Investors stick to sidelines ahead of ‘colossal’ Fed meeting

NZ’s benchmark equity index finished Wednesday virtually unchanged with investors unwilling to make moves before the US Federal Reserve meeting tomorrow.

Wednesday, May 4th 2022, 7:08PM

by BusinessDesk

The S&P/NZX 50 Index fell just 7 points (0.01%) to 11,675.21. Turnover was unusually light at $85.6 million.

Stephen Innes, a managing partner at SPI Asset Management, said financial markets were in a “holding pattern” ahead of the “colossal” Fed meeting.

Investors generally expect a 50 basis points (bps) hike and some quantitative tightening to go ahead with the focus on the guidance on the future path of interest rates, he said.

BNZ strategist Jason Wong said it was likely the central bankers would signal plans to “front-load” the tightening of monetary policy with a series of swift moves.

Yesterday, the Reserve Bank of Australia joined the policy tightening cycle, raising the cash rate by 25bps to 0.35%, following New Zealand’s central bank which has already chalked up multiple hikes.

These increases are already taking the heat out of some parts of the economy, despite most local mortgage repayments not yet being hit by the higher rates now offered by retail banks.

In its financial stability report released today, the Reserve Bank of NZ acknowledged asset prices were falling due to higher interest rate expectations but said the system remained resilient.

Exporter Skellerup Holdings had the index’s biggest fall, down 3.5% at $5.50, while Fonterra Shareholders' Fund Units made the largest gain – up 2.1% at $2.90 Dairy prices tumbled 8.5% in the overnight Global Dairy Trade (GDT) auction and analysts say prices likely peaked in March.

It was the fourth consecutive fall in the GDT index and the largest in nearly seven years.

Less demand from China, while parts of the country are in lockdown, may have been a contributing factor to the surprising size of the price fall.

Whether this is good or bad news for listed dairy stocks is complicated as the milk price is an input cost for them, but it also indicates the level of demand for their end products.

This means it will be cheaper for them to buy milk at the farm gate, but there may be fewer consumers buying their products in end markets. Infant formula marketer A2 Milk company fell 2.9% to $4.68 and its supplier, Synlait Milk, dropped 3.2% to $3.37.

Pushpay Holdings was up another 1.5% today to $1.33 as investors await its earnings result next week for news about the takeover interest it has received.

ANZ Bank NZ lifted its first-half net profit by 18%, reflecting ongoing growth in housing loans. The bank's net profit for the six months ended March 31 rose to $1.1 billion from $930m in the same six months a year earlier.

The bank's Australian parent lifted net profit 10% to A$3.53b and its shares rose 1.9% to $30.45 on the NZX. The NZ dollar was trading at 64.46 US cents at 3pm in Wellington, up from 64.61 cents yesterday.

Tags: Market Close