Harbour Outlook: Catch-22 - Inflation vs. Earnings
At a headline level, stock markets appear to be in a “catch-22”, digesting lower inflation numbers while trying to assess how much of this inflation is down to lower growth, which may then flow through to earnings. See more under ‘what to watch’.
New Zealand equities and bonds both delivered strong returns over the month, with the S&P/NZX 50 Gross index (with imputation credits) returning 1.1% and the Bloomberg NZ ...
Keeping the lights on
- Decarbonisation and keeping the lights on will need significant investment
- Investment needs a stable policy environment
- Policy risk may have lessened with reviews targeted at better information sharing
Back to Core Banking
A virtual tour through Australian banking issues
- More tailwinds for the banking sector
- Medium term, the banking sector faces pressure to continue to invest heavily in their digital consumer platforms
- Differentiated strategies are appearing as banks rebuild their client focus
It’s not easy being green
- The Climate Change Commission’s final advice to the Government is due to be released next Wednesday. This follows a review of interested party submissions and feedback from the initial draft report.
- We do not see the key draft recommendations changing, but at the margin we might see some alterations to the Commission’s recommendations.
Are the lights going to go out?
- Hydro lake storage is at about 60% of normal levels; low lake levels may provide risks to the near-term earnings of the electricity sector.
- Commercial electricity users on spot power pricing are facing significant cost increases.
- Dry conditions may mean we burn more coal and gas, which highlights the importance of more investment in geothermal and wind energy projects.
‘Four More Years’
- Rio Tinto and Meridian have today announced an extension to the Tiwai contract through to December 2024.
- The government has not as yet needed to provide any support
- We would expect further announcements on project development with Contact progressing the Tauhara geothermal plant and Meridian developing their Harapaki wind farm.
Shadow banks shine light on mortgage deferrals
- Some of New Zealand’s non-bank mortgage lenders have provided detailed data that illustrates they appear well-positioned to weather an increase in non-performing loans when COVID-related loan deferrals expire
- Our various probes into the big banks indicate no cause for alarm, albeit we expect loss provisioning needs to rise and small to medium-sized enterprise (SME) lending trends need to be monitored
Are we ‘Thinking Big’ Again?
- Electrification of industrial and process heat makes sense
- Pumped storage would be a massive project, but could help achieve the Government’s 100% renewable objective
- Substantial challenges remain in terms of cost, engineering, and resource consenting
- Scoping study results unlikely to be published quickly with sector uncertainty to remain in the short term
‘Blame it on Rio’
- Rio to leave, another Think Big Project bites the dust
- Rio Tinto has announced the closure of the New Zealand Aluminium Smelter (NZAS) from August 2021.
- Short term, the biggest impact on earnings will be felt by Contact Energy and Meridian Energy with stranded generation in the lower half of the South Island.
- Is it time to move forward and focus on transmission investment and de-carbonisation?
Electricity demand smelting away?
The probability of closure versus 2013 has increased
Weak commodity prices, energy and transmission costs are the main issues
As in 2013, the electricity industry may bow to Rio Tinto’s pressure, but possibly not the Government this time
Higher volatility in share prices and wholesale electricity prices is likely near term