Global markets sold off sharply overnight after US President Donald Trump said the country plans to impose up to US$60 billion in annual tariffs on imports from China, keeping alive concerns about a global trade war. We would expect some pressure on the ASX and NZX today.
The US administration's actions appear to now be aimed at redressing the perceived unfairness of trade with China specifically, rather than with curtailing free trade with the rest of the world. We are watching developments as the details of any tariffs on China will be important, and whether they will focus on a few areas or take a blanket protectionist approach. China is preparing a range of responses to planned US tariffs and will stand up to protectionism, but still hopes for dialogue, Beijing's ambassador to the World Trade Organisation told Reuters.
Closer to home, yesterday saw the Reserve Bank of New Zealand keep the cash rate at a record low 1.75% and flagged that the rate will stay at the level it has been at since November 2016 for some time. "Monetary policy will remain accommodative for a considerable period," Reserve Bank acting governor Grant Spencer said.
Stock in Focus: Infratil (IFT:NZ / IFT:AX)
Trustpower and Infratil both rose yesterday after retaining a market advantage in Tauranga (Infratil owns half of Trustpower) with Trustpower jumping +7% to a 2-month high.
The Tauranga Electricity Consumer Trust has abandoned plans to become a funder for Bay of Plenty community projects after strong pushback from customers of locally headquartered Trustpower, who prefer to receive an annual cheque that helps offset their personal power bills. The decision effectively entrenches Infratil-controlled Trustpower's competitive advantage in the Tauranga electricity network area because only Trustpower customers are eligible for the annual cheque, worth between $400 and $500 in most years. The decision has come as a surprise as it effectively allows Trustpower to continue to charge more for electricity in the area.
As we have highlighted in the past, in a relatively expensive market, in our view IFT offers a solid dividend and compelling value for medium-term investors.
We currently have a BUY rating on Infratil.
Members should look out for our full update on Infratil to be released in next week’s weekly report.
Australia & New Zealand Market Movers
The Australian share market retraced yesterday (ASX 200 index -0.22%) as Australia's miners and energy sector companies responded to the more positive mood in commodity markets, rallying solidly through the session, while the Banks weighed on the market. Losses for the US dollar helped commodity prices to gain, with copper, zinc and aluminium moving off recent lows and oil prices advancing significantly which supported the Resources sector. The Banking sector remains under the royal commission spotlight, as day eight of full-day hearings saw lenders face more questions about credit cards and lending practices.
The New Zealand market was a touch lower on Thursday (NZX 50 index -0.08%) as shares were mixed, with Trustpower (+7%) and Infratil both rising after retaining a market advantage in Tauranga while Heartland Bank and Freightways dropped.
3 Things Markets Will be Watching this Week
1. Global politics remain in focus as details around trade tariffs to be implemented by the Trump Administration are announced.
2. The US Federal Reserve makes an interest rate decision Thursday morning (AU/NZ time).
3. The Reserve Bank of New Zealand also Reserve makes an interest rate decision Thursday morning..
Have a Great Day,
Team