Earnings season is winding down as geopolitical tensions head the other way and this week, "all eyes will be on Europe," said Devon Funds head of retail Greg Smith.
With the Russian/Ukrainian conflict on the forefront of people’s minds, Smith said the New Zealand market had responded quite negatively before bouncing back on Friday.
Smith outlined we could see commodity inflation, particularly oil costs surging, and wheat prices increasing as well. The economic impact would depend on how long the conflict lasts or whether the countries are able to return to the negotiating table, he said.
But while conflicts create market uncertainty, Smith said historically economies and stock markets can do quite well after the knee-jerk reactions. “Buy on the sound of cannons and sell on the sound of trumpets," Smith said, alluding to an expressession attributed to London financier Nathan Rothschild during the Napoleonic wars.
Neither Russia nor Ukraine are key trading partners for the country according to Smith. “Russia is 25 on the trading list and Ukraine barely registers,” he said.
Coming results
Energy giant Genesis and media company Vista are set to release financial results this week.
For Genesis, the potential that the Tiwai Point Aluminium Smelter will remain open beyond 2024 provides a long-term boost for both the sector and the country, Smith said. The smelter makes up 13% of the country’s electricity consumption. Smith will also be looking for an announcement from Genesis about green hydro plant plans when its results are released.
Vista is benefiting from the steady global return to cinemas of patrons after the pandemic disruption. Smith said there was still some hesitancy from people with Omicron and new Covid-19 variants but blockbusters were now being released and cinemas have re-opened.
Global Dairy Trade numbers will be released this week with Fonterra lifting the farmgate milk price range to $9.30 to $9.90 per KgMS last week.
Australian Reserve Bank
Smith expects to see a quite different approach taken to monetary policy by the Australian Reserve Bank compared with its New Zealand counterpart when it meets this week.
The New Zealand Reserve Bank recently lifted the official cash rate 25 basis points to 1% to rein in rising inflation but avoided a 50-basis point raise, which was a relief to many.
Smith said Australia had been more hesitant to go on the front foot against inflation compared with New Zealand although earlier this month, Reserve Bank of Australia Governor Philip Lowe for the first time opened the door to a possible rise in interest rates later this year. Prior to that, Lowe had been adamant that the 0.1% cash rate was unlikely to rise until 2023 at the earliest but the jump in core inflation to 2.6% in the last quarter had seen it hit a level not expected until later in the year.
Smith does not expect an announcement on a rate rise at the meeting this week, but said people will be looking for signals from the language the bank uses in its statement as to whether any future rate raises will occur this year as inflation also heats up across the ditch.
Reporting season
Reporting season is coming to an end, with the flurry of results illustrating the continuation of economic trends. “There was a fairly low bar of expectation going into the economic season and a lot of companies managed to jump it quite well,” Smith said.
Highlights for Smith included results from courier operator Freightways, which benefited from the pandemic, and from landlord Precinct, which announced a potential $1 billion deal with Singapore sovereign wealth fund GIC, and telecommunications provider Spark, which announced plans to separate its passive tower assets into a wholly-owned subsidiary company – Spark TowerCo – during the second half of the year, and investigate introducing third-party capital into the entity.
