NZ shares bounce back from initial US election selloff; NZX 50 jumps 3.3%, bond yields surge

Thursday 10th November 2016

New Zealand shares rallied in early trading, regaining ground shed in the immediate aftermath of Donald Trump victory, as equity market investors deemed the change at the White House would benefit US economic growth.

The S&P/NZX 50 Index had its biggest fall in almost 8 years yesterday, down 3.3 percent on the day as it became increasingly apparent Trump would take out the US presidential race, with every stock on the benchmark index dropping.

Ten minutes after the market opened this morning, the local index had risen 3.3 percent, or 220.74 points, to 6,864.95. Some 43 stocks rose, seven were unchanged and one was trading lower. The biggest winner was A2 Milk Co, up 10.2 percent to $2.16, while Heartland Bank rose 5.6 percent to $1.50.

Markets across Asia were unsettled yesterday afternoon but US stocks gained sharply overnight local time as Wall Street came to terms with the political upset. The Dow Jones Industrial Average rose 1.4 percent and the Standard & Poor's 500 Index climbed 1.1 percent.

"Obviously we were at the forefront of trading as all news was coming out and there was an immediate huge reaction which is unwinding to a degree today, particularly after the US bounce," said Matt Goodson, managing director at Salt Funds Management.

"What was interesting overnight was quite a sharp selloff in US bond yields - the US ten-year is up almost 22 basis point, the US 30 year is up about 25 basis points, and yield-sensitive sectors were down overnight," Goodson said. "Obviously we have a very large portion of yield-sensitive stocks, with the gentailers, Spark, Auckland Airport and the property stocks in our market. It'll be very interesting to see what happens once these initial short-term reactions play out."

Longer-term interest rates followed suit in New Zealand today. The yield on 10-year government bonds jumped 23 basis points to 2.99 percent, the highest since late March. The 10-year swap rate soared to 3.11 percent from 2.94 percent.

Meanwhile, the CRB Index of commonly traded commodities rose 0.2 percent overnight, despite concerns that a Trump presidency will discourage global trade given he campaigned against the Trans-Pacific Partnership agreement.

The trade-weighted index was virtually unchanged from yesterday at 78.65, as the kiwi rebounded against the Japanese yen but fell against the US dollar.

"Commodities rose sharply overnight which was a surprise at a time where one of the cornerstones of Trump has been more difficult trade relationships with China and potential tariffs on Chinese products," Goodson said. "It's important to remember there are a lot of quantitative funds in the market, far more than has been the case historically, and they tend to trade off stock factors like volatility, yield or baskets of attributes as opposed to stock-specific news, so that was certainly something that whacked New Zealand last night."

BusinessDesk.co.nz

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