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.