US, NZ politics dominate markets

Jeremy Flood
of Craigs Investment Partners
The end of last week saw the all-important United States jobs report come in a lot stronger than expected, with the economy adding 209,000 jobs in July. In addition, the headline unemployment rate dropped to 4.3%, the lowest it has been since 2001 while average hourly earnings increased 2.5% for the year, in line with the previous month. Investors took this positively resulting in broad based gains for the US market, which spilled over into the following week and out to other markets across the globe, making for an upbeat beginning to the week.
For the local bourse, reporting season has been firmly on our radar for a while now and this week, things started to get under way, albeit slowly. The middle two weeks of August are when the real action starts. However, a number of results this week, both here and in Australia, have stolen headlines. Expectations for the reporting season are fairly lofty given that share prices in New Zealand are near record highs. Expectations are for earnings growth of 6.4% for the NZX50 and 6.5% for the ASX200 with about 67% of companies expected to report an uplift in earnings.
In terms of individual performances, Commonwealth Bank of Australia (CBA) reported a solid result for the full year, which was modestly ahead of expectations. CBA benefitted from re-pricing initiatives amid an environment of margin compression. The share price reaction was positive. However, this was not enough to reverse recent price weakness as the bank faces accusations that it breached the money laundering act in Australia.
Next week we will be looking out for results from Contact Energy and Fletcher Building in New Zealand as well as Spark NZ later in the week. In Australia, we will be paying particular attention to CSL, Link Group and Wesfarmers, to name just a few.
Politics have again been a main feature for the week, both here and abroad. There has been yet another leadership change for the centre left in New Zealand as Green’s co-leader Meteria Turei resigned, following increased pressure after her admission that she committed benefit and electoral fraud. This will leave James Shaw as the sole co-leader of the Green party until its AGM, after the election.
This week also saw the release of the first political polls since Jacinda Adern took the reins of the Labour Party. The Newshub Reid Research poll showed a strong rise in popularity for Labour, rising nine points from 24.1% to 33.1%. Both the Green’s and New Zealand First saw big declines in popularity dropping 4.7% and 3.8% respectively. National saw a small drop of 0.8% in the poll. The poll did not capture the full effect of the Green Party saga so we would expect there to be further shifts in polling. However, with Labour committed to working with the Greens and the National Party not having enough to govern alone, current polls suggest that Winston Peters and his NZ First party are likely to have the power come election time, should current trends continue.
Globally, geopolitical tensions have been of significant concern to markets as a war of words has erupted between North Korea and US President Donald Trump. The market has been on edge, with the Dow snapping a lengthy winning streak and pulling back from all time highs, and the Standard and Poor’s 500 also pulling back.
The Reserve Bank held rates again on Thursday, leaving them at the historic low of 1.75%. This was widely expected by the market, which once again focused on the accompanying commentary. After some lacklustre data from the economy, analysts were looking for future rate rise predictions to be pushed back further. However, this was not the case.
The monetary policy statement that accompanied the OCR review was to be current Governor Graeme Wheeler’s last and thus was not expected to break from the status quo. Rhetoric remained cautious from Mr Wheeler, as he mentioned that inflation remains low while the dollar remains higher than it should be. He noted monetary policy is likely to remain accommodative for a considerable period as numerous uncertainties remain.
This article should not be deemed as advice. A disclosure document is available free of charge and on request.
Contact Jeremy Flood at Craigs Investment Partners, ph 03 964 3247 or e-mail