NZX50 nudges higher this week as slowing economy stokes rate cut bets

New Zealand’s S&P/NZX 50 index nudged up this week as an unexpectedly sharp economic contraction in the middle of the year hyped up expectations for the Reserve Bank to act more decisively when it reviews interest rates next month.

Trading volumes were busy on Friday with index reweightings driving activity, with courier firm Freightways – often seen as a bellwether for the economy – leading the local bourse higher on the day.

Forsyth Barr completed its deal with Australian private equity firm Mercury Capital taking a 25% stake in the investment house, providing an opportunity for existing shareholders to sell down their stakes and for some former staffers to cash out their holdings.

And the Bank of Japan kept its key rate unchanged in a widely anticipated move as markets cope with the extra uncertainty introduced by prime minister Shigeru Ishiba’s recent resignation.

Down is up

The NZX50 rose 111.63 points, or 0.9%, to 13,231.66, leaving it marginally higher at the end of the week and marking its third weekly gain. Across the index, 19 stocks gained, 27 fell and four were unchanged.

Turnover was $643.6 million with the adjust period extended to account for the quarterly rebalancing of the S&P/NZX and FTSE Russell indices. Of that, Fisher & Paykel Healthcare accounted for $130 million as it rose 2.2% to $38.32, while Contact Energy had $82.3 million traded as it slipped 0.4% to $9.16.

Channel Infrastructure was again the most heavily traded stock on the day with a volume of 13.3 million shares changing hands as it rose 1.6% to $2.48, while Kiwi Property Group increased 0.4% to $1.035 on a volume of 9.9 million. Spark New Zealand dipped 0.9% to $2.33 with 7.9 million shares traded.

Freightways led the benchmark index higher on the day, climbing 4.6% to $13.39 and marking a 9.5% gain in its best week since July last year. The courier operator is often seen as a bellwether for the economy, which was shown to be in a rougher state than people had thought after Statistics New Zealand figures on Thursday showed gross domestic product shrank 0.9% in the June quarter.

ANZ New Zealand chief economist Sharon Zollner said the data were much weaker than forecast and make for a much more interesting decision for the Reserve Bank when it comes to review the official cash rate on Oct 8.

“The current collective wisdom of the market is around a 40% chance of a 50 basis points cut in October (ie 35 basis points of easing is currently priced in), and 2.32% by the end of February,” Zollner said in a note. “That’s a pretty fair representation of how we’re seeing it currently too: a fairly tricky call in October, but clear downside risk to the OCR endpoint.”

Touchy stocks

Property stocks, which are typically sensitive to interest rate movements, were mixed, with Precinct Properties NZ up 1.6% at $1.56, while Investore Property fell 2.2% to $1.14, Goodman Property Trust decline 1.9% to $2.11 and Vital Healthcare Property Trust was unchanged at $2.18.

Among other gainers on the day, Ebos Group rose 4.3% to $29.86 while Mainfreight advanced 2.5% to $64.18.

Sky Network Television posted the biggest decline on the day, falling 4.9% to $3.10 as it snapped a four-day rally.

The kiwi dollar remained under pressure on the prospect of steeper interest rate cuts, trading at 58.71 US cents at 5pm in Auckland from 58.82 cents at 7am and 59.12 cents yesterday.

The local currency fell to 86.58 yen from 87.03 yen yesterday after the Bank of Japan kept its key rate unchanged at 0.5% as its steps to get to more normal monetary policy at a higher level was put on hold when US President Donald Trump upended the global trading order. The central bank is also contending with the resignation of prime minister Shigeru Ishiba.

And Forsyth Barr confirmed Australian private equity firm Mercury Capital has joined its share register, buying 25% of the firm from existing shareholders in a partial offer made to all of the firm’s owners. No new money was raised, but the new capital structure with a strategic minority investor provides a liquidity mechanism as some shareholding staff depart the firm.

Reporting by Paul McBeth. Image from Curious News.