US banking and NZ inflation worries causes sharemarket slump

The New Zealand sharemarket slumped more than 1% as banking concerns in the United States and inflation worries here again rippled to the surface.

Wednesday, May 3rd 2023, 6:38PM

by BusinessDesk

The S&P/NZX 50 Index continued to slide all day and closed at 11,907.99, down 129.82 points or 1.08% – the biggest single-day fall in five weeks. The index has now risen 3.8% so far this year.

There were 112 decliners and 23 gainers over the whole market on volume of 29.76 million share transactions worth $107.57m.

The major US indices fell sharply overnight as investors questioned the stability of smaller regional financial institutions and feared the banking sector crisis had not been contained.

Regional banks PacWest Bancorp fell 26.5%, Western Alliance 20% and New York Community Bancorp was down 7%. The big banks weren’t spared, with Wells Fargo falling 4.7%, Citigroup 3.1% and Bank of America down 3.9%.

The Dow Jones Industrial Average was down 1.08% to 33,684.53; the S&P 500 fell 1.16% to 4119.38; and the Nasdaq Composite also declined, down 1.08% to 12,080.51. Wall Street was also waiting anxiously for another expected interest rate hike by the Federal Reserve.

Across the Tasman, the S&P/ASX 200 Index was down 1.14% to 7184.5 points at 6pm NZ time.

At home, the tight labour market continues to provide inflationary pressures. Unemployment was unchanged in the March quarter at 3.4%, but wage growth rose to new record levels.

The Labour Cost Index (LCI) increased to 4.3%, from 4.1% in the December quarter. This was the highest level since the data series began in 1992.

Average ordinary time hourly earnings, measured by the Quarterly Employment Survey, increased 7.6% to reach $38.93, with current inflation running at 6.7%.

The NZ dollar strengthened more than one cent against the Australian, rising from A92.20c to A93.50c and impacting the banks with ANZ declining 77c or 2.91% to $25.71, and Westpac falling $1.02 or 4.14% to $23.60.

ANZ Research said the labour market remained white-hot in the first quarter and well beyond maximum sustainable levels, although slightly weaker LCI wage growth than expected will be a welcome development for the Reserve Bank given its importance for non-tradeable (domestic) inflation.

“We maintain our expectation for just one further 25 basis points hike in the official cash rate this month,” ANZ said. "We expect labour market pressures to ease over the rest of the year and into 2024 as labour demand continues to soften and labour supply via migration recovers."

Matt Goodson, managing director of Salt Funds Management, said the weak US banking sector, the Reserve Bank of Australia's decision to increase interest rates and the labour data here all came together and dragged the local market down.

“Inflation in the services sector is still rampant, and it’s going to be a tough period for markets with further monetary policy tightening when some people thought central banks would stop increasing rates,” Goodson said. "Our view is that it’s far too early to do this."

Most of the leading stocks were struck down. Fisher and Paykel Healthcare declined 30c to $27.50; Auckland International Airport decreased 10c to $8.65; Spark shed 6.5c to $5.145; Mainfreight gave up 99c to $71.30; and Fletcher Building was down 16c or 3.37% to $4.59.

Freightways shed 14c to $9.45; Chorus was down 9.5c to $8.58; Skellerup declined 8c to $4.87; Port of Tauranga decreased 8c to $6.31; and a2 Milk fell 19c or 3.231% to $5.72.

In the energy sector, Meridian was up 4c to $5.40; Genesis was down 6c or 2.17% to $2.712; and Vector declined 6c to $3.99.

Retirement village stocks Summerset Group was down 11c to $8.19; Ryman Healthcare declined 9c to $5.26; and Oceania Healthcare decreased 2c or 2.82% to 69c.

Hallenstein Glasson gave up a further 11c or 1.78% to $6.13; SkyCity was down 5c or 2.13% to $2.30; Comvita decreased 12c or 4% to $2.88; Vulcan Steel declined 28c or 3.23% to $8.40; and Smartpay Holdings fell 8c or 4.71% to $1.62.

In the property sector, Precinct shed 3c or 2.37% to $1.235; Goodman Trust was down 4.5c or 2.1% to $2.10; and Vital Healthcare Trust declined 5c or 2.15% to $2.28.

Amongst the few gainers, Serko increased 6c or 2.69 cents to $2.29; Steel & Tube added 2c or 2.17% to 94c; and PGG Wrightson was up 3c to $4.435. PGG reaffirmed its full-year operating earnings (Ebitda) guidance at $57m, saying it has performed well over the first nine months of the financial year.

NZME, up 1c to $1.08, is partnering with The Warehouse Group, down 1c to $1.73, to create a weekly online live shopping event. The online channel, called Selection Live Shopping, will be hosted by the NZ Herald website.

Tags: Market Close