Federal Reserve’s ‘jumbo’ rate cut spurs NZ shares higher - Market close

Federal Reserve chairman Jerome Powell sliced the cash rate in the United States by 0.5% to 4.75-5%. Photo / Getty Images

The transtasman sharemarkets fared better than their American counterparts following the “jumbo interest rate” cut from the Federal Reserve.

The S&P/NZX 50 Index had a rocky session but closed at 12,12,665, up 78.02 points or 0.62%. The S&P/ASX 200 Index was up 0.59% to a record high of 8189.8 points at 6pm NZ time.

The US Federal Reserve sliced its cash rate by 0.5% to 4.75-5% - the first interest rate cut in four years. Outside of the emergency rate reductions during Covid, the last time the Fed cut by 0.5% was in 2008 during the Global Financial Crisis.

The Fed said it has gained greater confidence that inflation is moving sustainably toward 2% and judges that the risks to achieving its employment and inflation goals are roughly in balance.

Looking ahead, the Fed expects a further 0.5% cut by the end of the year, 1% worth of reductions next year and 0.5% in 2026, with the cash rate settling at 2.75-3%.

The major US indices surged after the Federal Reserve announcement but then cooled with Dow Jones Industrial Average closing 0.25% down to 41,503.1 points; S&P 500 declining 0.29% to 5618.26; and Nasdaq Composite shedding 0.31% to 17,573.3.

Greg Smith, head of retail with Devon Funds Management, said the jumbo rate cut wasn’t widely expected and Federal Reserve chairman Jerome Powell did a good job in reassuring the markets that a soft landing for the US economy was still in play.

“Even though the Fed is not the first central bank to cut, others look at what it is doing, and we know our Reserve Bank is into an easing cycle,” he said.

New Zealand’s downturn continues with gross domestic product (GDP) falling 0.2% in the June quarter, better than the Reserve Bank’s forecast of a 0.5% dip.

ANZ Research said despite an upward surprise for the Reserve Bank, overall economic momentum remains very weak, consistent with ongoing disinflation and gradual official cash rate (OCR) cuts.

“We don’t see this data as a game-changer for the monetary policy outlook. We continue to expect the Reserve Bank to deliver 25 basis point cuts at each meeting (this year), allowing time to assess the economy’s responsiveness to easing.

“Financial markets had been attributing more than 50% odds of a 50 basis points cut as soon as October. We’ve always felt the market was getting ahead of itself,” ANZ said.

ANZ New Zealand merchant and card spending in August was down 1.8% as soft demand took its toll. ANZ said discretionary spending most sensitive to interest rates is experiencing the largest falls and “things have abruptly gotten tough for accommodation providers”.

Ebos Group increased $1.04 or 2.85% to $37.59; Fletcher Building rose 13c or 4.64% to $2.93; Infratil added 23c or 1.89% to $12.40; ANZ Bank gained 85c or 2.52% to $34.60; Turners Automotive was up 8c or 1.81% to $4.50; and Michael Hill improved 2c or 3.85% to 54c.

In the energy sector, Vector was up 10c or 2.7% to $3.80; Genesis Energy increased 5c or 2.24% to $2.28; Contact gained 10c to $8.31; Mercury added 6c to $5.98; and Manawa was down 8c to $5.

Retirement village operators Summerset was up 22c or 1.9% to $11.82, and Ryman Healthcare increased 11c or 2.47% to $4.56.

Serko was up 11c or 3.4% to $3.35; Pacific Edge climbed a further 1c or 6.54% to 16.3c; T&G Global gained 6c or 3.8% to $1.64; and NZ Rural Land added 2.46c or 2.75% to 92c.

Marlin Global fund rose 5c or 5.68% to 93c; Third Age Health improved 5c or 2.33% to $2.20; and Santana Minerals was up 5c or 2.23% to $2.29.

Argosy Property was down 3c or 2.69% to $1.085; SkyCity decreased 3c or 2.17% to $1.35; Scott Technology declined 6c or 2.83% to $2.06; and PGG Wrightson shed 10c or 5.35% to $1.77.

Eroad fell 8c or 6.45% to $1.16; Blackpearl Group shed 22c or 12.57% to $1.53; Seeka declined 9c or 3.47% to $2.50; and AFT Pharmaceuticals was down 6c or 1.88% to $34.13.

Auckland International Airport, up 1c to $7.46, has opened its $200 million retail offer to shareholders as part of the $1.4 billion capital raise.

Used vehicle dealer 2 Cheap Cars was down or 4.05% to 71c after telling the market it no longer expects to match the last financial year’s net profit because of rapidly changing market conditions.

The company said while the lower-value used car market has proven resilient and overall sales volumes are largely stable, consumers are spending less and that has an impact on margins.