Markets wrap: Reserve Bank interest rate decision roils markets

Wednesday, 24 May 2023

Wholesale interest rates dived, the currency fell and the sharemarket turned positive after the Reserve Bank unexpectedly stuck to its interest rate track.

The Reserve Bank Te Pūtea Matua lifted the official cash rate by 25 basis points to 5.5% on Wednesday, and signalled no further tightening would be needed. That surprised some who had expected a bigger hike or more tightening in the future to counter stronger migration and Budget spending.

“There were fears that that Budget announcement would be influential in the Reserve Bank's decision – but they have stuck to their guns from their February forecast,” said Hamilton Hindin Greene investment adviser Jeremy Sullivan.

“It has been very positive for markets. We've seen interest rates fall and stocks go up as a result.”

The one-year swap rate, a proxy for interest rate expectations, was sitting above 6% ahead of the 2pm decision and dropped 31 basis points to around 5.71%.

Sullivan said it was “a very large move,” and the biggest decline for many years.

The New Zealand dollar also dropped, and was trading at US61.74c by late afternoon from US62.53 ahead of the decision.

The benchmark S&P/NZX 50 Index was negative heading in to the announcement, but then turned positive, closing up 0.2%, or 27.632 points, to 11,971.83. On the broader market 77 stocks rose and 49 fell with $131 million shares traded.

Sullivan said there was a broad lift in the market following the announcement, as the lower than expected peak in interest rates bolstered company valuations.

Fixed-interest investors also stood to benefit from having locked in higher interest rates, he noted.

Among retirement village companies, Summerset Group gained 3.2% to $9.03, and Ryman Healthcare added 0.7% to $5.99.

Across property stocks, Fletcher Building rose 2.7% to $4.98, Kiwi Property Group gained 1.7% to 92.5c, Goodman Property Trust advanced 0.9% to $2.19, Precinct Properties added 0.8% to $1.24, Investore Property rose 0.7% to $1.41, Vital Healthcare Property Trust added 0.7% to $2.305, and Asset Plus advanced 2% to 26c.

Some retail stocks were also more buoyant with Briscoe Group up 1.2% to $4.35, KMD Brands up 0.9% to $1.12, and Hallenstein Glasson Holdings up 0.5% to $6.06.

SkyCity Entertainment Group fell 1.7% to $2.28 after the casino company pulled back its profit expectations for this year.

In a presentation to its investor day in Auckland, the company narrowed and lowered its forecast for normalised earnings for the year to the end of June to $300m to $310m, from its previous estimate provided at its first-half result in February of $305m to $320m.

The company said its revenue had seen “some uplift” from the New Zealand tourism recovery, although this was partially offset by the negative impact on trading from recent weather events in Auckland.

Pokie machine trading was strong, but table games were subdued across all its properties.

The company said it was facing higher legal and compliance costs, as it invested more in anti-money laundering and harm minimisation amid a “heightened” regulatory environment in New Zealand and Australia.

Oceania Healthcare fell 1.3% to 78c after the retirement village operator reported annual underlying earnings rose 5% to $80m.

The company’s net profit fell 75% to $15.4m as the value of its property portfolio increased at a slower pace in a weaker housing market. Oceania booked a $31m gain across its properties in the latest year, compared with a $105.2m gain the previous year.

Chief executive Brent Pattison said despite the current headwinds facing the residential property market and the sector, the company continued to see a good level of enquiry for sales across its 48 sites.

“While Oceania has certainly observed an increase in the average days to sell its independent living villas and apartments, we have observed higher levels of enquiry for our premium offering,” he said.

Oceania has 409 units and care suites under construction at eight sites across New Zealand.

Eroad jumped 10% to 64c after the transport software company narrowed its annual loss as it benefited from the acquisition of transport technology company Coretex. The company reported a loss of $3m in the year to the end of March, from a loss of $9.6m the previous year.

Following a strategic review in November last year, the company is targeting positive free cash flow by its 2026 financial year through reducing costs and targeting significant growth opportunities in its key markets. It has taken $10m of annualised costs out of the business and is targeting a further $10m this year.

Eroad expects revenue this year to grow between 6% and 9% to $175m to $180m and expects to break even or produce a $5m profit on a pre-tax basis.

Chairperson Graham Stuart said the steps taken over the past year have put Eroad firmly on the path to sustainable earnings growth.

Rakon rose 1.9% to $1.05 after the computer chip maker announced a maiden dividend payment of 1.5 cents.

Chief executive Sinan Altug said it was “the best year ever” for the company’s core business with continued growth in global demand for its products across all key markets.

Revenue rose 5% to $180.3m while profit fell 30% to $23.2m, reflecting a shift in product mix, higher operating expenses and a loss made by an associate.

The company expects underlying earnings of $26m to $34m this year from $42.2m last year as computer chip stocks returned to more normal levels following a recent shortage.

Napier Port gained 2.5% to $2.46. The company reported a 3.3% drop in first-half profit to $8.7m and said full-year earnings were also expected to fall.

“Following Cyclone Gabrielle in mid-February, cargo volumes have been impacted due to damage to crops, exporters’ premises and regional infrastructure, which softened our overall half year result,” said chief executive Todd Dawson.

He said many cargo customers had experienced damage and reduced output, which would impact cargo volumes for the remainder of the financial year.

“Given the crop losses and damage to primary processing, trading in the second half will be subdued, and we expect a return to traditional export flows next year recognising some trade impairments will create drag into the new financial year,” he said.

The company will pay a first-half dividend of 1.7c, down from 2.8c a year earlier.

Rocket Lab fell 8.7% to US$4.52 on the US Nasdaq market after buying Virgin Orbit’s primary manufacturing site for US$16m during an auction held on Monday, according to a Reuters report.

The purchase agreement includes machinery and equipment that had been used to manufacture Virgin Orbit's flagship LauncherOne rockets, which air-launched from the belly of a modified Boeing 747, the report said.

Founded by billionaire Richard Branson to send small satellites into space, Virgin Orbit filed for Chapter 11 bankruptcy protection last month.