Share market shuffles sideways as inflation soars

New Zealand shares drifted sideways as consumer prices soared in the second quarter stoking market expectations of interest rate hikes and sustained inflation.

Friday, July 16th 2021, 7:09PM

by BusinessDesk

The S&P/NZX 50 Index added 1.99 points, effectively unchanged, to reach 12,673.15. Turnover was $163.5 million.

New Zealand’s consumers price index jumped 1.3% in the June quarter which puts the annual rate at 3.3%, outside of the Reserve Bank’s target range and significantly above market expectations.

BNZ said it looked increasingly likely the official cash rate could jump to 1% by November, either moving 25 basis points at each upcoming review or with a sharp move later in the year.

Milford portfolio manager, Sam Trethewey said the relaxed monetary policy settings had been pushing investors up the risk curve as people sought out higher yielding assets.

That trend may reverse at some point in the future, he said, but with rates starting out at extreme lows the hikes would have to be significant to have much impact.

“We think it would need to move entire percentage points in interest rates before you see a material flow through into the attractiveness of term deposits versus shares,” he said.

Kiwibank surprised market watchers by cutting the interest rate on a 200-day term deposit even as it raised most mortgage rates in reaction to the inflation data today.

“The number one risk on investors’ minds for the past couple of months, and it will be going forward, is whether this inflation is transitory or if it is here to stay,” Trethewey said.

Trethewey said investors will also be questioning whether the pace of economic growth will slow if the covid-recovery is finished.

That could see investors swap out of cyclical stocks that are heavily exposed to economic growth such as Fletcher Building, Freightways and SkyCity Entertainment, he said.

These stocks were mixed today with Fletcher unchanged at $7.29, Freightways down 0.3% at $12.43 and SkyCity Entertainment up 0.9% at $3.40.

Electricity generator Genesis Energy had the day’s biggest fall, down 2.5% at $3.46, followed by Heartland Group Holdings which fell 2% to $2.01 after a recent strong run.

Internet infrastructure firm Chorus led the NZX 50, up 2.4% at $6.30.

Outside the index, Michael Hill International had one of the biggest gains as it jumped 6.9% to 93 cents.

The jewellery brand said it expects to beat analysts' profit forecasts with strong sales momentum continuing. Jarden and Forsyth Barr analysts have previous predicted full year earnings at roughly A$73m.

On the other side of the board, Cannasouth shares plunged 6.5% to 43 cents as the medicinal cannabis company kicked off a $6m capital raise with retail investors at 40 cents per share.

Rua Bioscience, another listed cannabis company, also fell 2.4% to 40.5 cents.

The kiwi dollar was trading at 69.93 US cents by 3pm in Wellington, down from 70.13 cents yesterday.

The trade-weighted index was at 74.12 at 3pm, from 74.21 yesterday. The kiwi traded at 94.27 Australian cents from 93.95 cents, 76.93 yen from 77.08 yen, 59.24 euro cents from 59.30 cents, 50.57 British pence from 50.71 pence, and 4.5229 Chinese yuan from 4.5346 yuan.

Tags: Market Close