Market barometer: Investors eye US inflation trigger closely

Friday 2nd June 2000

NZSE smaller companies capital index

As the last month of the second quarter begins, all eyes are on the US Federal Reserve, which will meet to discuss another interest rate hike later this month. US unemployment figures are also due out this month.

The last US unemployment figure of 3.9%, although hailed by President Clinton, was a problem for Federal Reserve chairman Alan Greenspan, who would have been concerned that worker shortages could potentially trigger highly inflationary general wage increases. US sharemarket watchers will take cheer from any statistical evidence the US economy is slowing down in response to the Federal Reserve's 10-month old cycle of rising interest rates.

Nervous jitters have seen major sharefloats cancelled in Australia and New Zealand, which may have a bearing on prices for Australian public asset sales and budget projections. In New Zealand, crashing business confidence means heavy emphasis will be placed on the success or failure of the first Labour/Alliance Budget as a morale-boosting measure.

The Reserve Bank's options are hogtied by the weak kiwi dollar, which will probably weaken further if usually remedial higher interest rates are imposed because of the fear of a resulting recession. Huge responsibility rests on Finance Minister Michael Cullen's shoulders to turn things around.

Much attention will be paid to the initial public offering of China Unicom, the second-largest Chinese telco, which aims to raise about $US5 billion and dual-list in New York and Hong Kong. If China Unicom bombs, there will be much hesitancy over further large telco IPOs as well as Asian investments.

American indices are softish, with the Dow Jones industrials index weakening toward 10,000 and its sister measure the Dow Jones transportation index nosing down around 2700. The Nasdaq is highly volatile, with warnings out that tightening liquidity will increase likelihood of abrupt swings. Britain's FTSE-100 is firmish at the 6000-plus zone but Australia's ASX-100 is softer overall in the 2400 to 2500 area. NZSE indices look bleak, with the top 40 capital wavering under 2000 and the smaller companies capital index (illustrated) still heavily off at under 4900, although apparently easing in downtrend.

Of major shares, Telecom is feeble and could test October 1999 lows of 750cps and its AAPT investment is down around the $A6 mark. However, it is not all doom and gloom, with Auckland International Airport flicking up toward 280cps and Contact Energy firmer after a jump at around 270cps. Fletcher Energy, a probable winner from the sloughing of Fletcher Paper, looks set to tackle earlier resistance at around 600cps.

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