395 million building the Harapaki windfarm northwest of Napier.

Spark New Zealand fell 0.4% to $4.66 after border closures left a hole in its mobile roaming revenue. Revenue fell 1.5% to $1.8 billion in the six months to Dec. 31.

Listed retailer Michael Hill reported an increased net profit of A$39 million, a more than 80% rise compared with the same period in the previous financial year, for the 26-week period ended Dec 27. Its shares rose 1.3% to 77 cents.

Tags: Market Close