NZ share market climbs as US Federal Reserve hikes interest rates

New Zealand shares rose slightly on Thursday as investors bought back into risk assets after the Fed, the American central bank delivered a 75 basis-point rate increase.

Thursday, June 16th 2022, 6:33PM

by BusinessDesk

The S&P/NZX 50 Index rose 10.6 points, or 0.1%, to 10,646.58. Turnover was $114 million.

Early this morning, the United States Federal Reserve pushed through the largest interest rate increase since 1994 and said it would continue to raise rates through next year.

Market reaction to the dramatic announcement was modest but only because traders had predicted this outcome after inflation printed at a new high last Friday.

Stocks and bonds were sold off aggressively on Monday and Tuesday to get ahead of the Fed’s rate call.

Key US equity indices rose between 1% and 3% after the rates decision was announced but are still down at least 7% in the past five days. Bonds also regained some lost ground.

Vista Group lead the local market higher – gaining 6.5% at $1.65 – followed by Sky Network Television which rose 5.8% to $2.38 after backing down on plans to acquire Mediaworks.

Shares in the company plunged 7% last week when it announced it was looking at buying the radio and outdoor advertising business, with shareholders seemingly preferring it returned capital directly to them.

Pushpay held its annual meeting today, where it elected several directors and gave a small update on the takeover offers.

The company said it had opened its book to “multiple interested parties” who were interested in buying the church management business. Its shares were unchanged at $1.28 today.

Some economically sensitive stocks slipped on weak economic data: Steel & Tube Holdings fell 4.7% to $1.21, Freightways declined 3% to $9.38, and Mainfreight was down 1.1% at $70.99.

Another asset class that did not rally was cryptocurrency. The flagship token Bitcoin dropped another 2.2% and the second biggest, Ethereum, was down over 3%.

Many traders are concerned about a billion-dollar crypto hedge fund that is rumoured to be facing insolvency, partly due to its exposure to Luna which collapsed last month.

Oanda market analyst Edward Moya said the absence of a Bitcoin rally could be a troubling sign for some investors.

“If a big rally on Wall Street can't excite crypto traders, Bitcoin could be in trouble. The $20,000 level is holding, but it looks like no one wants to jump back in on the crypto trade,” he said.

But it isn’t just speculative assets that are facing steep declines, yesterday data released showed house prices had fallen 5.6% in the three months ended May.

S&P Global Ratings today reiterated its view that higher interest rates will “cool some red-hot” housing markets in Asia.

"Transaction activity is already slowing, and prices are declining in South Korea, New Zealand, and Australia," said Vishrut Rana, an economist at S&P Global Ratings.

"As interest rates rise, these markets could see further price drops, and the trend may spread to other places, given elevated household credit burdens and recent brisk house price gains."

Any post-Fed bounce for the Kiwi dollar was cut short by a weak gross domestic product data release that showed the NZ economy had shrunk 0.2% in the first quarter of 2022.

The NZ dollar ended up lower, trading at 63.24 US cents at 3pm in Wellington from 63.97 cents yesterday. The trade-weighted index was at 71.30, down from 71.51.

BNZ Research said the negative quarter was unlikely to be the beginning of a recession and was largely due to the omicron surge.

“GDP might have contracted 0.2% in the quarter, but the annual average expansion is still a massive 5.1%. Is this a bust or a boom?” asked the head of research, Stephen Toplis.

Many economists said data from the September quarter will give a more meaningful sense of how the economy is performing, and how interest rate hikes are affecting it.

“We don’t see a lot here to push the Reserve Bank of NZ away from its current strategy of front-loading official cash rate hikes,” said ANZ economist Miles Workman, in a note.

Tags: Market Close