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NZ shares drop 2% in early trading as US markets recover

Wednesday 7th February 2018

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New Zealand shares fell 2 percent as the market opened, following global sharemarkets lower, although selling was not as severe as some market watchers feared.

As at 10:25am, the S&P/NZX50 Index was down 158.6 points, or 1.9 percent, to 8,083.23. WIthin the index, 47 stocks had fallen, with three up, on turnover of about $35 million. 

The sell-off started on Wall Street on Friday after strong US jobs data fuelled concerns US inflation will accelerate faster. Markets across Europe and Asia followed suit on Monday, with the local benchmark index down 2.1 percent, though it escaped heavy selling yesterday as it was closed for the Waitangi Day holiday. 

US markets began recovering this morning. Just after 10am New Zealand time, the S&P 500 was up 1.6 percent, the Dow Jones Index had gained 2.3 percent, and the NASDAQ 100 had risen 2.4 percent.

Having ended 2017 at 8,398.08, the NZX50 has now dropped 3.7 percent in 2018. However, it hit a record 8,455.55 on Jan. 5 and has booked consecutive gains for the past 13 months, meaning it's up 14 percent from this time a year ago when it closed at 7067.05.

"We've gone through a period of no volatility at all, so the daily movements have been miniscule in terms of percentages. We've now had this trip up and things are unwinding a bit," said Craig Stent, executive director and head of equities at Harbour Asset Management. "We have had a good run, we had a good year last year - it's not just a straight line up all the time.

"The bond yields have moved up, and when that happens you can see a bit of a pause in equity markets," Stent said. "It's not like anyone is really expecting a recession. Global data and economic activity are still pretty strong, but we are seeing an unwind of quantitative easing and gradual increase in interest rates globally. We're probably not going to see that locally because CPI is still contained and the Reserve Bank is in no rush to raise rates here."

Earnings season will kick off later this week, with SkyCity Entertainment Group set to report on Friday. 

"Early indications are that things are okay from corporates," Stent said. "They may have seen at-the-margin increase in financing costs as rates go up and a gradual slowdown in some areas of the market."


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