Outlook bleak for BSI futures

Press, 26 December 1987, Page 9

Outlook bleak for BSI futures

Mair Astley Futures said in its weekly market commentary that offshore it looks as if the fall of international bourses has run out of steam. The New Zealand share market stands alone and continues to fall, it said.

“We have, during 1987, seen a period when naivety pushed the market up and panic sold it down. Conjecture at 1928 on 22/12/87, has got to be compared with its level of 1864 on 13/12/85.” In between, Barclays reached 3969 on 18/9/8, and has since dropped 51 per cent. Wall Street dropped 45 per cent from 2305 to 1268. Tokyo dropped 8.5 per cent from 24,844 to 22,741. In recent days the Australian market has started to rally. The big question is “will the NZ market rally?” Mair said the quality stocks in N.Z. are finding buying support. We believe that 1988 will bring a more stable market and one that will slowly recover.” Mair said the GSK futures

index has been sold down as once again the market looks for any excuse it can to increase interest rates.

“There could be some profit taking on Government bonds by offshore investors (bond prices down, yields up), who decide to quit their N.Z. portfolios if they perceive the U.S.-N.Z. exchange rate has peaked. “Nervousness prevails and once again the credibility of the Government is on the line. The ability of the Government to fund its 1987/88 budget without a need for another stock tender (Mr Douglas has promised there won’t be one, Mr Lange said there wouldn’t be a GST increase), could see a 1-2 per cent drop in 5 year rates as the market finally accepts that the Government’s policies are working.”

Mair said that if an inflation rate of less than 10 per cent is seen for 1987, then the money market may place less emphasis on inflationary expectations and more empha-

sis on Government expenditure.”

“The sluggishness of futures is reminiscent of the seasonal trends on the wool futures market during the pegged currency era of the Muldoon administration,” Mair Astley said. “During the early 80s wool futures were rising in price over the winter peak at the time of the start to the auction season,” it said.

"As the season progressed, futures dropped as the heavier weight of wool coming on to the market caused auction prices to drop.” Then, as now, the latter part of the season saw auction prices and futures prices rise as good quality fleece became less abundant. We may see the same scenario in 1988, but this will depend upon movements of the N.Z. dollar which may have to weaken to a rate of 5800-6000, Mair concluded. Mair Astley said the trend of the N.Z. dollar is still up. However, despite the weaken-

ing of the JUS, the rate of appreciation of the kiwi against the greenback seems to have slowed, they said. “Market conjecture is for the N.Z. dollar to remain reasonably firm. The unknown quantity will be the market’s reaction early in 1988 once it becomes clear where interest rates are going, and whether or not the sale of S.O.E.s will ensure the Government ends up with its budgeted surplus.” Any sudden upsurge in interest rates due to the announcement of an extra stock tender could lead to a flow of funds of New Zealand, as the market becomes disillusioned with the unfulfilled dreams of "Rogernomics,” Mair said. JUS CONTRACTS Contracts traded: Nil. Open positions at December 23: Jan 284, Mar 2, total 286 (down 120). COMMERCIAL BILLS Contracts traded: Nil. Open positions at December 23: Mar 15, Jun 10, total 25 (same).

GOVERNMENT STOCK Contracts traded: Nil. Open positions at December 23: Mar 1123, Jun 120, Sep 120, total 1363 (up 18). WOOL Mth Open H/L Last Vol Jan 636 636/636 636 5 May 709 709/709 709 3 Contracts traded: 8. Open positions at December 23: Dec 37, Jan 267, Mar 337, May 329, Aug 36, Oct 1, Dec 2, total 1009 (down 550). 90-DAY BANK BILLS Mth Open H/L Last Vol Jan 8280 8280/8280 8280 9 Contracts traded: 9. Open positions at December 23: Jan 371, Feb 186, Mar 445, Jun 216, Sep 182, Dec 176, Mar 27, Jun 12, Sep 1, .{otal 1614 (up 55). BARCLAY’S SHARE INDEX Mth Open H/L Last Vol Dec 1950 950/930 940 20 Mar 2000 000/935 950 950 ■Sep 1950 950/950 950 50 Contracts traded: 122. Open positions at December 23:'Dec 308, Jan 2, Mar 79, Sep 50, total 439 (up 21).