Remy Morgan: Milford Asset Management expert on the market reactions to the OCR cut

The Reserve Bank cut the OCR by 25 basis points to three percent today, but the markets still saw some surprises.

Today's cut was divisive, with 2 of the 6 committee members voting for a 50 basis point cut.

Remy Morgan from Milford Asset Management explained further.

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Episode Transcript

Speaker 1 (00:00):
Remy Morgan mil Foredacid management is with Mehi Remy Hi. Ever, so,
how has the market reacted to the OCI cut?

Speaker 2 (00:07):
Yeah, so the twenty five basis point cut today to
three percent, that was largely expected. But what did surprise
the market was the rbnz's revisions to its own projection
for the official cash rate, which it now sees bottoming
out at two point five five percent instead of two
point eight five percent. And another surprise was the fact

(00:27):
that two of the six committee members had voted for
a fifty basis point cut at this meeting instead of
twenty five. Now, given these signals from the RBNZ of
further evening were beyond what the market had actually expected.
Post the announcement, we saw New Zealand dollar swap rates
moving lower, and we also saw a weakening of the
New Zealand dollar, with the New Zealand to US dollar

(00:50):
exchange rate falling over one percent on the day.

Speaker 1 (00:52):
What's the market expecting from here?

Speaker 2 (00:55):
Yeah, so going into today's meeting, there was only about
half of a cut price for after today's announcement for
the rest of the year. But we've actually seen the
market revise that expectation. Now to more than one full
cut before the end of the year. So whether that
market view will be revised further from here will likely
depend on how the economic data unfolds between now and

(01:16):
the next Reserve Bank meeting in October.

Speaker 1 (01:19):
Okay, now we're obviously full swing into the reporting season.
What did the market make of the Fletcher Building results today?

Speaker 2 (01:25):
Yeah, so overall it's been a challenging year for Fletcher
with the tough market conditions in New Zealand, and that
did weigh on the result. They did not provide any
forward guidance, but what management did say was that they
expect demand to remain soft over the next financial year,
which could see limited earnings improvement, whereas the market had
been expecting some improvement in the second half of next

(01:47):
financial year. But while the economy remains tough, the company
does continue to focus on reducing cost and is exploring
business divestments. So we did see the share price bounce
around a little bit throughout the day, but it closed
roughly flat.

Speaker 1 (02:00):
And what was the reaction to Spark?

Speaker 2 (02:03):
Yes, so Spark also had a challenging year with economic
and competitive pressures, but it does appear the business has
stabilized after some significant cost reductions now, while the earnings
outlook for next year is a bit lower than market expectations.
Perhaps the key piece of news was the fact that
Spark reset its dividend policy to be based off of

(02:24):
its new definition of free cash flow now. This will
likely see next year's dividend reset lower than the twenty
five cents per share that it paid this year. So
while Spark delivered a week result, it was perhaps better
than fared, and the prospect of further rate cuts by
the RB and Z might have helped to lift sentiment
a bit, and the stock finished up on the day.

Speaker 1 (02:45):
Thanks Remy, appreciate it Realmy Morgan Milford Asset Asset Managements.
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