Market close: Recession fears spook investors

Heartland Group led the index lower with a 3.8 per cent fall to $2.02. Photo / Google

New Zealand's benchmark share index declined on Monday as investors became concerned about growing recession risks facing the global economy.

The S&P/NZX 50 Index fell 64.5 points, or 0.6 per cent, to 11,198.68. Turnover was $108 million.

BNZ Research said in a note that global recession concerns were pushing long-term interest rates lower last week and the US yield curve is now "deeply inverted" – which is a reliable indicator of recession in the United States.

BNZ's head of research, Stephen Toplis, said business and consumer confidence will be "a critical determinant" of how the NZ economy performs over the next 12 months.

"Morose householders do not spend and upset businesses neither hire nor invest. When both businesses and consumers are unhappy then there is little chance that an economy will flourish," he said.

Toplis said retail sales fell 8.7 per cent the last time consumer confidence was as low as its current levels. "We are not forecasting such a large drop this time around, largely because we think that the labour market will remain relatively tight, but we still think a correction of some sort is highly likely".

Bond yields in NZ are not inverted but are close. The yield on the two- and five-year government bonds is 3.55 per cent, while the 10-year is 3.62 per cent.

Specialist lender Heartland Group led the index lower with a 3.8 per cent fall to $2.02. Infant formula exporter A2 Milk followed with a 3.4 per cent drop to $4.88, with its supplier Synlait Milk down 2.7 per cent at $3.27.

Pacific Edge declined 2.4 per cent to 82 cents after rallying strongly on positive updates last week, the company has its annual general meeting this Thursday. Sky Network Television fell 2.1 per cent to $2.31 and Auckland International Airport dropped 2.1 per cent to $21.39 on unusually high volume.

Fleet management software company Eroad had the day's biggest gain, it is also holding a shareholder meeting this week. Summerset Holdings was up 2.4 per cent at $10.45 and Property for Industry climbed 2 per cent to $2.55, while Stride Property Group dropped 2.8 per cent to $1.75.

Green Cross Health was up 1.5 per cent at $1.40 after its annual general meeting today and fellow pharmaceutical company Ebos rose 1 per cent to $39.

The NZ dollar was trading at 62.31 US cents at 3pm in Wellington, down from 62.39 cents on Friday. The trade-weighted index was at 71, from 71.12 on Friday.

BNZ research said it thought the 63 US cents reached last week was a good opportunity to sell the currency, ahead of new lows likely to be seen later this year.

"In our view, the NZ dollar continues to face macroeconomic headwinds as global growth downgrades often go hand-in-hand with a weaker NZ dollar," it said.