Rearing US inflation drives global stock markets lower

Unexpectedly strong US inflation sapped equity markets around the world as investors reassess whether interest rates will rise faster than they’d previously thought.

Thursday, May 13th 2021, 6:37PM

by BusinessDesk

The S&P/NZX 50 Index dropped 137.79 points, or 1.1%, to 12,428.12. Of the 186 stocks on the main board, 102 fell and 29 rose. Turnover was $162.4 million.

US inflation was unexpectedly strong, with consumer prices rising the most in nearly 12 years in April as resurgent demand clashed with global supply constraints. Stocks across Asia followed Wall Street’s lead as the relative attraction of equities dwindled on the prospect of rising interest rates.

Greg Smith, head of research at Fat Prophets, said that weakness washed through the local market, although he doesn’t expect interest rates to shoot up any time soon.

“The prospect of higher interest rates raises the bar for a lot of growth stocks,” Smith said.

Tech stocks were among the hardest hit globally, and cinema software firm Vista Group International led the local market lower, down 5.2% at $2.20. Online corporate booking firm Serko fell a more muted 0.3% to $6.40.

Across the Tasman, Xero sank 12% to A$118.66 in late ASX trading after reporting slowing customer growth due to the covid pandemic. Still, net profit soared almost six-fold to $19.8m, revenue climbed 18% to $848.8m, and Xero added a record number of subscribers in the second half.

Companies offering reliable dividends – a favourite among investors in a low-interest-rate environment – were also sold off. Auckland International Airport dropped 4% to $7.42, Argosy Property was down 3.6% at $1.455 and Stride Property declined 1.7% to $2.31.

Goodman Property Trust declined 2.2% to $2.26 after reporting a 5.4% increase in underlying annual earnings.

Tilt Renewables slipped 0.1% to $8 after reporting a 21% increase in underlying annual earnings and saying it might pay a special dividend before its $3.1 billion takeover offer is completed. Infratil, which owns 65% of Tilt, fell 1.9% to $7.27, and Mercury NZ, another cornerstone investor which will end up buying Tilt’s NZ assets, dropped 4.3% to $6.46.

Meridian Energy decreased 1.3% to $5.28 after grid operator Transpower said hydro generation is at its lowest level in several years, with generators preserving water and turning to coal and gas-powered generation.

The surprise US inflation data and the prospect of higher interest rates provided some support for the greenback, which has been under pressure in recent days, and the kiwi dollar slumped about three-quarters of a US cent, trading at 71.77 US cents at 3pm in Wellington from 72.47 cents yesterday.

BNZ market strategist Jason Wong said changing inflation expectations will provide short-term support for the US dollar, but he doesn’t expect the medium-term outlook to change.

“The biggest risk to our positive NZD/USD view is if inflation does get out of hand, requiring a decent interest rate response by the Fed and risk assets come tumbling down from their lofty levels,” Wong said.

A weaker currency is typically a boon for exporters, who can drop their prices without losing margin. Fisher & Paykel Healthcare rose 0.8% to $33.55.

The local currency traded at 51 British pence from 51.33 pence yesterday, 92.72 Australian cents from 92.75 cents, 78.60 yen from 78.88 yen, 59.39 euro cents from 59.72 cents, and 4.6300 Chinese yuan from 4.6630 yuan. The trade-weighted index was at 74.82 from 75.26 yesterday.

ANZ Bank posted the biggest gain on the benchmark index, with the dual-listed lender up 1.8% at $29.41. Westpac rose 0.5% to $27.10.

Outside the main board, digital financial services firm Harmoney jumped 10.2% to $1.94, unwinding recent weakness after saying total loan originations were $37.8m in April.

Tags: Market Close