Markets wrap: Inflation, interest rate worries weigh on markets

Friday, 23 June 2023

Federal Reserve Chair Jerome Powell reiterated that the US central bank will likely raise interest rates at least once more this year because of persistently high inflation in the economy’s service sector and the surprisingly tight job market. (File photo)

The sharemarket weakened, in line with other markets in Asia, after central banks around the world showed they’re not done cranking interest rates higher in their fight against inflation.

The benchmark S&P/NZX 50 Index edged down 0.01%, or 1.497 points, to 11,737.55 on Friday. On the broader market 49 stocks rose and 74 fell with $119 million shares traded.

Stocks drifted to a mixed close on Wall Street on Thursday. The S&P 500 rose 0.4% as most stocks in the index fell, but gains from some big technology stocks countered losses elsewhere. The Nasdaq rose 1% and the Dow was little changed. The S&P 500 futures were weaker on Friday.

The Bank of England hiked its main interest rate by more than expected, while central banks in Norway, Switzerland and Turkey also raised rates. Meanwhile, Federal Reserve Chair Jerome Powell said again that rates may go higher in the United States.

“It’s weak across the board on the back of Jerome Powell’s hawkish comments around inflation and just the unrelenting march that we've seen of inflation numbers throughout the whole world,” said Peter McIntyre, an investment adviser at Craigs Investment Partners.

“The markets are really focused on when interest rate increases are going to cease and that's created some uncertainty.”

McIntyre said there was a lack of company news on the local bourse following the end of earnings season, apart from a smattering of annual meetings.

At its annual meeting on Friday, NZ Rural Land Co chairperson Rob Campbell reiterated that the board had chosen to buy back shares and repay a convertible note rather than pay a first-half dividend.

“The NZL Board considers that the current market price of NZL shares materially undervalues both the assets and the free cashflow profile of the business making shares purchased at this level attractive and accretive on an asset and free cashflow basis for shareholders,” he said.

The company’s shares closed unchanged at 89 cents and have lost 15% of their value this year.

The big news of the week was the emergence of a potential takeover bid for transport software company Eroad. Toronto Stock Exchange-listed Constellation Software told Eroad on Thursday it was prepared to offer $1.30 a share for the company. That’s a premium to the company’s 77 cent closing price on Wednesday but down from a peak of $6.77 just three years ago.

The shares closed unchanged at $1.23, having jumped 58% this week.

Eroad’s board is considering the offer, which is non-binding.

“From where it was trading, it seems to be a well thought out offer,” McIntyre said.

He noted small high-growth technology companies like Eroad had been sold off in the high interest rate environment as investors favoured more conservative companies with more consistent cash flows.

Fletcher Building rose 1% to $5.26, taking its gain this week to 2.1%.

McIntyre said that while Fletcher Building had downgraded its profit expectation this week as the housing market slowed, there was optimism that profit margins could be maintained.

“Potential they have got a couple of years of a hard grind,” he said. “But I think the market was quite pleased with regards to management's optimism about maintaining their margins across their businesses. That gave analysts and investors comfort.”

Pacific Edge fell 1.4% to 7.2c, taking its loss so far this month to 83%. The shares have been hammered since the cancer diagnostics company confirmed its Cxbladder tests were set to lose their prized Medicare insurance coverage in the US next month.

Medicare business generated three quarters of the company’s operating revenue last year, and Pacific Edge has said revenue was expected to reduce substantially until the tests regained coverage.

”Pacific Edge continues to struggle,” McIntyre said, noting there was uncertainty around when those revenues would return.

Meal kit company My Food Bag confirmed it would delist its shares from Australia’s ASX market at the close of trading on Friday. The company has previously said that its shares were little traded on the Australian market, and the delisting would save it money.

The stock will continue to trade on the NZX. Its shares closed unchanged at 18.5c, and are down 54% this year.

- With AP