NZX 50 gains, dollar tumbles as RBNZ surprises with rate pause

New Zealand’s S&P/NZX 50 index and the kiwi dollar dropped as the Reserve Bank wrong-footed traders by keeping the official cash rate at 2.75% in a split decision, with the majority saying they wanted more time to gauge the impacts of earlier hikes without stamping out the economic recovery.

Across the Tasman, hotter-than-expected inflation stoked expectations the Reserve Bank of Australia will raise its cash rate to an 18-year high next week, with decisions from the Federal Reserve, European Central Bank and Bank of Japan later this week set to provide more insight into how central bankers are approaching the energy shock.

Companies tied to economic activity such as Fletcher Building and Freightways were among the day’s gainers, while heavyweight energy stocks and Fisher & Paykel Healthcare provided the biggest drags.

And Comvita fell after a contested annual meeting, with proxy votes indicating that chair Bridget Coates would see off an attempt to oust her, while Bob Major and Gregor Barclay would be removed.

That was unexpected

The NZX 50 increased 11.06 points, or 0.1%, to 13,691.33 with 25 stocks gaining, 18 declining and seven unchanged. The S&P/NZX 20 index rose 0.2% to 7,485.85, while the futures contract was untraded.

Turnover across the main board was $107.5 million, of which F&P Healthcare accounted for $30 million, as the country’s biggest listed company fell 1.2% to $47.57, in the biggest headwind for the local bourse.

The kiwi dollar dropped to 56.14 US cents at 5pm in Auckland from 57.05 cents yesterday after the Reserve Bank surprised markets with its split decision to keep the benchmark interest rate on hold.

The majority of the monetary policy committee – governor Anna Breman, Rebecca Williams, and externals Carl Hansen and Prasanna Gai – said they wanted more time to assess the two earlier hikes, with headline inflation lower than expected and businesses not widening their margins with price increases. The committee was unanimous in the view that tighter policy was probably needed.

“Markets had priced in a 95% chance of a rate rise and it definitely caught the market by surprise,” said Jeremy Sullivan, an investment adviser at Craigs Investment Partners. “The current track is still in an upward trajectory – whether we get to 3.25% or 3.5% is only a matter of time. We need to see a resolution to the Middle East conflict and a substantial fall in oil prices.”

Meanwhile, the kiwi fell below 80 Australian cents for the first time since March 2013 after a faster-than-expected pace of inflation heightened expectations for the RBA to raise its cash rate to 4.6% at next week’s review. The kiwi fell to 79.82 Australian cents from 81.11 cents yesterday.

Bevan Graham, an economist at Salt Funds Management, said persistent underlying inflation across the Tasman was a greater concern than higher energy prices.

“This will be particularly troubling for the RBA given its ongoing concerns about capacity constraints, weak productivity growth and the risk of inflation expectations becoming entrenched above target,” Graham said in a note.

Beating expectations

Stock markets across Asia were broadly stronger, with Australia’s S&P/ASX 200 index up 0.1% in late trading, while Japan’s Nikkei 225 gained 1.5% and Hong Kong’s Hang Seng increased 0.4%.

South Korea’s Kospi jumped 6.3% as SK Hynix announced plans to distribute 60 trillion won through buybacks and dividends after reporting stronger-than-expected profit.

Infratil was one of the bigger tailwinds for the local market, as the data centre investor gained 1% to $12.51.

Companies tied to the domestic economy were also among the day’s bigger gainers, with Fletcher up 5% at $3.38, Freightways advancing 2.2% to $12.32 and Spark New Zealand increasing 2.4% to $1.935 on a volume of 2.4 million shares, the most for the day.

Serko posted the biggest gain on the NZX 50, up 5.6% at $1.13 after Forsyth Barr analysts raised their target price on the stock by 8 cents to $2.43 and lifted their earnings forecasts on the flagged modest increase in annual income guidance.

Power companies were generally weaker on the day. Mercury NZ fell 1.2% to $6.74, Contact Energy declined 0.2% to $8.57 and Meridian Energy slipped 0.2% to $5.62.

Port of Tauranga was unchanged at $8.30 after the maritime hub completed a $57 million property sale.

Outside the benchmark index, NZME gained 0.5% to 99 cents after the media group said the government offered a lower renewal price of $11.2 million for its commercial radio spectrum licences.

Comvita slipped 2.5% to 78 cents after the honey products firm said first-quarter sales rose 4.6%, with wider gross margins. The company held its contested annual meeting in Mount Maunganui today, with proxy votes indicating chair Bridget Coates would keep her seat, while directors Bob Major and Gregor Barclay would be removed. Shareholders also voted against increasing the directors’ fee pool.

Reporting by Paul McBeth. Image from Curious News.