Hot inflation sends NZ shares falling

New Zealand shares took another downward turn after data released in the United States showed inflation was still running hot and could trigger a 50-basis point rate hike by the US Federal Reserve in March.

Friday, February 11th 2022, 6:28PM

by BusinessDesk

The S&P/NZX 50 Index fell 239 points, or 1.9%, to 12,173.78. Turnover was about $150 million.

US investors were shocked overnight by stronger than expected inflation data – the headline consumer price index was up 7.5% since last year – which increased expectations for faster rate hikes.

One member of the US Federal Reserve committee publicly came out in favour of a 50-basis-point rate hike in March, which traders immediately priced into market interest rates.

Nick Smyth, a BNZ strategist, said the narrative about inflation last year had been that it was driven largely by supply chain issues and would be short-lived.

“However, recent inflation prints have shown clear evidence of broadening inflation pressure beyond the goods sector and those categories most acutely affected by supply chain issues, such as new and used cars,” he said.

The market is now pricing in a roughly 85% chance of a double hike in March and more than six hikes in total by the end of the year. This is a dramatic shift from just a few months ago when the market expected the first US rate hike to happen in 2023, Smyth said.

With higher interest rates come lower share market valuations, and share prices on US markets dropped as investors shed growth stocks in favour of cyclicals, such as energy.

Growth-oriented tech stocks dragged the local index lower as well, as it followed the 2.1% drop on the Nasdaq index on Thursday night.

Pushpay Holdings fell 2.8% to $1.03, Pacific Edge dropped 3.7% to $1.05, and Vista Group slid 3.6% to $2.12.

Some stocks facing difficulties also took a hit as investors looked to shed riskier assets: A2 Milk dropped 4% to $5.65 and Air New Zealand was down 2.1% at $1.60.

Forsyth Barr analyst Matt Montgomerie said the past 18 months had been challenging for A2 Milk and there was no sign those headwinds would let up anytime soon.

“Our analysis suggests that industry growth will remain subdued in 2022, and we are unlikely to see a return to pre-covid levels of demand for the foreseeable future,” he wrote.

Kathmandu shares climbed 0.7% to $1.41 even though the outdoor equipment chain said first-half earnings were down 81%, with stores closed under covid-19 lockdowns.

The company said it will report underlying earnings in the range of $9m to $11m, down from $48.2m a year earlier, but a weak result had been widely expected by investors.

Stock market operator NZX fell 0.6% to $1.75. Today, it completed its acquisition of $1.8 billion in retirement savings funds from ASB, which will be added to Smartshares funds under management.

The NZ dollar fell a third of a US cent after the big inflation number hit the market and was trading at 66.56 US cents, down from 66.82 US cents yesterday.

Electus Financial managing director, Alex Hill, said a big inflation number had been expected so the reaction was more muted than it might have been.

"There was quite a lot of volatility around the US dollar as we saw it weaken and strengthen, which gives you a little hint that markets are a little bit undecided,” he said.

Tags: Market Close