NZ shares shake off inflation scare

New Zealand's benchmark share index moved higher on Monday, despite inflation data showing prices had risen more in the June quarter than many had expected.

Monday, July 18th 2022, 6:07PM

by BusinessDesk

The S&P/NZX 50 Index rose 41 points, or 0.4%, to 11,163.63. Turnover was extremely light at just $56 million.

Annual inflation hit a 32 year high in the June quarter – at 7.3%, compared to expectations of 7% – but you might not know it just from looking at financial markets.

The NZ dollar climbed immediately after the announcement, on the expectation that it may trigger more interest rate hikes, but it gave up almost all its gains by the afternoon.

It was trading at 61.62 US cents at 5pm, down from a high of 62 cents earlier in the day. The currency was trading at about 61.5 cents prior to the inflation data release.

The same trend occurred against the Australian dollar, with the NZ dollar finishing and starting at roughly 90.5 cents.

The yield on a 2-year government bond climbed a little, again on the prospect of more interest rate hikes, but bond traders were already pricing in some upside risk to inflation.

ANZ Bank had one of the few research teams that changed its official cash rate forecast following the news. It is now predicting the central bank to push through an extra 50 basis point increase, to ultimately reach 4%.

Other economists are sticking with their expectations that rates will top out at 3.5%, including Jarden economist and investment strategist, John Carran.

“While despondency about the high June quarter inflation result is understandable, the inflation news is likely to get better going forward for several reasons,” he said.

There are signs that global inflation pressures are fading, he said. Commodity prices have been declining in recent months, which should flow through to lower food and petrol prices.

“However, there will be some residual inflation that will likely be hard to shift as a tight labour market and catchup wage increases cause recent high inflation to reverberate to an extent,” he said.

Market movers

Slightly higher than expected inflation didn’t seem to scare equity investors, with the benchmark index climbing – albeit on ultra-light volume.

Mercury Energy led the way, climbing 3.2% to $6, followed by Genesis Energy, which was up 3.1% at $2.82. Electricity stocks are generally considered safe havens from inflation.

Exporters Scales Corp and Skellerup Holdings were both stronger, likely helped by the weak NZ dollar. The former rose 2.9% to $4.32 and the latter 2.2% to $5.16.

On the flipside, A2 Milk dropped 1.6% to $4.89 after it got another analyst downgrade –– this time from Forsyth Barr.

Analyst Matt Montgomerie of Forsyth Barr said a resurgence of domestic infant formula brands and a sharp decline in birth rates left the stock looking expensive relative to its likely growth rate.

Retirement village operators also declined today, after Jarden analysts trimmed 6% off their target prices for stocks across the sector in a note on Friday.

Oceania Healthcare had the biggest fall, down 2.1% at 92 cents, followed by Argosy which declined 1.5% to $1.275.

Jarden’s preferred retirement investment, Summerset Holdings, rose 1.2% to $10.11.

Australia & New Zealand Banking Group said it will raise A$3.5 billion to help fund its purchase of Queensland rival Suncorp Bank. The dual-listed bank also ended talks about a potential purchase of accounting software firm MYOB.

ANZ’s dual shares were placed on a trading halt. They closed at $23.95 on the NZX on Friday. The fully underwritten pro-rata offer – at A$18.90 per share, a 12% discount on Friday’s close on the ASX – will be open to eligible institutional and retail shareholders.

Investors will be entitled to one new share for every 15 held as of Thursday this week.

Tags: Market Close