NZ shares drops to four-week low, tracking US stocks down after manufacturing activity slows

Tuesday 4th February 2014

The New Zealand sharemarket dropped to a four-week low, tracking a decline on Wall Street, after a report showed US manufacturing activity grew at the slowest pace in eight months, fuelling concern about global growth.

New Zealand's benchmark NZX 50 Index fell 58.331 points, or 1.2 percent, to 4,791.171 in morning trading. In the US, the Dow Jones Industrial Average dropped 2.1 percent, the Standard & Poor's 500 Index sank 2.3 percent, while the Nasdaq Composite Index shed 2.6 percent.

Just three stocks advanced in early trading on the NZX 50. Xero led declines, down 5.6 percent to $37.30, tracking a fall in US technology stocks. Among local blue chip stocks to fall, Fletcher Building declined 0.7 percent to $8.90, SkyCity Entertainment Group slipped 2.1 percent to $3.72, Auckland International Airport dropped 1.4 percent to $3.58 and Contact Energy was down 0.6 percent to $5.07.

The Institute for Supply Management's US factory index dropped to 51.3 in January from 56.5 a month earlier as orders slumped, a sign manufacturing cooled at the start of the year as winter storms hindered activity. Economists polled by Bloomberg had expected a reading of 56.

"The market is saying that is a pause in growth, is it weather related, that is a big question on the screens at the moment," said Andrew Bascand, managing director at Habour Asset Management which holds about $1 billion in equities. "A lot of our stocks are owned by global investors and they are marking back our stock market relative to what's happening overseas. In the course of the next month or two or even the next day or two I would expect this to unwind a bit."

To be sure, the S&P 500, the benchmark for US equities, remains above its 200-day moving average of about 1,700, while US manufacturing remains in expansion with a reading above 50 and a return to normal climatic conditions may bolster future readings, Bascand said.

"We have still had some very good earnings announcements out of America and as we continue into the earnings season, I am expecting a bit more of the same," Bascand said.

In New Zealand, strong growth is set to produce strong earnings, he said.

Traders are now turning their focus to a key US employment report due out Friday in Washington for an indication of how the world's largest economy is tracking. Non-farm payrolls probably climbed by 185,000 workers in January after the coldest December since 2009 chilled job growth to just 74,000 that month, according to Bloomberg.

In Europe, the Stoxx 600 Index ended the day with a 1.3 percent slide from the previous close. The UK's FTSE 100 gave up 0.7 percent, Germany's DAX fell 1.3 percent and France's CAC 40 retreated 1.4 percent.

BusinessDesk.co.nz

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