Market close: NZ stocks end weaker in muted reaction to GDP

The New Zealand sharemarket staged a muted reaction to news of a big jump in GDP over the first quarter, with stocks ending with a slightly weaker tone but off their lows after a light session.

The S&P/NZX50 Index ended at 12,541.20, down 40.40 points or 0.32 per cent.

Stats NZ earlier said gross domestic product had jumped by 1.6 per cent over the March quarter, against market expectations of a 0.5 per cent lift.

Domestic demand in the economy was much stronger than most economists expected.

Just a few months ago many economists expected to see a contraction and the Reserve Bank had pencilled in a 0.6 per cent decline.

In response, ASB economists expect the Reserve Bank to start normalising interest rates in May 2022, “but risks are now very firmly skewed to an earlier move”.

David Price, director of institutional equities at Forsyth Barr, said there was barely a reaction – up or down – on the news, which was unusual given wholesale interest rates had shifted higher after the release, and as banks brought forward their interest rate predictions.

Higher growth was likely to mean higher inflation and therefore higher interest rates, which would typically put downward pressure on local stocks, given its high proportion of yield-sensitive, dividend-paying companies.

As case in point was Meridian Energy – regarded as a bond substitute – which bucked the trend to end 3c higher at $5.32.

“I’m quite surprised that the reaction has been so muted today,” Price said.

“I would have thought we might have had more of an adverse reaction,” he said.

“In Aussie they had really strong employment numbers, and we had very strong GDP numbers,” he said.

“Economists seem to be in unison that 75 per cent of the CPI inflation pressure will be transitory.”

But price said the idea that inflation would quickly pass, post Covid, was a big assumption to make.

Shares in fuel company Z Energy, which have languished over the last month or so, ended 4c higher at $2.58 after the company’s annual meeting, where it reiterated its 2022 full year guidance of Ebitdaf of $270 million to $310m.

Z Energy has signed in-principle heads of agreement with its part-owned Refining NZ for an import terminal will see Z exit the crude oil supply chain.

The company’s resulting release of $150m in cash would enable debt repayment and would supports future dividends.

“At the end of the day, I’m not sure what it’s going to take to get Z Energy off the canvas,” Price said.

“I would have thought the freeing up of a fair bit of capital should have been a boost, but it is still absolutely languishing.”

“They need to get that retail margin up and keep hitting the runs. That’s all they really can do.”

A2 Milk, after a strong run, ended 6c down at $6.35 as the company remains well below last year’s peak of $21.51 after the collapse of the unofficial daigou trade into China.

“I think it has run out of the aggressive selling that we have seen,” Price said.

“It depends on whether or not you think the a2 brand is broken and at the moment there is quite a division between the bulls and bears.

“At the moment, the bears certainly seem to have the upper hand,” he said.

Among the other movements, Auckland International Airport fell by 6c to $7.47, Contact Energy shed 14c to $8.15, EBOS lost 30c to $33.00 and Chorus dropped 10c to $6.16.

On the upside, Fisher and Paykel Healthcare rallied by 42c to $30.90.

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