Watch for signs of domestic and global corporate health this week
By Jenny Ruth
Sept. 23 (BusinessDesk) - While central banks on both sides of the Tasman will take centre stage downunder this week,
there will also be plenty of information about corporate and economic health both domestically and globally.
Possibly of most significance for global growth will be the United States flash Performance of Manufacturing Index for
September after the August reading of the Institute for Supply Management's PMI Index fell into contractionary territory
for the first time since September 2009 in the wake of the global financial crisis.
US consumer spending accounts for two-thirds of the US economy which continues to chug along at a respectable rate of
just above 2 percent, as does the New Zealand economy.
“It's the manufacturing side that looks pretty ugly, which is partly due to the trade tensions” between the US and
China, says Mark Lister, the head of wealth research at Craigs Investment Partners.
“While that's a small part of the overall US economy, it does tell you things are fragile for a lot of sectors,” Lister
Late on Friday, news trickled out that Chinese officials, who were in the US to prepare for the resumption of high level
trade talks early next month for the first time since April, returned to China earlier than scheduled after cancelling
planned farm visits.
“There might not be anything in that, who knows whether it's relevant or not,” Lister says.
But financial markets took it as a signal to wind back their optimism that the two nations will be able to settle their
Still, both sides were making positive noises over the weekend.
China’s state-run Xinhua news agency said on Saturday that fairly senior negotiators had “conducted constructive
discussions” in Washington in recent days and had “agreed to continue to maintain communication.”
Meanwhile, a US statement called the discussions “productive” and said the US looks forward to welcoming the Chinese
delegation for meetings in October.
PMIs for Europe and Japan will also be released on Monday and Tuesday – last month, these indices showed signs of
improvement and stability.
On the home front, the corporate calendar is reasonably busy with Vector, Moa Group, Air New Zealand, Steel & Tube and Mercury New Zealand all holding their annual shareholders' meetings while retailers The Warehouse and
Hallenstein Glassons and Fonterra will report their annual results.
Fonterra's results “will be closely watched, given the delays to this release, as well as the other issues facing the
cooperative,” Lister says.
Fonterra had been due to report on Sept. 12 but said the week before that it and auditor PwC were still working through
“significant accounting adjustments.”
The dairy giant did confirm prior guidance that it expects to report a loss of $590-675 million for the year to July 31,
which is a 37-42 cent loss per share.
Lister says Air New Zealand's comments at its AGM on Wednesday will be worth watching.
“It's very tied into what's happening with tourism, which is very cyclical and economically sensitive and it's come off
the boil recently,” he says.
“Air New Zealand tells us quite a lot about what's happening across the economy and further afield.”
The airline's take on the outlook for oil prices will also be worth taking note of following the attack on Saudi
Arabia's production facilities.
Oil prices finished last week 6 percent higher, retracing much of the spike early in the week following the attack.
Lister says it's worth remembering that West Texas Intermediate crude oil was trading at US$72-73 a barrel this time
last year compared with US$58 now.
As for that central bank action, Reserve Bank of Australia governor Philip Lowe will be delivering a speech on Tuesday
with the title “An Economic Update” and is widely expected to greenlight another cut to his nation's cash rate following
poor employment figures last week.
Market pricing of the likelihood of another 25 basis point cut to 0.75 percent jumped to 80 percent after the jobs
It will be the Reserve Bank of New Zealand's turn on Wednesday, although this will be a review of the official cash rate
rather than a full monetary policy statement.
At the end of last week, the market pricing suggested just a 23 percent chance of an OCR cut following RBNZ's shock 50
basis point cut to 1 percent in early August.
But the chance of a cut at the next full monetary policy statement in November is priced at 74 percent and the chance of
another cut in February next year is priced at 86 percent.