NZ sharemarket rises US Treasury yields drop

A sharp fall in oil prices and a dip in US Treasury yields helped drive New Zealand stocks to a stronger finish as turnover thinned out in the leadup to the election.

Thursday, October 5th 2023, 6:30PM

by BusinessDesk

The S&P/NZX50 index gained 74.05 points or 0.66% to 11,309.10 after being mostly flat early in the session.

Turnover was worth just $89.8 million, with 83 gains and 48 falls on the main board.

Oil prices plunged by more than US$5 (NZ$8.41) a barrel over concerns that sharp increases in borrowing costs caused by higher interest rates could dent economic growth.

Brent crude settled US$5.11 a barrel, or 5.6%, lower at US$85.81 a barrel after its biggest one-day drop since August 2022.

The market also got a boost from an eight basis point move down in benchmark US Treasuries to 4.74% after they hit a 16-year high earlier in the week.

Jeremy Sullivan, investment advisor Hamilton Hindin Greene, said the market was taking its lead from firmer Australian markets, the oil price fall, and weaker bond yields.

Turnover, however, was thin, which was to be expected going into the Oct 14 election.

“With the election just around the corner, the positive cues from offshore were enough to see a lift on our boards today,” Sullivan said.

Among the big-name stocks, Fisher and Paykel Healthcare gained 50 cents (2.3%) to finish at $22.23, and Contact Energy firmed 7 cents to $8.07.

Chorus rallied by 13 cents to $7.63, EBOS firmed 74 cents to $34.95, while Fletcher Building gained 8c to $4.80.

High domestic interest rates were having their import on the retail stocks, with The Warehouse falling 3 cents to $1.75, Briscoe Group losing 8 cents to $4.57, and Hallenstein Glasson dropping 5 cents to $5.80.

Interest rates squeeze spending

“Unfortunately, the update from the Reserve Bank [RBNZ] this week did point to higher for longer interest rates, and that does put downward pressure on available money to spend in a discretionary fashion,” Sullivan said.

Westpac expects the RBNZ’s official cash rate (OCR) to hit 5.75% in November (from 5.5% currently).

“We now don’t see OCR reductions until early 2025, with a slow decline from there to 4.0% in 2026 and 3.5% from 2027 onwards,” the bank said.

Research group Morningstar, in its NZ Equity Market Outlook for the fourth quarter, singled out a2 Milk as a “top pick”.

“There is much to like about a2 Milk, notably in China, the key battleground,” Morningstar said. A2's share of Chinese-language-labelled infant formula continues to grow, supported by the a2 ‘Platinum’ brand, it said.

“We forecast 9% annual revenue gains to fiscal 2028 as channel inventory levels normalize and market share increases, alongside improved sales of higher-margin English-label product and operating leverage from higher revenue,” it said.

A2 Milk finished steady at $4.50.

Morningstar also singled out power company Manawa (down 7 cents at $4.48) and casino operator Sky City (unchanged at $1.90) as “top picks” for the quarter.

A2 Milk’s closely allied supplier, the cash-strapped Synlait Milk, finished at $1.37, down 3 cents, while its NZX-traded bond yields remained elevated at 17.5%.

Among the other movements, steel distributor Vulcan rallied by 17 cents (2.1%) to finish at $8.25, while Port of Tauranga fell 8 cents to $5.82.

Among the smaller issues, used car dealership 2 Cheap Cars – which issued a positive earnings update last week – continued on its upward trajectory, gaining 6 cents (7.3%) to close at 88c, despite the company being censured this week by the NZ Markets Disciplinary Tribunal for not having enough independent directors.

Tags: Market Close