Global Equity markets were mixed overnight as markets digested the implications of the move made by
the US Federal Reserve. At the same time there has been no respite for the Oil price as it dropped again
putting further pressure on energy stocks overnight with US crude oil at $34.93 a barrel this morning.
Closer to home, yesterday saw the release of solid New Zealand GDP figures for the 3rd quarter of 2015
which is a good sign in terms of the health of the NZ economy, and in today’s daily we examine the numbers
in more detail.
At The Minute insights
NZ Economy Surprises RBNZ
NZ Economy Growing Steadily
Following a weak first half of 2015, NZ GDP rose a solid +0.9% for the 3rd quarter of the year, which is
equivalent to +2.3% GDP growth per year (GDP or Gross Domestic Product is one of the primary indicators used to gauge the health of a country’s economy). The standout sector of the economy for the quarter was the services sector. Business services and retail trade were strong while transport services were up 2.6% for the quarter alone, which is the largest gain in 5 years. This is an encouraging sign for several of the stocks in our NZ portfolio and below we discuss transport company Air New Zealand in today’s chart of the moment.
Implications for RBNZ
The growth rate experienced by the NZ economy was significantly higher than expected by the Reserve
Bank of New Zealand (RBNZ expected 0.6% growth for the quarter) which will reduce concerns around a
drop-off in economic momentum. At the last RBNZ meeting we leaned towards keeping the OCR on hold.
This has now certainly raised the hurdle for further rate cuts and we do not believe there will be any
further cuts to the OCR, unless there is severe impact from drought this summer. Our forecast is that the RBNZ will remain on hold through 2016 with the OCR at 2.50%.
Chart of the Moment
AIR has performed strongly returning over 23% since added it to its NZ portfolio. We upgraded our
holdings in AIR in December given the strong relationship with ’s core thematic views. AIR’s impressive
performance has been aided by a falling oil price, but importantly it has also experienced major growth in its passenger capacity from continual improvements to the New Zealand tourism sector. AIR’s passenger growth for November was up 8.7% compared to last year and this continues a trend of stronger numbers for the company.
We believe the growth is a result of a combination of factors. With oil falling, travel costs are declining and therefore driving higher volume for passengers. In conjunction with this, the falling NZD is making NZ a more attractive as a tourist destination. The increased number of travellers to NZ bodes well for AIR as it is a major carrier of passengers to and from NZ. Finally, AIR has under taken an ambitious growth strategy, both increasing its number of destinations and its aircraft. This was perfectly timed given the fall in oil prices, which now makes these projects extremely profitable and boosts its passenger numbers.
Five Things Markets Will be Watching this Week
1) The highly anticipated 2 day US Federal Reserve Meeting will conclude on Wednesday, we expect
the Fed raise interest rates for the first time in 8 years (Thursday morning Australia/NZ time).
2) In NZ, quarterly GDP figures are due to be released on Thursday which will provide insights into
the health of the NZ economy. The consensus is for annualised GDP growth of 2.30%.
3) Important European inflation and manufacturing data will be released on Wednesday and should
help provide the European Central bank with more direction as to its easing policies.
4) The Oil price – whether the free-fall in the oil price will halt or reverse will be important for both
energy stocks and market sentiment more generally
5) More generally whether markets globally can reverse last week’s declines.
