Business opinion survey and global dairy auction this week’s two key scheduled events

The quarterly survey of business opinion (QSBO) due out this week is likely to reveal a two-speed economy, says the head of wealth research at Craigs Investment Partners, Mark Lister.

And the market will be hoping this week’s global dairy auction will, at least, show prices stabilising, rather than a further fall, he says.

The NZ Institute of Economic Research’s QSBO always commands a lot of attention because of its quality.

“It gives us a good read on how economic sentiment and business sentiment is tracking. I would expect it to come off the boil,” after a very strong finish to last year, Mr Lister says.

“It will be interesting to see how people, how businesses have reacted to the OCR (official cash rate) cut and the Fonterra payout cut,” he says.

The Reserve Bank cut its OCR from 2.5% to a record low of 2.25% on March 10 while, on March 8, Fonterra cut its payout to farmers from $4.15 per kilo of milk solids to $3.90.

“I think you will see a trend of divergence with some of those sectors that are exposed to the challenging parts of the economy like dairy and so forth looking quite low in terms of how they’re feeling, but other sectors, such as those related to tourism or horticulture or construction, might look a little more upbeat.”

As far as this week’s dairy auction is concerned, “I think it’s difficult to see any strong rebound on the cards, but we would, at least, be hoping for a little bit of stability, rather than slipping back further.”

The strong New Zealand dollar is another negative for the dairy sector, Mr Lister says.

Other things to watch
But other things to watch are the elevated state of the United States and local share markets and the strength of the New Zealand dollar against the US dollar and the British pound.

The latter is more a reflection of US dollar weakness and concerns about the UK leaving the European Union than any domestic factors, Mr Lister says.

The key US S&P500 Index is now 1.4% higher than it began the year after being down more than 11.4% in February while the New Zealand Top-50 Index is up more than 6% this year.

And although the New Zealand dollar is now below 90Ac, it rose above 69USc last week.

Mr Lister says many of the factors which fuelled market fears globally earlier this year haven’t gone away.

“My view is that a lot of the fundamental issues haven’t gone away and the US market’s in a little bit of a trading range and, at the moment, we’re near the top end of that range,” he says.

“I wouldn’t be surprised if you see something come out of the woodwork over the next month or so that could see it sold off a little bit,” he says.

“The New Zealand market’s been just about bullet-proof” and has out-performed just about every other share market," Mr Lister says.

There are some logical reasons for that, including that the economy is in good shape, that dividend payouts are relatively high and that New Zealand doesn’t have an extensive oil and gas sector to drag the overall market lower.

However, “it’s definitely starting to look a little pricey and I think investors generally are finding it really difficult to find value in the local market,” he says.

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