Jarden Brief: Could inflation lead to faster OCR rise?

Kiwis are paying more to fill their trolleys. Photo / Getty Images

Keeping you up to date with the latest market moves, in association with Investment firm Jarden

New Zealand

The NZX 50 fell a slim 0.1 per cent yesterday, with the announcement that Auckland will remain in alert level 3 for at least another two weeks.

Industrials rose 0.8 per cent, carried by Mainfreight, which rebounded by 2.4 per cent following poor market performance last week. Craig Evans, who leads Mainfreight's New Zealand operations, announced his intention to resign by the end of January 2022 following more than three decades at Mainfreight.

The sector was also helped by a 1.2 per cent uplift in Air New Zealand shares, with progress of the Australian Covid-19 re-opening potentially fuelling investor optimism.

On the flipside, technology and energy declined by 1.2 and 0.6 per cent, respectively.

Film software company Vista Group International declined by 4.3 per cent following the news that CEO Will Palmer will step down at the end of 2021. Will Palmer co-founded Movio, one of the nine businesses that make up Vista Group International.

Investore Property lost 2.1 per cent, continuing a downward trend for the year-to-date.

A2 Milk fell 1.7 per cent, moderating slightly after being the best performer in the NZX 50 last week. The stock has seemed to allay fears of a class action claim. The performance also comes in light of a strong result from its competitor, Australian company Bubs Australia. Bubs reported a 6.5 times uplift in its Daigou channel sales, a positive indicator for the key channel which a2 had previously relied upon for its growth.

Statistics NZ reported the Consumer Price Index (CPI) yesterday. The CPI takes a basket of goods and services and values them to determine inflation for New Zealand households. Headline CPI inflation was 2.2 per cent in the three months to September 2021 and 4.9 per cent in the year to September 2021. This was predominantly driven by freight, logistics and housing-related costs, such as construction pressures and local authority rates.

The 4.9 per cent annual inflation figure surprised on the upside with a 4.2 per cent median market forecast. The top band of the Reserve Bank of New Zealand target is for 3.0 per cent annual inflation. Many commentators have said that yesterday's result contributes to the case for further increases to the Official Cash Rate in November and into 2022 to reduce some of the current monetary policy support.

International
US

US markets were mixed at time of writing, with markets muted in anticipation of another eventful earnings week. The S&P 500 and Nasdaq traded higher by 0.2 and 0.7 per cent while the Dow Jones Industrial Average lost 0.1 per cent.

Sector gains include consumer cyclicals and technology, each increasing by 0.5 per cent, respectively

These sector gains were well supported by oil and gas exploration company Occidental Petroleum Corp which pushed higher by 4.6 per cent. Occidental had various brokers upgrading the stocks share price on the back of record oil prices over the weekend, with the company also signing another oil exploration contract with the Columbian Government.

Joining Occidental was logistics and freight company CH Robison Worldwide, making its own gain of 4.2 per cent at the time of writing.

In contrast, downward pressure on indices was drawn from sector losses of healthcare (down 0.7 per cent) and utilities (down 0.6 per cent).

Medtronic performed poorly, slumping to a 5.2 per cent loss amid news the current recall of a range of their products may be expanded from roughly 800 products to greater than 8000.

Cloud technology company NetApp lost 3.7 per cent after reaching its 52-week high at the end of last week's trading.

Rest of the world

The main Asian indices were mixed at the close, trading mostly lower after weak growth data out of China. Third quarter GDP increased 0.2 per cent (below market expectations of 0.5 per cent), leading to a 4.9 per cent increase year on year.

The Hang Seng made gains of 0.3 per cent while the Nikkei and Shanghai Composite slipped 0.2 and 0.1 per cent, respectively.

Commodities

Among the commonly tracked commodities, gold moved higher by 0.1 per cent to US$1,766.8 per ounce. Oil dipped from early week highs, with the WTI down 0.3 per cent to US$82.0. Government bond yields pushed higher on a more upbeat global inflation outlook, priced in at 1.6 per cent.

Cryptocurrencies were mixed today with Bitcoin jumping 2.5 per cent to US$62,088.1 and investors hopeful the US Securities Exchange Commission will grant bitcoin futures the right to trade on a more readily available exchange traded fund. Ethereum lost 0.7 per cent to trade at US$3,749.6.

Australia

The ASX 200 gained a slim 0.3 per cent in Monday's session, closing 3.3 per cent below its 52-week high.

Materials (+1.0 per cent) and energy (+0.8 per cent) booked the biggest gains due to rising energy costs, which also led to higher base metals prices. Financials (+1.0 per cent) joined the top gainers on the back of a sell-off across bond markets. On the flipside, information technology (-1.2 per cent) and A-REIT (-1.1 per cent) declined the most.

The leader board of the ASX 200 was headed by mining companies. Nickel Mines (+5.1 per cent), Orocobre (+4.9 per cent), Lynas Rare Earths (+4.8 per cent), OZ Minerals (+4.6 per cent), and IGO (+4.3 per cent) all outperformed the other constituents of the index.

Online retailers Kogan.com and Redbubble dropped significantly on the day, declining by 4.6 and 3.5 per cent, respectively. This could potentially be due to shops reopening in Australia, which would lead to decreased demand for the online marketplaces. In addition, news from Apple over the last week that it would need to curb its iPhone production due to the ongoing chip shortage bodes poorly for electronics retailers.

Payment solutions provider EML Payments also underperformed, decreasing a further 3.8 per cent after a sharp decline last week. EML announced at the start of last week that it's Irish regulated subsidiary, PFS Card Services (Ireland), has received further correspondence from the Central Bank of Ireland (CBI) regarding regulatory concerns. Those concerns had led to a trading halt in May 2021, and now led the CBI to propose limits for certain programs of the payments provider. EML ensured the market that this correspondence does not concern its Australian or North American operations, nor the ones from its other subsidiaries in Europe.

The Reserve Bank of Australia will release its Monetary Policy Meeting minutes later today.

• For more information on the latest market moves, get in touch with Jarden.

Disclaimer: This Morning Brief has been prepared in good faith and reflects opinions and views at the time of publication, using external sources, systems and other data and information we believe to be accurate, complete and reliable at the time of preparation. We make no representation or warranty as to the accuracy, correctness and completeness of that information, and will not be liable or responsible for any error or omission. This Morning Brief is not to be relied upon as a basis for making any investment decision. Please seek specific investment advice before making any investment decision. Jarden Securities Limited is an NZX Firm, a broker disclosure statement is available free of charge at www.jarden.co.nz. Jarden is not a registered bank in New Zealand. Full disclaimer available at: https://www.jarden.co.nz/limitations-and-disclaimera>