Investors were already pricing in uncertainty; this morning's market trading is expected to fall on the threat of protracted negotiations to form a government, and Fletcher's pipe problems
As a National-led government prepares to take office, it must await clarity on the nature of its election mandate once special votes have been counted and before formal coalition talks can begin in earnest.
New Zealand has been here before and once again the country faces an extended period of waiting to see what the final makeup of the new Government will look like leaving businesses and investors to operate in a political vacuum in the coming months with no clear sense of what that outcome will be.
What makes this time different is that the New Zealand economy remains under intense pressure and continues to be buffeted on multiple fronts.
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And now political uncertainty can be added to the growing list of issues currently facing the economy including continued economic weakness in our largest trading partner China, a global slump in commodity prices, declining business and consumer confidence, weakening retail sales and a cost of living crisis that has the potential to get much worse if interest rates continue to remain elevated.
There’s also a growing exodus of disillusioned kiwis who have already voted with their feet while an election outcome that fails to deliver a clear mandate may well encourage others to follow in their wake.
Adding to a volatile mix facing the new Government is the potential for tensions in the Middle East to spiral out of control in the wake of the recent attack on Israel by the militant terrorist group Hamas which could see the oil price surge to new highs if countries such as Iran become involved in the conflict.
Business-friendly policies such as removing the unpopular Auckland Regional Fuel Tax, restoring 90-day employment trial periods, repealing the so called ‘ute tax’ and a tougher focus on law and order that has severely impacted retailers will all be welcomed by businesses keen to see a National government returned to power.
Investors are also likely to welcome a more strategic approach to running the country using a range of business skills Prime Minister-elect Christopher Luxon will have honed during his time at global multinational Unilever, though the management of political parties and businesses are not always aligned.
If the New Zealand sharemarket is any guide to sentiment it has so far recorded a negative 2.8 percent return for the year to date and Saturday’s election result is unlikely to lift the mood of investors.
A more decisive outcome that would allow National and the Act Party to be able to govern alone would no doubt prove to be a welcome Christmas present.
This week's inflation decides Reserve Bank rates call
What would be particularly unwelcome would be a further rise in the September quarter consumers price index due out on Tuesday.
Kiwibank is forecasting consumer prices to have jumped by 1.9 percent during the quarter.
"The uptick in global oil prices, just as the fuel excise tax was re-applied, is the leading reason we expect an acceleration in the quarterly pace of price gains (follows Q2’s 1.1%qoq), though annually, we see inflation decelerating to 5.8 percent from 6 percent.
According to the August round of forecasts, the Reserve Bank is expecting a 2.1 percent quarterly rise and an unchanged annual rate. Where this week's print will land will be key in deciding their final move for the year next month.
Fletcher Building shares expected to take a hit
Shares in Fletcher Building are expected to fall sharply when they resume trading today as the company prepares to respond to claims by Western Australian builder BGC that it will cost an estimated A$1.8 billion ($1.92b) to remedy problems caused by its Iplex Pro-fit pipes.
BGC alleges Fletchers engaged in faulty manufacturing causing many of the pipes to burst while Fletcher claims the problems are due to defective installation by BGC. Some 15,000 homes in Western Australia are said to have used the pipes, with BGC involved in 12,000 of those built.
It’s estimated around 10 percent of the homes in which the pipes were installed have had pipes burst.
Fletcher Building currently has a provision of A$15m ($16m) in place to remedy the defective pipes. However, analysts estimate that in a worst case scenario the cost of the damage could equate to $1.70 per share after tax or $1.10 per share on a net present value basis, assuming it took 10 years to remediate the issue.
Fletcher Building shares last traded at $4.90 prior to the trading halt being imposed, having traded as low as $4.45 last month. Year-to-date the shares are up 4 percent.
Sky Television shares jump after potential buyer emerges
Shares in Sky Television were placed a trading halt on Friday after the company announced it had received a non-binding expression of interest to be acquired by a third party.
Sky said it had received "a highly conditional" preliminary expression of interest from a third party seeking to acquire all of its shares, though it described discussions as being in very early stages.
"As such, there can be no certainty that any transaction will eventuate," Sky said in a statement to the NZX.
The initial offer had seen the company pause its share buyback programme that began in March this year.
Analysts said Sky TV could be an attractive acquisition both for an established industry buyer and for a financial/private equity buyer given its significant cashflow and monopolistic status as the country’s sole cable TV provider.
It also has a unique position offering a high quality streaming business in Sky Sport Now that could be of interest for global players.
Sky TV shares surged more than 14 percent on the news to $2.80, a three-and-a-half year high.
Gold price surges on growing Middle East instability
Gold prices jumped more than 3 percent on Friday and were poised for their best week in seven months as the intensifying conflict in the Middle East sent investors scurrying for safe-haven assets.
The precious metal was also propelled higher following growing expectations that US interest rates are likely to have peaked.
Spot gold traded as high as US$$1,928.15 per ounce, while US gold futures settled 3.1 percent higher at US$1,941 per ounce. Prices gained 5.2 percent for the week.
Investors kept a close tab on developments in the Middle East conflict, which has unnerved markets since the start of the week.
Israel said its infantry and tanks had carried out raids inside the Gaza Strip, its first announcement of a shift from an air war to ground operations to root out Hamas fighters a week after their deadly rampage in southern Israel.
This fuelled strong inflows into assets considered to be safe havens such as gold.
"Investors are fleeing to safe havens as the risks of Middle East tensions grow," said Edward Moya, senior market analyst at OANDA.
"If the geopolitical situation gets gloomier, there is a good chance that gold prices could reach levels above US$2,000 this year. We have come from mid-$1,800s to mid-$1,900s, so $2,000 is just a fraction of that."
US consumer prices increased in September amid higher costs for rent and gasoline, but underlying inflation is slowing according to recent data.
Coming up this week
Monday
- Vehicle Registrations (Sept) – Stats NZ
Tuesday
- Consumers Price Index (Sept Qtr) – Stats NZ
- Auckland International Airport AGM
Thursday
- Solution Dynamics AGM
- Tourism Holdings AGM
Friday
- Credit Card Spending (Sept) – RBNZ
- Overseas Merchandise Trade (Sept) – Stats NZ
