The Good and The Bad Of The New Zealand Stock Market

The New Zealand dollar is, yet again, turning out to be one of the worst performing currencies what with better-than-expected U.S. durable goods data releases assisting the U.S. dollar to work its way up after suffering losses in the recent past. The New Zealand dollar fell as the U.S. data supported the greenback and commodity currencies weakened.

According to the New Zealand Herald, the kiwi plummeted to 64.30 U.S. cents at 8am on the 27th August, 2015 from 64.93 cents at 5pm on the 26th August, 2015. Further, the trade-weighted index also fell to 69.61 from 70.12 on the same days.

The drop has come as a surprise because economists were expecting the U.S. durable goods orders to decrease by 0.4%. The market, however, has shown a climb of 2% in July, after the revival to 4.1% in June.

The U.S. dollar index, which measures the greenback against several currencies, climbed after U.S. durable goods orders came out stronger than expected in July, suggesting U.S. business investing is on track and continuing to improve in the third quarter.

The Good and The Bad Of The New Zealand Stock Market

On the other hand, the Bloomberg Commodity Index of 22 raw materials touched a new multi-year low, thanks to commodity-linked currencies like the Norwegian krone, and the Australian, Canadian and kiwi dollars.

According to Sharon Zollner, senior economist at ANZ Bank New Zealand and Sam Tuck, senior FX strategist, the New Zealand dollar “fell overnight as the US durable goods data came in significantly better than expectations”. They also added that they believe the U.S. dollar will continue to remain in demand.  

Gold prices have also witnessed a fall – currently down $10 to $1124 an ounce. It is, therefore, obviously advised to hold on to the yellow metal for now instead of going for cash for gold offers, and sell it at a later time when it picks up and the returns are better.  

William Dudley, President and CEO of the Federal Reserve Bank of New York fueled speculation that the Fed will not immediately look to raise interest rates. He said that starting the normalization process at the upcoming FOMC meeting in mid-September “seems less compelling to me than it was a few weeks ago”.

Both, the Australian and New Zealand dollars fell as the greenback rose. Mark Johnson, senior dealer at OMF said that both currencies were “struggling” and that “there are plenty of people looking to sell into any rallies”. He added that both currencies “succumbed to U.S. dollar strength overnight”. He went on to state that the situation isn’t expected to get better for the kiwi dollar soon and that its fate depends on the developments in the equity markets.

Key data overnight includes U.S. second-quarter gross domestic product, weekly jobless claims and pending home sales. Although the expectation of a Fed hike in September is lower, the market is expecting the Reserve Bank to cut the official cash rate a quarter point in the meeting.

The New Zealand dollar slipped to 90.57 Australian cents and traded at 56.65 euro. It rose to 41.53 British pence, weakened to 77.138 yen and dropped to 4.1210 yuan. The two-year swap rate witnessed a small change at 2.79 percent and 10-year swaps remained unchanged at 3.57 percent.

As the day at the market continued to be precarious, analysts were of the opinion that this week’s overhaul has put several stocks back on a more down-to-earth price footing. Prior to the crisis, the average market price earnings for the local market had risen to about 20-times higher than what most analysts found acceptable. However, now it is at what is being considered as a more acceptable level of about 15 to 16 times.

Matt Goodson, Managing Director at Salt Funds Management expressed his concerns regarding the influence of the Chinese market, which he feels was weighing heavily on market sentiment and had diverted attention from improving U.S. economy.

On the same lines, Rob Mercer, Head of Private Wealth Research at Forsyth Barr said, “We are certainly getting market nervousness, which is what you get when you have headlines dominating the chatter”.

He went on to add that the market was in need of correction after a strong run. He further went on to say that “But the level of correction is still relatively small compared to the gains that have been banked”.

Since June, the market had come back by 5% compared with a 20% gain over the previous 12 months.

The New Zealand share market, however, is up. Grant Williamson, Director, Hamilton Hindin Greene said that the New Zealand share market had not suffered much from the Chinese meltdown, but from Wall Street or other international market activities, so it wasn’t expected that it would experience a major jump, but the increase was a “nice improvement”.

He opined that some bargain hunting did take place in the local market when it opened on Thursday morning, but cautiousness continued to remain the order of the day as far as the performance of the Chinese market is concerned. 
Williamson announced, “We are going to remain volatile, we’re certainly not out of the woods yet. We’re expecting some wild swings going forward for the next wee while”.

Author: Rose Martin