Markets Wrap: kiwi sheds almost half a cent after weaker inflation data

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The New Zealand dollar fell after weaker inflation data suggested pressure was coming off the Reserve Bank to continue its aggressive hiking cycle.

The kiwi dropped almost half a cent against the US dollar from US62 cents to US61.6c immediately following the data.

Stats NZ said the annual inflation rate fell to 6.7% in the first quarter, from 7.2% in the final quarter of last year. That’s below the 6.9% expected by economists, and the Reserve Bank’s 7.3% forecast.

“The number was a pretty big surprise on the downside,” said ASB senior economist Mark Smith. “Although the Reserve Bank might hike in the next month or two, there’s certainly more of a view that inflation is not the issue it might have been, so more cuts are priced in essentially for next year.”

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Markets are pricing in a 90% chance of a rate hike next month, and it is fully priced in by July, which would see the official cash rate reach a peak of 5.5%. However market pricing suggests the rate will fall to about 4% by the end of next year.

The benchmark S&P/NZX 50 Index slipped 0.3%, or 38.135 points, to 11,879.68 on Thursday. On the broader market 66 stocks rose and 60 fell with $120 million shares traded.

Jewellery chain Michael Hill International rose 3.8% to $1.09 after the company said it had agreed to buy the family-owned Australian jewellery and watch retailer Bevilles for A$45m (NZ$48m). Michael Hill expects to complete the purchase this quarter, and said it would provide an immediate boost to earnings.

Bevilles is expected to generate A$60m to A$65m in sales with underlying profit of A$7.5m to A$8.5m this year. Michael Hill said the acquisition would be “highly complementary” to its own business, offering a more affordable range as Michael Hill seeks to elevate its jewellery to the premium segment of the market.

The combined businesses would have a suite of brands catering to multiple market segments, online and instore, including 174 stores in Australia, 47 in New Zealand and 86 in Canada.

Argosy Property closed unchanged at $1.13 after the property investor revealed it is being hit by the softer property market. The value of the company’s property holdings fell 6.4%, or by $146.4m, in the year to the end of March.

The company’s industrial properties recorded a 4.2% drop in value, down $49.1m, while its office portfolio slid 8.9%, or by $78.9m, and its retail holdings fell 8.2% or $18.5m.

The changes pull down Argosy’s net asset value to $1.57 per share from $1.74 per share last year.

Still, the company said the softer values were being partially offset by rental increases, and it noted tenants were prepared to pay a premium for “green” buildings, which is an area it had focused on. Argosy expects to confirm the valuation changes as part of its annual result due for release on May 17.

Task Group posted the biggest gain on the sharemarket, jumping 23% to 38 cents after it raised its profit guidance. The company, whose online ordering software is used by companies like Starbucks and Donut King, said it expected to report revenue of about $65m and operating earnings of about $12m for the year to the end of March, up from its previous forecast for $59m to $62m of revenue, and earnings of $8.5m to $9.5m. The company said its cash position had also improved to $28.4m from $12.2m last year. It expects to release its full-year results on Mary 30.

The Warehouse Group fell 4.3% to a three-year low of $1.77. Forsyth Barr pulled back its forecasts for the retailer, saying it faced a “challenging” near-term outlook as inflationary pressures on households weighed on demand while costs in the business were increasing.

“It is difficult to expect gross margin gains achieved through Covid are sustainable as discounting across the sector is increasing, and tailwinds, such as working from home and reallocation of travel spend, have dissipated,” said analyst Margaret Bei.

Warehouse’s key growth opportunity was further expansion of its grocery offering, she said.

Forsyth Barr cut its profit forecast for the next three years and reduced its 12-month price target to $1.90 from $2.

Oil prices fell, erasing most of the price gains made since OPEC and its allies announced on April 2 that they would cut output, a move some analysts speculated was aimed at putting a floor under oil prices at US$80 per barrel. West Texas Intermediate, the US benchmark, fell below this level, dropping 1.1% to US$78.29, while Brent Crude, the international benchmark, slipped 1.1% to US$82.21, on concerns about the impact of slowing economic growth.