Markets react to RBNZ OCR announcement

Wednesday, May 26th 2021, 6:32PM

by BusinessDesk

The S&P/NZX 50 Index was almost flat adding just 6.25 points, or 0.1%, to reach 12,347.44. Within the index, 15 stocks fell, 25 rose and 10 were unchanged.

But if investors had an immediate reaction to the rising interest rates, it wasn’t obvious with some high-yielding stocks moving higher.

For example, Mercury NZ rose 3.8% to $6.70, and Contact Energy was up 2.4% at $7.83.

Some property stocks also climbed, Stride Property was up 1.3% at $2.35 and debt-heavy Ryman Healthcare bounced 4.8% to $13.49 after four days of decline.

Exporter Fisher & Paykel Healthcare was the one holding the index back as it dropped another 3.8% to $31.38 ahead of its earnings result tomorrow.

The strong kiwi dollar eats into the exporter’s profits which are earned largely in US dollars.

Fletcher Building rose 3.1% to $7.44 as it forecast more than $650 million of earnings in the year ending June, up from guidance range with a low end at $610m. The construction firm also announced a $300m share buyback.

Mainfreight said it will pay staff a discretionary bonus of $43.9 million after a record result saw net profit up $40m at $188m. Shares in the firm eased 0.2% to $72.83 today but the stock is trading near a record high.

Exporters a2 Milk and Synlait Milk both saw declines – 2.1% to $5.64 and 2.3% to $2.93 respectively – although both stocks have other problems facing them right now.

Dollar and swaps jump as RBNZ signals rate hikes

The kiwi dollar and swap rates spiked after the Reserve Bank of New Zealand's official cash rate forecast projected hikes from next year.

The central bank left its policy settings unchanged in today’s monetary policy statement but indicated they wouldn’t stay that way for long.

The official cash rate is now expected to begin climbing next year — and keep climbing until it hits 1.8% in 2024 — as global economic recovery continues and supply-chain disruptions ease.

David McLeish, head of fixed income at Fisher Funds, said the 1.8% prediction had “certainly grabbed the market's attention” as it was higher than most forecasts.

“However, 2024 is very far away in financial market terms. My take is that any forecast that far out should be taken with a grain of salt,” he said.

The two-year swap rate leapt from 0.51% to 0.62% and the five-year jumped from 1.16% to 1.31% following the 2pm announcement. Kiwibank economists said they were “big moves that are likely to continue in offshore trading tonight”.

The kiwi dollar broke through 73 US cents for the first time since February, jumping from 72.31 cents to as high as 73.10 cents, as the RBNZ looks to be among the first central banks among developed economies to raise rates.

BNZ’s head of research, Stephen Toplis said the currency was “probably undervalued relative to current commodity prices and perceived global risk levels anyway”.

While the central bank’s intention to tighten monetary policy reflects confidence in the local economy, it adds a headwind for NZ’s rate-sensitive share market.

The trade-weighted index was at 75.30 at 3pm, from 74.93 yesterday. The kiwi traded at 93.48 Australian cents from 93.06 cents, 78.93 yen from 78.47 yen, 59.28 euro cents from 59.02 cents, 51.31 British pence from 50.93 pence, and 4.6494 Chinese yuan from 4.6280 yuan.

Tags: Market Close