New Zealand stocks shake off inflation fear

New Zealand’s benchmark stock index rose on Monday, despite inflation data showing prices rose more in the June quarter than many had expected.

Monday, July 18, 2022, 6:07 p.m.

by Business Desk

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

Annual inflation hit a 32-year high in the June quarter — at 7.3%, against expectations of 7% — but you might not know that just by looking at financial markets.

The New Zealand dollar rose immediately after the news on hopes it could trigger further interest rate hikes, but gave up nearly all of its gains in the afternoon.

It was trading at 61.62 cents US as of 5 p.m., down from a high of 62 cents earlier in the day. The currency was trading around 61.5 cents ahead of the inflation data release.

The same pattern played out against the Australian dollar, with the New Zealand dollar ending and starting at around 90.5 cents.

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

ANZ Bank had one of the few research teams to have changed its official cash rate forecast following the announcement. He now expects the central bank to impose a further 50 basis point increase, eventually reaching 4%.

Other economists are sticking to their expectations that rates will hit 3.5%, including Jarden economist and investment strategist John Carran.

“While discouragement over the June quarter’s high inflation result is understandable, inflation news should improve going forward for several reasons,” he said.

There are signs that global inflationary pressures are fading, he said. Commodity prices have fallen in recent months, which should translate into lower food and gasoline prices.

“However, there will be some residual inflation which is likely to be difficult to move as a tight labor market and catch-up wage increases cause recent high inflation to pass through to some extent,” he said. .

Market Movers

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

Mercury Energy led the way, climbing 3.2% to $6, followed by Genesis Energy, which rose 3.1% to $2.82. Electricity stocks are generally considered as refuges against inflation.

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

On the other hand, A2 Milk fell 1.6% to $4.89 after earning another analyst downgrade –– this time from Forsyth Barr.

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

Retirement village operators also fell today, after analysts at Jarden slashed target prices for shares across the sector by 6% in a Friday note.

Oceania Healthcare posted the largest decline, down 2.1% to 92 cents, followed by Argosy which fell 1.5% to $1.275.

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

Australia & New Zealand Banking Group has announced it will raise A$3.5 billion to help fund its purchase of Queensland rival Suncorp Bank. The dual-listed bank also ended talks over a possible takeover of accounting software company MYOB.

ANZ’s double shares have been suspended. They closed at $23.95 on the NZX on Friday. The fully subscribed pro rata offer – at A$18.90 per share, a 12% discount at 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 shares held from Thursday this week.

Tags: Market Close

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