by BusinessDesk
The S&P/NZX 50 Index rose 184 points, or 1.7%, to 10,997.92. Turnover was $113.4 million.
US markets rallied on Friday night – with key indices jumping more than 3% – as traders began thinking an economic slowdown would stop the US Federal Reserve from hiking interest rates.
This pivot is counterintuitive, but a recession in the US economy might ultimately mean lower interest rates which would be supportive for heavily sold equity markets.
BNZ rate strategist Jason Wong said the global rates market last week had been paring back expectations of monetary policy tightening.
“But the fall in rates also likely reflected the fact that markets had taken rates up too far and too fast. After such a massive move higher, the hurdle rate for a reasonable pullback in rates was fairly low,” he said.
Clifford Bennett, chief economist at ACY Securities, agreed that the major force behind the rally was simply that the market was oversold.
“It had got ahead of itself, just for the moment, in terms of pricing in aggressive rate hikes and a looming recession,” he said.
He said he didn’t buy the argument that bad economic performance would mean lower rates as the US Fed has said it will endure economic pain to halt inflation.
BNZ senior economist Doug Steel said he expected NZ’s annual inflation rate to have been about 7% in the second quarter, which ends this month.
“It is important to note that while prices continue to push higher, we remain of the view that they may no longer be accelerating,” he said.
However, he said since inflation was likely to still be above 6% at the end of the year, the Reserve Bank of NZ will likely push on with its planned official cash rate increases.
Some of the best-performing stocks on the NZX were those that had been sold off aggressively in recent months.
Pacific Edge led the rebound, climbing almost 6% to 72 cents after having halved in value this year. Air NZ jumped 4.6% to 56.5 cents, recovering some of its 40% decline.
Tourism Holdings and A2 Milk were both up more than 4% – at $2.44 and $4.90, respectively – clawing back from 17% year-to-date falls.
The index’s worst-performing stock, Eroad, jumped 3.9% to $1.61, while the best performer, Vector, declined 1.9% to $4.25.
Some stocks didn’t get picked up by the rally: Serko, NZX and Arvida Group all remained unchanged at $3.78, $1.27, and $1.49 respectively.
Synlait Milk had the index’s biggest decline, falling 1.9% to $3.11. Truescreen had the biggest overall, dropping 7.3% to 5.1 cents.
The NZ dollar was trading at 63.08 US cents at 3pm in Wellington, up from 62.60 cents yesterday. The trade-weighted index was at 71.10 from 70.75 yesterday.
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