NZ shares ease, debt markets walk away from 50 bp rate hike

New Zealand share prices were weaker in the opening minutes of trading after liquidity concerns prompted a sharp decline on major world share markets.

Separately, the debt markets distanced themselves from speculation that the Reserve Bank could next month lift its official cash rate by 50 basis points after a speech from assistant governor Christian Hawkesby poured cold water on the idea.

In the initial minutes, the sharemarket’s S&P/NZX50 Index was down 0.8 per cent at 13,075.

Earlier, Wall Street added to the global fall in equities as the liquidity crisis at Chinese property developer Evergrande shook stock markets in Asia, Europe and the US.

America’s S&P 500 fell 1.7 per cent, marking its worst day of trading since May.
It dropped as much as 2.9 per cent earlier on Monday, but recovered some ground.

Worries about the broader health of China’s real estate sector drove shares in Evergrande -the world’s most indebted property developer – to their lowest point since May 2010.

Harbour Asset Management portfolio manager Shane Solly said sharemarkets were reacting worldwide to concerns about liquidity tightening up.

“We have been through this period peak liquidity stimulus and stepping away from that often causes volatility,” he said.

“If you look at the weakness the last few days, it appears that some leverage is coming out,” he said.

“Things like Evergrande triggers for people who go, heck I’ve got to unwind some of the risk that I have got,” Solly said.

Meanwhile a speech from Hawkesby made the Reserve Bank sound less hawkish than many in the market had anticipated, following on as it did from a much stronger than expected June quarter GDP outturn last week.

ANZ market strategist David Croy said the market was now firmly of the view that the central bank would hike the official cash rate – currently 0.25 per cent – by 25 basis points, and not 50, at its October 6 rate review.

“We are almost certain to get a 25 basis point hike, so the market is pricing in a 90 per cent chance or that, and has priced out the chance of a 50 basis point move,” Croy said.

In his speech, Hawkesby emphasised a steady approach, combined with a need to be flexible.

“It requires an approach that is adaptable, sometimes moving with caution in slow, small steps, and other times moving with confidence, quickly and in large steps to remain successful,” Hawkesby said in his speech notes.

Croy said a 25 basis point hike on October 6 was “a lot more reasonable” and consistent with ANZ’s view.

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