Stock market rallies as RBNZ eases rates higher

Pressure came off financial markets Wednesday afternoon after the central bank moved the official cash rate up 25-basis points, rather than the 50-point hike markets had been fearing.

Wednesday, November 24th 2021, 6:49PM

by BusinessDesk

The Reserve Bank of New Zealand lifted the OCR to 0.75% as it slowly applies the brakes to an economy it considers to be running too hot.

ANZ economists said “markets breathed a sigh of relief”, not just because of the smaller hike but also because it only lifted its OCR forecast about half a percent higher than in August.

Traders were positioned for a hawkish statement and the delivery of a 50-basis point move, said KiwiBank chief economist Jarrod Kerr.

“Financial market traders reacted immediately, selling the Kiwi dollar and pushing wholesale rates down,” he said.

“The pivotal 2-year swap rate down over 20 basis points at one stage. That’s a big move for the short end of the curve”.

Higher interest rates have been a strong headwind for NZ’s equity market, which saw an aggressive selloff on Monday as investors looked to lower their risk.

Today, the S&P/NZX 50 Index was up 78 points, or 0.6%, to 12766.79. It moved higher after the 2pm announcement, having traded negatively earlier in the session. Turnover was $162 million.

“That more dovish tone from the central bank was definitely something that helped our market,” said Peter McIntryre, an investment advisor at Craigs Investment Partners.

Some interest rate sensitive utility stocks were having a strong day, he said, having been sold off earlier in the week.

Meridian Energy led the index higher, up 4.2% at $4.77, followed by Mercury NZ which climbed 2.2% to $5.95.

McIntryre said some of the riskier stocks were still being sold on the other side of the board.

Vista Group International dropped 5.6% to $2.36 – after announcing the founder of its Movio business was resigning to work on another start-up – and Pushpay Holdings declined 4.2% to $1.36.

Fisher & Paykel Healthcare, which will report its long-awaited earnings tomorrow morning, climbed 2.2% to $32.20.

Jarden’s director of equity research, Adrian Allbon said the key focus of the result will be how covid-related sales are normalising having been elevated since March last year.

Allbon expects revenue to fall 7% to $849m and net profit to drop 17% to $188m, but the board to announce a dividend payout of 21 cents per share – up 24%.

Travel booking company Serko will also be closely watched as it comes off a trading halt tomorrow having raised $75m to fund future growth.

The company gave an energetic pitch about how it was well-positioned to win market share as business travel recovers, but its half-year report showed it was still suffering badly from the pandemic restrictions.

Serko issued revenue guidance that topped out at $25m for the full 2022 year, well below analysts’ expectations of roughly $40m.

A2 Milk gained 0.8% at $6.60 despite being hit with a second class-action lawsuit over its disclosure of its earnings downgrades between August 2020 and May 2021.

Shares in insurance company Tower jumped 8.5% to 70 cents after it flagged plans to buy back $30 million of shares at 72 cents each.

The NZ dollar initially had a modest reaction to the central bank announcement, dropping slightly in the first hour, but continuing to slide throughout the afternoon.

It was trading around 69.50 against the US dollar leading into the announcement and was still trading above 69.30 an hour later. But by 5:45 it had fallen as low as 68.96 US cents.

Tags: Market Close