Sharemarket shrugs off higher inflation with 'very muted' reaction

Friday, 16 July 2021

The sharemarket shrugged off higher inflation data as investors bet the spike was short term and would not last.

The benchmark S&P/NZX 50 Index edged up 1.987 points, or 0.02 per cent, to 12,673.15 on Friday.

Annual inflation hit a near 10-year high of 3.3 per cent, according to the latest data released by Stats NZ.

“The big news today is the inflation numbers,” said Hobson Wealth Partners investment adviser Brad Gordon.

* Wall Street hits a record high, lifting sentiment in Asian sharemarkets

* Meridian, Contact hammered as savage sell-off looms, NZX50 slips 0.8 per cent

The benchmark sharemarket index failed to react to a spike in inflation data.

While higher inflation would normally be expected to weigh on the sharemarket, the reaction was “very muted”, Gordon said. “That number should have scared the market, and it didn’t.”

He said the sharemarket had taken its lead from the bond market, where long-term rates remained relatively unchanged.

“We’ve almost seen no movement in the longer dated interest rates. It hasn’t budged. So markets certainly are just telling us this is transitory, despite almost all of the economists trying to convince us it’s not,” he said.

Energy stocks were mixed after Meridian Energy released its monthly operating report for June.

The report suggested generation prices may move higher, benefiting gentailers, Gordon said.

Meridian Energy was the biggest stock traded by volume and value on the benchmark, slipping 0.3 per cent to $5.285. Contact Energy rose 1.6 per cent to $8.35, Trustpower fell 1.5 per cent to $7.98, and Mercury was unchanged at $6.55.

Jewellery chain Michael Hill International jumped 6.9 per cent to 93 cents, its highest level since October 2018. The company reported higher sales and margins in its fourth quarter and said it anticipates its full-year pre-tax profit would be in line with or above analysts’ expectations.

Gordon said the company had recovered well from the Covid-19 pandemic.

Shares were mostly lower in Asia on Friday after Wall Street benchmarks extended losses amid uncertainty over rising coronavirus cases and the risks to pandemic recoveries.

Stocks fell in Tokyo, Seoul and Shanghai but rose in Hong Kong. In Australia, the S&P/ASX 200 edged up less than 0.1 per cent to 7,339.70.

US futures and oil prices were nearly unchanged.

On Thursday, major US stock indexes closed mostly, pulling back further from the record highs they reached at the start of the week.

The S&P 500 fell 0.3 per cent to 4,360.03. The benchmark index is now on pace for its first weekly loss in four weeks.

– With AP