NZ investors poised for US inflation signal

New Zealand's sharemarket declined yesterday as the local trading week came to a close before the release of US inflation data, which was due later last night. The S&P/NZX 50 Index fell 75 points, or 0.7 per cent, to 11,136.28. Turnover was light at just $92.3 million. The thin trading volume could be a sign that investors were unwilling to make big moves ahead of the important inflation data to be released in the US over the weekend, which will help set the tone for central bank policy. BNZ interest rate strategist Jason Wong said the data was expected to show “inflation still running far too high for comfort”.

“Given market sensitivity to inflation, a surprise in either direction could result in a significant reaction,” he said in a note.

Oanda analyst Jeffrey Halley said median forecasts were for headline inflation to hit 8.3% and for core inflation to be 5.9%, year-on-year. “A number at 8.4% or higher probably sparks a risk aversion sell-off across asset markets, with the US dollar winning,” he said. “Conversely, a print at 8.2% or lower probably sees a ‘buy-everything, sell-dollars' rally, as Fed hiking expectations are pared.”

In New Zealand, government bond yields were at a fresh multi-year high after the Reserve Bank gave some detail on its plans to sell down its stockpile of bonds. The RBNZ bought up government bonds during the pandemic to provide liquidity to the economy and push down interest rates.

It will now sell those bonds at a rate of $5 billion per year.

On the equities market, most stocks fell, but many did so with very light trading volumes. Air New Zealand declined 4.8% to 59.5c — its lowest price since April 2020 — despite lowering its expected net loss for the current financial year. The airline said improving booking trends had shaved more than $50m off the expected loss for the year to June 30, bringing it to “less than $750 million”.

Fletcher Building fell 4.2% to $5.21 as frustration grew with the company’s inability to supply enough plasterboard to meet demand. Some buyers, such as Simplicity Living, have begun importing their own supply from Thailand, declaring it had “fired” Fletcher.

Retailers Hallenstein Glasson Holdings fell 4% to $5.70 and KMD Brands dropped 3.3% to $1.16.

The NZ dollar was trading at 63.97 US cents at 3pm in Wellington, down from 64.35 cents on Thursday. The trade-weighted index was at 71.51, from 71.77 on Thursday.

Oanda’s Halley said trading was “ugly” overnight for the Aussie and Kiwi dollars, which both fell significantly against the US.