New Zealand stocks fell more than 3.5% in Monday trading as investors rushed to reprice assets in the context of US President Donald Trump’s evolving trade war.
The White House announced last week that it would impose a 10% tariff on all imports and much higher rates on some countries, including 34% on China and 20% on Europe, bringing the average US tariff well above 20%.
Equity analysts at Jarden called this “the end of the free trade era” and warned local businesses would be impacted broadly given their “exposure to the global manufacturing supply chain”.
As of early afternoon local time, the benchmark S&P/NZX 50 Index was on track for its worst trading day since the pandemic crash in March 2020 when the market plunged 8.5%. Today’s decline was driven by banking stocks and exporter F&P Healthcare, although most stocks dropped.
F&P Healthcare exports the bulk of its products into the United States and will be exposed to some tariffs, although it also has manufacturing plants in Mexico which were not included in the new round. Its share price fell 4% on Monday and is down more than 13% this year.
Shares in listed investment company Infratil, which owns a clean energy development company in the US, were down 4.5% today and 25% this year. Global logistics firm Mainfreight dropped 4.2% today and 19% year-to-date.
Westpac Banking Corporation was down 5.5%, while ANZ Group Holdings fell 4%. These are the parent companies of NZ banks and their share price is driven by the Australian market, which was down more than 6% in early trading.
However, these declines are muted compared to the US sharemarket rout. The S&P 500 has dropped more than 10% since Trump announced his tariff policy on Thursday.
The Nasdaq Composite, which is heavily weighted towards big tech stocks, has fallen more than 11% since the announcement and is down more than 20% from its most recent peak, putting it in bear market territory.
US markets are closed for the weekend, but market indicators continue to fall, and some commentators are warning of a Black Monday-style crash when trading resumes after midnight NZ time.
The NZ dollar has fallen 3.3% against the US dollar and almost 6% against the Japanese Yen in response to the tariffs; these are considered safe haven currencies. While the Kiwi has fallen relative to most of its trading partners, it has climbed 1.5% on the Australian dollar.
Wholesale interest rates have also fallen. BNZ reported the two-year swap rate hit a recent low at 3.19% as traders began pricing in a terminal Official Cash Rate of 2.85% — rather than the 3.1% signalled by the Reserve Bank in its last meeting.
Few assets have been spared the sell-off. Bitcoin has dropped 7.5% since Trump’s announcement while the top 100 crypto assets were down more than 9%. Oil prices have fallen 15% in the past week and even gold is down 3%.
Brian Coulton, the chief economist at Fitch Ratings, said the tariff policy was likely to halt US economic growth, crush consumer confidence, and push interest rates upwards.
“Higher prices will squeeze real wages, weighing on consumer spending, while lower profits and policy uncertainty will act as a drag on business investment. Upward pressure on goods prices from tariffs—in the context of a recent large jump in US households’ medium term inflation expectations—means the Fed is likely to become more cautious about further rate cuts in the near term,” he wrote in a note.
“We expect these effects will likely outweigh the benefits US companies might gain from increased protection against foreign competition.”
Economists in NZ had different views on how the Reserve Bank should respond to the tariff policy. Some think it will be primarily a supply shock, which should be met with higher rates, while others think a slowdown in global growth will offset inflation pressures.
14 Comments
Unrelated but related. Vampire Squid says the forward PE multiple on S&P is 18x, which still ranks in the 81st percentile of a 25-year data set (the market bottomed around 14x in 2018, 13x in 2020 and 15x in 2022).
Have they updated the forward earnings for the drop caused by tariffs and the likely recession yet? Ratio could look even more out of whack after that.
US markets are closed for the weekend, but market indicators continue to fall, and some commentators are warning of a Black Monday-style crash when trading resumes after midnight NZ time.
I was working in Wellington city on the day of that crash. Decided to pop round to the SE - didn't get in but wow - there were a lot of us office-worker "tourists" have a great yarn right outside as it all unfolded.
That event was predictable, entirely.
As was 2007.
And the overhang is bigger now.
Go figure.
But everyone is going to blame Trump; not their own blind faith.
Kate, I worked in Aucklands Queen street and viewed it all unfolding. Plenty of people watching the chalkies furiously trying to keep up, there was just an eerie silence in the viewing gallery.
I went along in CHCH to watch, was interesting.
Normally the circuit breaker is the fed cutting or the announcement of something like TARP... in this case I am not sure there is a fix for an own goal.
IMHO a short term bounce is probably likely, I would not be surprised if the open is near the low of the day... I do not think this is market bottom yet.
The shares are a penny and ever so many
are taken by Rothschild and Baring
And just a few are allotted to you
you awake with a shudder despairing (Gilbert)
I had friends raving about canapes in Queensland - but South Pine? Amalgamated Broom? Quietly useful societal offerings, until gutted. Then? Worthless. I stayed out, smiled later in sympathy. Many never learn - they go back again and again.
You can take the boy out of the game, but you cannot take the game out of the boy....
PE: Take everything you can then sell the scraps and bail to the next opportunity. Such a positive impact on society...
Back of an envelope calcs suggest that these tarrifs will bring in $500b revenue a year for the US IRS.
National debt went up 5x that last year.
Even taxing every import from every country and their finances dont come close to standing still.
You have to take the drop in interest rates for all the det ( 9.6 Trillion )that is due this year. Which if the interest rate fell by just .50 % would mean a saving of 480 Billion in savings.
Thanks for the excellent summary, Dan.
There are so many factors in play here. Amongst all of this Kiwis should be aware of just how high our PE ratios are compared to the RoW. NZ tops the global list by a wide margin - the figures below are the average PE Ratios for each country - they are taken from worldperatio.com ...
#1 New Zealand 32.44
#2 Switzerland 23.31
#3 United States 22.76
#4 India 22.07
#5 Canada 18.47
#6 France 17.92
#7 Australia 17.86
#8 Sweden 17.55
#9 UK 17.52
#10 Belgium 17.36
This week's global trading has the potential to become one of the most fascinating in financial history. We all should remain mindful that the Dow dropped from 381 to 41 in 1932 (-89%) and never recovered its pre-crash high until 1954.
The underlying fundamentals are far worse now than leading into the 1929 share market crash, with subprimes hiding around every corner, global debt approaching 350% of GDP, and a derivative casino in the multi quadrillions - remember Quads have 15 zeros tacked on the end.
Trump #47 has just re-enacted the 1930 Smoot Hawley Tariff Act debacle that helped nobble world trade flows by some 70%. When the inevitable supply chain disruption is added to the JIT modern world business model, this is going to create even more carnage.
This hare kare is not being legislated into place by Congress this time - even Congress can see what a disaster it would be. This is a decree by the God-King who has imposed it by an Executive Order, using the emergency loophole known as the International Emergency Economic Powers Act (IEEPA)
Remember too that the U$ also has to refinance somewhere between $7-9 trillion fresh off Trump and his cabinet having declared a trade/tariff war on itself, plus almost every country on the planet.
Treasury Secretary, Scott Bessent is beyond the pale. He tries to spin his own country’s economic predatory incompetence as being in the driver’s seat for the escalating global tariff/trade-war, then proceeds to insult China and the Chinese economy as well
Trump's new Treasury Secretary makes even Janet Yellen look clever by comparison – he appears utterly clueless that his insults will greatly strengthen China’s resolve…
https://tuckercarlson.com/tucker-show-scott-bessent
Etch this statement from Bessent in your mind as you read the transcript …
… “I think it’s very difficult for things to go haywire.”
… quoted directly from the transcript…
TUCKER CARLSON: So how is China as a nation going to – I mean, this is such a big challenge. It’s directly in their face. It’s every country on the globe. But it’s really more than any other country about China, I think it’s fair to say. How are they going to respond? What’s the retaliation look like?
SCOTT BESSENT: Well, I don’t know if they can retaliate for a couple of reasons. If you look at the history, and I used to teach economic history, and when you look at the history, we are the debtor nation.
TUCKER CARLSON: Yes.
SCOTT BESSENT: We have the trade deficits. The surplus nation is in the weaker position because the Chinese business model and, Tucker, by the way, the Chinese business model and the economy are the most unbalanced, imbalanced in the history of the modern world. We’ve never seen anything like this in terms of their export level relative to their GDP, relative to their population.
So I think it is going to be very difficult for them to try to change the model. They are trying. They’re in a deflationary recession slash depression right now. They’re trying to export their way out of it, and we can’t let them do that.
But I think that when you think the Chinese manufacturing system is like that old Disney movie with the brooms carrying the buckets. There’s nothing you can do. Like, that’s their business model. It’s not going to stop.
Now, what could happen if you were to say, Scott, what’s the dream scenario? That somehow there could be a deal where the US and China, we want more manufacturing, which would mean smaller part of the economy’s consumption. The Chinese have this imbalanced economy with too much manufacturing. And actually, the Chinese consumers really get the short end of the stick.
So Chinese households, they’re called in what’s called the middle income trap – could we do something together to say, okay, you rebalance, you consume more, manufacture less. We are going to consume less and manufacture more, and we’ll be military rivals. There’ll still be an economic rivalry, but we’re going to level the playing field by a lot.
Now, that’s not going to happen tomorrow. That’s not going to happen in a month. But over the next few years, they may have to come around because I think their business model is broken. I think President Trump’s broken their business model with these tariffs.
TUCKER CARLSON: So you’re describing, you know, the famous scenario where if you take a bank loan, the bank is in charge, they can repossess whatever they borrowed…. you borrowed against. But if you take a big enough loan, you’re kind of in charge of the bank.
SCOTT BESSENT: Exactly. And they’ve just got such a big deficit with us that they need our markets. They can’t survive without them.
TUCKER CARLSON: Are you confident that there’s like a clear enough channel of communication between the two governments that the details can be worked out and that nothing will go crazy in the meantime?
SCOTT BESSENT: Well, I think what gives me a lot of confidence is the relationship between President Trump and Chairman Xi. That when you have a direct line of communication at the very top, then I think it’s very difficult for things to go haywire.
@22:00
SCOTT BESSENT They (China! China! China!) are in a deflationary recession/depression right now.
They are trying to export their way out of it, and we can’t let them do that.
But when you think that the Chinese manufacturing system is like that old Disney movie with the brooms and the buckets, that’s their business model – it’s not gunna stop.
Admin #47 ‘Diplomacy’ on display – yet another complete idiot is helping steer this ship.
This clown-show is in charge of ~$30 trillion ‘GDP’ and $200 trillion debt – what could go possibly wrong?
Col
Our shares pay dividends.
Hold on to your hats and your jobs folks, she's gonna be a bumpy ride.
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