US tech rout looms over NZ market

New Zealand’s stock market is poised to follow Friday’s rout on Wall Street as the surge in artificial intelligence-linked tech stocks stalled after stronger-than-expected US jobs data fuelled expectations the Federal Reserve may need to hike interest rates this year to tame inflation.

The slump in chipmakers and semiconductor firms is expected to cast a shadow over local tech names such as Gentrack, Vista Group International, Serko and data centre investor Infratil, while the slide in the kiwi dollar may ease some of the pain for exporters such as Fisher & Paykel Healthcare and a2 Milk Co.

Air New Zealand chief Nikhil Ravishankar played down the prospect of the national carrier raising money to shore up its balance sheet as it grapples with elevated fuel prices, while the Organisation of the Petroleum Exporting Countries agreed to boost production as the Middle East conflict continues to choke supply.

And with the ASX closed as Australia celebrates the King’s Birthday public holiday, local trading is likely to be relatively quiet with no major data scheduled for release today.

Rising fears

Wall Street set a sombre tone on Friday as the US added 172,000 jobs in May, almost twice the 88,000 that economists predicted, stoking expectations the Fed would need to hike the 3.5%-to-3.75% federal funds target range this year.

President Donald Trump pushed back against the need for rate hikes in an interview on NBC’s ‘Meet the Press’ programme, saying the country shouldn’t be penalised by raising borrowing costs.

The tech-heavy Nasdaq Composite slumped 4.2% on Friday as bond traders fully priced in a quarter-point hike by the end of the year, while the S&P 500 dropped 2.6% and the blue-chip Dow Jones Industrial Average sank 1.4%. The CBOE volatility index, known as Wall Street’s fear gauge, surged 40% to 21.51.

European stock markets were more muted on Friday, with the UK’s FTSE 100 edging up 0.1%, while Germany’s DAX declined 0.8% and France’s CAC 40 slipped 0.3%.

“The NZX is expected to open sharply lower on Monday morning after a brutal sell-off on Wall Street erased US$1.8 trillion in market value and triggered the biggest one-day decline in semiconductor stocks since 2020,” Moomoo market strategy consultant Greg Boland said in a note. “Local growth and technology names such as Vista, Serko and Gentrack may face pressure, while more defensive sectors including utilities, healthcare and consumer staples could outperform if global risk aversion persists.”

Rate sensitive stocks such as commercial landlords and utilities will also be in view with New Zealand government bond yields likely to track their US counterparts higher. The yield on 10-year US Treasuries rose 5 basis points to 4.53% on Friday.

A long weekend

Australian futures are pointing to a 0.3% decline for the S&P/ASX 200 index when it resumes trading, with markets closed across the Tasman on Monday for the long King’s Birthday weekend.

The prospect of higher US rates stoked demand for the greenback, with the kiwi dollar sliding to 57.96 US cents at 7am in Auckland from 58.68 cents on Friday, and trading at 82.23 Australian cents from 82.33 cents.

Brent crude oil futures dipped 0.3% to US$92.78 a barrel with OPEC members pledging to boost oil output by about 180,000 barrels a day in July in what’s seen as a largely symbolic move given the chokepoint of the Strait of Hormuz as the US-Iran conflict shows no sign of abating.

The Polymarket prediction market was pricing in a 15% chance of a lasting ceasefire by the end of the month and a 29% chance by the end of July. The odds don’t reverse to better-than-even until the end of October, with traders pricing a 56% chance of a deal.

The International Air Transport Association warned the sector faces a halving of net profits this year as the price of jet fuel was expected to rise by US$100 billion.

Air NZ chief Ravishankar told Reuters on the sidelines of the conference in Rio de Janeiro that higher fares and hedging offset the increased fuel costs by 25%-to-40%, but that he didn’t expect to tap markets to firm up the balance sheet.

No local data are scheduled for today, with Statistics New Zealand’s manufacturing survey on Tuesday one of the last components feeding into economists’ gross domestic product forecasts.

Reporting by Paul McBeth. Image from Kanchanara on Unsplash.