NZ shares up as labour data shows economy running hot

New Zealand shares and the kiwi dollar climbed as the unemployment rate dropped to 4% in the June quarter, showing the economy is running well and ushering in the chance for more aggressive interest rate hikes.

Wednesday, August 4th 2021, 7:40PM

by BusinessDesk

The S&P/NZX 50 Index rose 96.76 points, or 0.8%, to 12,797.29. Turnover was $198.8 million.

Economists had been predicting a fall in the unemployment rate to somewhere between 4.4% and 4.7%, instead it dropped further surprising the market.

The kiwi dollar climbed from 69.97 US cents yesterday to 70.58 cents after the announcement, but the bigger shift was in market interest rates.

The yield on a two-year government bond climbed from 0.7% to 0.85% and the 10-year bond yield moved from 1.51% to 1.58%, as investors priced in the likelihood of the Reserve Bank of New Zealand hiking the official cash rate.

“It’s becoming clearer that the domestic economy is running hot, and that the degree of monetary stimulus that we currently have in place is no longer appropriate,” said Westpac’s acting chief economist Michael Gordon.

Kiwibank economists said they expect the RBNZ would hike the benchmark rate four times over the next year to 1.25%, with another hike to 1.5% likely by the end of 2022.

While higher interest rates are typically a negative for share market valuations, they'd be in response to a much stronger economy, and investors seemed happy to take that trade as the majority of stocks on the NZX moved higher.

Infrastructure investor Infratil led the market, climbing 2.2% to $7.46 and A2 Milk Company advanced 1.9% to $6.41.

Shares in mobile marketing firm Plexure dropped 10.1% to 62 cents after its chief executive suddenly resigned today.

Air New Zealand shares fell 0.7% to $1.48 after the airline said it now expects to post a bigger loss for the 2022 financial year of $530m, having previously predicted a loss of $450m.

The national carrier said the eight-week suspension of the quarantine-free travel bubble with Australia forced it to reassess earnings expectations.

Air NZ said operating cashflow had also been reduced by the bubble pause and it would draw down more of its loan facility from the government as a result before the end of August.

Auckland International Airport avoided a sell down, despite being downgraded by Jarden analysts today, and climbed 0.4% to $7.24.

In currency markets, the trade-weighted index was at 74.69 at 3pm, from 74.15 yesterday. The kiwi was trading at 95.31 Australian cents from 94.97 cents, traded at 76.93 yen from 76.43 yen, 59.46 euro cents from 58.92 cents, 50.69 British pence from 50.35 pence, and 4.5611 Chinese yuan from 4.5228 yuan.

Tags: Market Close