The Reserve Bank is set to review the Official Cash Rate on Wednesday. Photo / RNZ
Property stocks continued their rally as the New Zealand sharemarket awaits a further interest rate cut to reboot the economy.
The market expectation is split between an official cash rate (OCR) reduction this week of 25 and the heftier 50 basis points.
The S&P/NZX 50 Index opened the week on a weaker note, declining 24.85 points or 0.18% to 13,489.24. The index has risen 2.9% so far this year.
There were 69 gainers and 73 decliners on the main board with 35.2 million shares worth $103.1m changing hands.
The Reserve Bank last cut the OCR by 25 basis points to 3% in August, and one-year bank term deposits are down to 3.5%.
ASB predicts 50bp
ASB Bank is expecting the Reserve Bank to reduce the OCR by 50 basis points to 2.5% on Wednesday, saying let’s get the recovery started.
“It’s not about if it will cut the OCR but whether it is a pedestrian 25 basis points or more get-up-and-go 50bp. We are in the 50bp camp, mainly because we think there is a growing risk the economic recovery will be too gradual to absorb spare capacity steadily,” ASB said.
Matt Goodson, managing director of Salt Funds Management, said it still wasn’t easy out there, but there are enough signs to show the economy has bottomed.
“It’s very much wait and see what the Reserve Bank does, but the market does expect the OCR to reach 2.5% by the end of the year,” he said.
Property sector building
After surging 14.6% in the September quarter, the property sector gained another 1.4% on strong trading. The rally has also spilled over to retirement village stocks.
Stride Property rose 4.5c or 3.16% to $1.47; Argosy increased 2c to $1.31, Investore gained 2.5c or 1.98% to $1.29; Kiwi was up 1.5c to $1.095; Precinct Properties added 1.5c to $1.36; Vital Healthcare Trust improved 6c or 2.63% to $2.34; and Property for Industry was up 3c to $2.52.
Ryman Healthcare increased 9c or 3.45% to $2.70, and Summerset gained 17c to $11.10.
Goodman said the property stocks have risen on interest rate-cut expectations and a view that their net tangible assets have bottomed. “Their yields are now very attractive compared with bank term deposits and being part of Pie funds there’s no further tax to pay.”
Fonterra Shareholders’ Fund was down 14c to $8.01. The ANZ World Commodity Price Index fell 1.1% in September on lower dairy prices.
Milk powder sours
Whole milk powder, New Zealand’s largest export product, fell 5.6%, skim milk powder was down 5.9%, and butter decreased 3.5%.
After a surprisingly strong August, dairy prices have resumed the downward trend seen since May. Strong production outlooks in New Zealand and other key dairy exporting countries were weighing on global prices, ANZ said.
The meat and fibre index increased 0.8% last month, wool was up 7.5%, and horticulture rose 1.8%, with apple prices falling slightly and kiwifruit gaining.
Sky City falls
SkyCity declined 0.005c to 71c following the resignation of its chief financial officer, Peter Fredricson. He will most likely stay on till the end of February after being appointed to the role in early August last year.
Leading the market down were Ebos Group, declining 51c to $29.51; Meridian Energy decreasing 8c to $5.83; and Freightways falling 36c or 2.58% to $13.59 on profit-taking.
Scales Corp was up 12c or 2.11% to $5.82; while Serko was down 7c or 2.56% to $2.66 and Skellerup decreased 9c to $5.16.
Airport inquiry grounded
Auckland International Airport was down 2c to $7.89 after the Commerce Commission decided there was no need for an inquiry into airport regulation following another request from Air New Zealand.
The airport company said effective and stable regulation was essential for ongoing private investment in critical infrastructure, with a planned spend of $5.7 billion over 10 years.
“Between 2023 and 2027, the airport’s regulated per passenger domestic jet charges are rising by an average of $1.26 a year – a fair and reasonable price for capacity and improvements we are currently delivering that benefit all airport users, including airlines,” the company said.
The commission said it still intended to proceed with a review of information disclosure requirements for major airport investment.