NZX50 slides most in a week since Dec 2024 amid lurking rate hike fears

New Zealand’s S&P/NZX 50 index marked its worst week in more than a year as hotter inflation than predicted stoked expectations the Reserve Bank may need to raise interest rates this year to stop the economy overheating, capping off an eventful week capturing US President Donald Trump’s posturing to add Greenland to the republic.

The a2 Milk Co led the benchmark index down on Friday and was the hardest hit on the week, with slowing Chinese birth rates adding to the uneasiness about the global trade environment and as Abbott Laboratories – which bought Synlait Milk’s Pōkeno factory – missed analysts’ earnings expectations as its nutrition unit’s sales were knocked by consumers shying away from baby formula price hikes.

Interest rate sensitive commercial landlords such as Precinct Properties NZ, Argosy Property and Kiwi Property Group were among those pacing declines on Friday.

Meanwhile, Spark New Zealand declined after Forsyth Barr kept its target price and ‘underperform’ rating on the stock, with the country’s biggest telco continuing to lose mobile market share to both 2degrees Group.

A long week

The NZX50 dropped 108.63 points, or 0.8%, to 13,448.24, with 32 stocks falling, 10 rising and eight unchanged. Turnover across the main board was $93.8 million, of which Meridian Energy accounted for $9.7 million as it rose 0.2% to $5.70.

That took the NZX50’s weekly decline to 2%, its sharpest fall since December 2024, as Statistics New Zealand’s December quarter consumers price index showed a quicker annual pace of inflation than economists expected.

That stoked expectations the Reserve Bank will be forced to ease back on the accelerator by lifting the official cash rate later this year from its 2.25% level, with several banks changing their forecasts to an increase, while two-year swap rates rose 3 basis points to 3.1% and the kiwi dollar held on to its overnight gains, trading at 59.08 US cents at 5pm in Auckland from 59.07 cents at 7am, and up from 58.61 cents yesterday.

“There is the risk that annual inflation over 2026 will not cool to the circa 2% RBNZ expectation,” ASB Bank senior economist Mark Smith said in a note. “Today’s CPI data and the RBNZ estimates for core inflation supports this view.”

ASB’s economists brought forward their projected rate hikes to begin in December as opposed to its previous February prediction: “Rather than tapping on the monetary policy brakes, the moves should be interpreted as the RBNZ easing off on the accelerator,” Smith said.

The shifting domestic inflation expectations added to a downbeat week in which US President Donald Trump’s efforts to strongarm European leaders into acquiescing to his wishes to add Greenland to the world’s biggest economy reignited fears about global trade.

A security framework negotiated between Trump and NATO secretary-general Mark Rutte calmed nervous investors, and markets across Asia were broadly stronger on Friday, as Australia’s S&P/ASX 200 index rose 0.2% in late trading, while Japan’s Nikkei 225 was up 0.5% and Hong Kong’s Hang Seng advanced 0.3%.

Sour milk

The a2 Milk Co led New Zealand’s benchmark index on Friday, falling 2.8% to $9.66 and capping off its worst week since August 2024 as it shed 12%. The infant formula company was among those under pressure from Trump’s tariff threats, while the lowest Chinese birth rate since records began in 1949 weighed on the firm, which counts China as its biggest market.

A 10% slump in Abbott Laboratories shares overnight won’t have helped sentiment, with the firm’s nutrition arm a drag on December quarter sales as customers balked at price hikes for baby formula, prompting a swift reversal.

Infratil was the biggest drag on the index as the heavyweight stock fell 2.6% to $10.81, while interest rate sensitive commercial landlords were also on the red side of the ledger, with Precinct Properties NZ falling 2.5% to $1.155, Argosy Property declining 2% to $1.22 and Kiwi Property Group slipping 1.9% to $1.03.

Spark New Zealand was the most heavily traded stock on the day, with a volume of 2.6 million shares as the telco dropped 1.3% to $2.24 after Forsyth Barr analysts retained their ‘underperform’ rating on the stock and stuck with a price target of $2.40 after the latest Telcowatch from Datamine showed the telecommunications company continued to lose market share to 2degrees.

Apple exporter Scales Corp posted the biggest gain on the day, up 2% at $5.76, while Tourism Holdings increased 1.5% to $2.69 and Vulcan Steel advanced 1% to $8.45.

Fonterra Shareholders’ Fund units increased 0.1% to $8.19 after the dairy exporter said it expects to return $3.2 billion, or $2 a share or unit in a capital return from the sale of the Mainland consumer business. Cooperative shareholders will vote on the capital return at a special meeting on Feb 19, with the transaction expected to be done in the March quarter.

Outside the benchmark index, the junior mining stocks were mixed as gold futures rose another 0.8% to US$4,952 an ounce. Manuka Resources jumped 12% to 24 cents, taking its weekly gain to 22%, while Santana Minerals fell 0.4% to $1.345, paring its weekly increase to 6.3%. Minerals Exploration fell 1.7% to 28.5 cents, unchanged from a week earlier.

Reporting by Paul McBeth. Image from Curious News.