The NZX50 records its first weekly ‘three-peat’ in a year, notching up a third consecutive week of gains to close at a 3-month high
The local market finished the week with a gain of 2 percent, adding to the previous weeks gains of 2 percent and 1.3 percent respectively, and has now risen 13 percent since the mid-June low. However, year to date the NZX50 remains down 11 percent.
In the US, the benchmark S&P500 index has gained 14 percent since the mid-June low.
It’s been an impressive rebound, all things considered, as an increasing number of investors conclude that inflation is likely to have peaked, recession fears are overblown and company results are proving to be more resilient than had previously been expected.
With several local market heavyweights set to report results in the coming weeks, including Fletcher Building, Auckland International Airport and SkyCity Entertainment, local investors will be hoping some of the underlying confidence seen in US quarterly results in recent weeks will also be evident here.
But Friday’s latest US jobs number may give markets reason to pause after the report showed an unexpected acceleration in jobs gains and strong wage growth with employers adding 528,000 jobs in July, more than double the 250,000 expected by economists and up sharply from the 398,000 new jobs reported in June.
The two-year US Treasury yield, which is sensitive to monetary policy expectations, surged 0.21 percentage points to 3.25 per cent — a sharp jump for a market that typically moves in relatively small increments. Longer-dated bonds came under more subdued pressure.
The S&P500 index closed 0.2 per cent lower as traders weighed the prospect of further hawkish rate rises from the Fed, while the tech-heavy Nasdaq Composite, the components of which are particularly sensitive to interest rates, fell 0.5 per cent. Both indices recovered from declines of more than 1 per cent earlier in the day.
While the latest jobs numbers can be seen as a positive indicator of the health of the US economy, easing concerns that it was slowing sharply or already in recession after two consecutive quarters of contraction in output this year, it will also increase worries that high inflation may be becoming entrenched as wages keep rising, requiring even more intervention by the central bank, and potentially triggering a dreaded ‘wage-price’ spiral which became a feature of the 1980s inflation surge.
The better than expected jobs data also saw the US unemployment rate return to a half-century low despite the Federal Reserve pushing borrowing costs higher by 0.75 percentage points in June and July, with an increasing likelihood a third 75 basis point hike may be required in September.
Trading in federal funds futures on Friday showed that markets expect the Fed’s main interest rate to peak at 3.64 per cent in March 2023, up from 3.46 per cent before the release of the jobs report. The federal funds rate currently stands at a range of 2.25-2.50 per cent.
Market participants had already begun boosting expectations for tighter monetary policy in the US after remarks earlier in the week from several Fed officials.
San Francisco Fed president Mary Daly said the central bank was “nowhere near” done with its fight to cool inflation, which continues to run at 40-year highs, while Chicago Fed president Charles Evans left the door open to a larger 0.75 percentage point rise.
The effect of the report on the Treasury market exacerbated the extent to which yields on two-year Treasuries exceed those on the 10-year note. This so-called ‘inversion’ of the yield curve is typically regarded as an indicator of an impending economic contraction. Following the data, the spread between the yields was at its most inverted in more than 20 years.
Fed chair Jay Powell is expected to lay out his latest thinking on the path of US interest rates and the central bank’s strategy to bring down inflation at the annual gathering of the world’s central bankers at Jackson Hole, Wyoming, set for late August.
During his last press conference in July, Powell said that “another unusually large increase” in interest rates in September “could be appropriate” but that decision had not been made. “It’s one that we’ll make based on the data we see. And we’re going to be making decisions meeting by meeting,” he added.
Fed fund futures show the chances of a 0.75 percentage point increase in September have risen to 67 per cent, versus 33 per cent on Thursday. While the strong jobs number increases pressure on the Fed, it was welcomed by the Biden administration, since it means a sharp economic downturn is less likely ahead of the November midterm elections.
Analysts point to the fact that jobs growth in the US hasn’t slowed at all in response to aggressive Federal Reserve tightening and while the chance of a near-term recession is probably, the risk of a hard landing is also rising.
Wage growth continues to climb
A similar situation exists here with employers desperate to recruit staff with many turning to lucrative signing on bonuses or significantly increasing hourly rates in order to attract sufficient numbers of workers.
The tight labour market and high price inflation has led to accelerating wage growth, with new data out last week showing annual wage growth lifting to 3.4 per cent in the June quarter from 3.0 per cent in the March quarter.
Kiwibank economist Jarred Kerr said the main takeaway from the report was the rise in wages.
“All measures of wage growth jumped over the quarter. The main constraint faced by many businesses in most industries, is the difficulty in finding workers.”
Readers who may have visited Queenstown during the recent school holidays will have noted almost every business in the resort town displaying ‘Help Wanted’ signs in their windows as tourism businesses in particular struggle to gear up for the rebound in visitor numbers they are now experiencing.
And with wages continuing to rise as a result Kerr says the RBNZ will see the report for what it is.
“Inflation is being supported by rising wages. We continue to expect the RBNZ to deliver yet another 50bp hike later in the month, taking the cash rate to 3 percent.”
Pacific Edge shares plunge in the wake of potential customer loss
Pacific Edge shares sank by almost 50 percent last week on the possibility its cancer tests will no longer be covered by a major US health insurance company after the cancer diagnostic company’s trading halt was lifted.
In a statement, Pacific Edge said its cancer tests could be dropped by a major US health insurance company that is considering a new way to choose which tests are covered.
Pacific Edge shares, which traded as high as $1.55 in September last year, slumped to a low of 49c on the news. Year to date the stock has now fallen more than 60 percent.
Plexure shares surge on new 5-year contract with McDonalds
Long suffering Plexure Group shareholders finally had reason to smile last week after the company’s shares surged 53 percent after the mobile software developer announced that its leading customer McDonald's, which is also a major shareholder in the business, had renewed its contract with the company to use its digital customer engagement platform for the next five years.
Under the new contract, the mobile phone marketing company will continue to provide McDonald’s with its platform over the next five years – subject to operational performance.
Chief executive Dan Houden said he was excited about the “continued partnership” with the fast-food chain and was looking forward to working towards their mutual goal of delivering “excellent experiences” for McDonald’s customers.
Plexure shares finished the week up 65 percent at 40c.
Queenstown room-rates hit a new record high
It seems its not just workers that are in high demand in the country’s leading tourism mecca, so are hotel rooms, which has lead to record room rates.
A return to winter tourism, the weaker New Zealand dollar and limits on room numbers saw average Queenstown hotel rates crack $300-a-night for the first time ever last month.
Recent room rental data released by Colliers International showed rental revenue earned per occupied room per day hit $305 last month, 23 percent more than the July 2019 rate of $248.
The new data shows Queenstown now commands some of highest room rates in the country well ahead of Wellington's hotels which charged an average of $227 per room night and Auckland at $194.
However, measuring revenue per available room in Queenstown – considered a more accurate barometer as it also factors in occupancy levels – showed a rate of $215 in the ski resort, up 2.3 percent on July 2019.
FMA survey sheds light on New Zealanders’ growing concerns of financial insecurity
While most New Zealanders are confident in their ability to make financial decisions, only one-fifth say they are in a secure financial position.A new research project by the Financial Markets Authority (FMA) has revealed insights into the mindset and motivations of consumers as they manage their money and deal with financial services firms.
Alarmingly, the inaugural Consumer Experience with the Financial Sector Survey found just 21 percent of those surveyed feel secure in their financial position, while 27 percent said they were beginning to make progress, 37 percent are not making much progress and 15 percent feel insecure.
Additionally, 14 percent of those surveyed reported a major worsening in their household financial situation in the past two years as a result of Covid-19, with reduced income as a major contributor.
Robinhood set to sack a quarter of its staff
Leading US online share broker Robinhood is set to lay off almost a quarter of its staff as the company that became a symbol of a new era of share trading rode the coronavirus pandemic-era retail trading boom and promised to revolutionise stockbroking, now contends with a significant decline in trading activity.
The company announced in a blog post last week that it was slashing its headcount by 23 per cent — or almost 800 employees — as part of a reorganisation that would also result in the closure of two of its offices.
“We will be parting ways with many incredibly talented people today in an extremely challenging macro environment,” Robinhood co-founder Vlad Tenev wrote.
At the time of its initial public offering last summer, Robinhood boasted that 50 per cent of retail trading accounts opened in the US from 2016-21 were on its platform. But post lockdown the stimulus-fuelled trading boom has lost its attraction in the wake of a bear market that has seen share prices fall sharply, particularly amongst once popular technology stocks.
As a result, Robinhood shares have fallen more than 50 per cent since the start of the year.
The announcement marked the latest round of lay-offs for the seven-year-old brokerage, which in April said it planned to cut just 9 per cent of full-time staff.
Coming up this week
Monday
- Survey of Expectations - RBNZ
Tuesday
- Metro Performance Glass AGM
- Electronic Card Transactions (July) - RBNZ
Thursday
- Rakon AGM
Friday
- Manawa Energy AGM
- Inflation Expectations – RBNZ
- Residential Mortgage Lending (July) – RBNZ
- Food Price Index (July) -Stats NZ
- Rental Price Index (July) – Stats NZ
