Markets News 10 August 2026

Johnny Lee writes:

Contact Energy’s annual result was announced this morning, bringing both rising earnings and rising dividends.

Earnings rose 31%, while profit climbed 62%. The September dividend of 24 cents is a cent higher than last years, while also enjoying a higher level of imputation. The dividend is forecast to rise again next year, from a 40 cent full year dividend (24 and 16) to 42 cents per share.

Progress continues at Contact. The synergies between Manawa and Contact have now been achieved, while the development pipeline continues to be utilised as new demand emerges.

Perhaps the most interesting part of the announcement was that of a potential major new data centre, to be developed in Stratford. The data centre would be designed and owned by CDC Data Centres, with electricity supplied by a long-term agreement with Contact. At this stage, the data centre remains in the concept stage, with each group “exploring” the possibility.

The data centre, initially scoped for a 250MW size, would be similar in size to the “AI Factory” data centre proposed for Makarewa, by Datagrid. Interestingly, a key aspect of the Southland data centre was the fibre connectivity introduced by the planned “Tasman Ring Network” of subsea cables. The TRN initially included three other landing spots across New Zealand – Auckland, Greymouth and New Plymouth.

The electricity generators have long suggested that data centres would play a major role in future electricity demand. Contact has suggested that a large solar farm and a very large battery installation would be utilised for the facility.

Indeed, Contact highlighted the “shape” of the demand as a major benefit. Data centres use more power during the summer to cool down, while New Zealand retail demand tends to spike in winter, as we reach for the heaters.

The two companies involved, Contact and CDC, share a significant shareholder in Infratil Limited. Infratil reduced its stake in Contact back in May this year, while also agreeing not to reduce it further until the announcement of Contact’s full year results (today). This “overhang” will hopefully resolve itself soon, as Infratil makes its intentions clearer.

There was also a snippet in the full year results of interest to bond investors. Contact has confirmed that it intends to redeem the Capital Bond, CEN060, in November this year. It then intends to issue a replacement bond. CEN060 was a $225,000,000 issue. With the lack of primary issuance of late, this will be welcome news for those with surplus investible capital.

Overall, the announcement was well received by the market, with the share price rising 1%. Progress continues, and new projects are emerging to help firm up the demand for New Zealand electricity.

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The unemployment rate continues to creep higher, with 5.6% of New Zealanders now classified as unemployed.

It marks the highest level in 11 years. Unemployment continues to be heavily biased against the North Island, with a figure of 6% in the North and 3.7% in the South. Women also saw a lower unemployment rate, a more recent trend in our unemployment statistics. 

The employment rate was steady at 66.7%, despite the rise in unemployment. The discrepancy between the two statements is reflected in the participation rate, or the proportion of New Zealanders actively looking for work, which climbed.

The result was broadly expected, only marginally higher than economist expectations. Many expect the weaker than expected job creation to be spurred by renewed uncertainty from employers around tariffs and fuel costs, factors that may improve by the time of the next data release.

Accordingly, the market broadly took the result in its stride. Market pricing continues to imply several rate hikes over the next twelve months, with the RBNZ next meeting on 2 September.

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The announcement from ANZ, confirming its intention to buy back the $600 million of its listed Subordinated Notes (ANB170), will not have caught informed bondholders by surprise. The notes will be repaid on 17 September and total $600 million.

These securities were part of the round of Tier 2 Capital raised in 2021, with the ANB170 paying 2.999% for a ten-year period. Like many of these Tier 2 issues, it carried a prescribed option for the ANZ to redeem the notes after 5 years. This option has now been exercised.

Due to the relatively low coupon carried by these notes, the early redemption will be welcomed by long-term noteholders, who can now secure higher returns than those seen five years ago when this product was launched. Indeed, comparable products trade nearer to 5% on the secondary market today.

Since the most recent capital setting review from the RBNZ, this style of issuance (Additional Tier 1 and Tier 2) has been the topic of some discussion, as funding was driven in-house and AT1 was signalled to be removed from the “capital stack”. 

The Perpetual Preference Shares, listed on the NZDX, are one such example of Additional Tier 1 Capital.

Additional Tier 1 Capital was created to act as a buffer between certain debt (including Tier 2 Capital), and shareholders, in the event of a bank failure. That is to say that, after wiping out all shareholder equity, AT1 Capital Preference Shareholders would be next in the firing line, if necessary, to repay higher ranking debt holders.

The Perpetual Preference Shares issued so far have carried an optional redemption date, giving the issuer the right to repurchase the bonds at par. With the exception of COVID, which saw delays in repayment, all these issues have repaid at the first available redemption date.

In practice, this means that the Perpetual Preference Shareholders have received a modestly higher return and have been repaid as expected. For some, like ANZ, BNZ and Kiwibank, this has meant continued issuance and high levels of demand for such products, reflecting the trust earned.

With the most recent RBNZ review, AT1 capital is being phased out for the major banks, with the new Capital Standards beginning on 1 December 2028. New AT1 capital instruments cannot be issued by this group after 1 October of this year.

This change has triggered the “Regulatory Event” clause of the Preference Shares and presented the option for the banks to redeem them early. Such an early redemption could affect the likes of ANBHD, BNZHA, BNZHB, KWBHB and WNZHA. The issuers of these securities have already indicated to market that an early redemption is being considered. The sum of these five issues is $1.75 billion.

For most holders, such an early redemption would not be anything beyond inconvenient. These holders have enjoyed outsized returns and have had their principal returned, albeit earlier than anticipated. 

The future of capital requirements will no doubt continue to evolve, as the RBNZ tries to strike a balance between resilience and efficiency. These instruments were created to help the banks adhere to a set of rules, and these rules are undergoing constant evolution. For now, new issuance seems less likely, and bondholders should consider their liquidity needs ahead of the 17 September date.

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David Colman writes:

Japan and the USA proved to the world how closely linked their financial fortunes are with a rare, coordinated currency intervention.

On 31 July, Japan’s Ministry of Finance purchased Japanese yen in coordination with the U.S. Department of the Treasury.

It is estimated that the Bank of Japan bought approximately US$50 billion worth of yen and the New York Federal Reserve sold euros and bought up to US$10billion worth of Japanese yen which was at a near 40-year low against the US dollar.

Loose monetary policy epitomised by low interest rates set by the Bank of Japan has eroded the yen’s value in US dollar terms for years.

Japan imports 90% of its energy needs, such as oil, natural gas, and coal, so the yen has been particularly sensitive to elevated commodity and fuel costs of late.

The Japanese currency is no longer viewed as a safe haven currency like it once was.

The joint currency intervention by two of the largest and most influential global economies provided a clear example of intervention risk - the risk that large, powerful institutions such as governments and central banks will intervene in a particular market.

The last time coordinated currency intervention occurred by the two nations was in 2011 when the Japanese yen was sold in a response to it surging in value after the Great East Japan Earthquake (the tsunami of which inundated the pacific coast of the Tōhoku region critically damaging the Fukushima Daiichi power plant). The case for intervention then was to restrain Japanese selling of their overseas investments to raise cash (in yen) during a crisis. One US dollar could buy about 77 JPY in 2011, less than half the 155 JPY it can buy today.

Last week’s intervention was not tied to a major natural disaster despite coincidentally a significant, seismic event in Kumamoto, Japan occurring the same week.

The Japanese Finance Minister Satsuki Katayama revealed that both countries had bought yen in line with a Japan-USA currency alliance.

At odds with the intervention, a joint statement from the countries’ respective finance ministers in September last year reaffirmed their view that exchange rates should be market-determined so the intervention was a shock to global foreign currency traders who will now have to factor in that two sovereign states are determined to protect the yen. 

The defence of the yen was accompanied by warnings to speculators that the alliance will use aggressive measures to halt further falls in the yen in a bid to stabilise exchange rates.

The yen had fallen to about 164 to the US dollar before the intervention perhaps identifying a level that will not be tolerated by the alliance.

For New Zealanders the intervention is expected to have some ramifications as the USA and Japan are New Zealand’s 3rd largest and 5th largest trading partners respectively.

A stronger and protected Japanese yen will be beneficial to exporters to Japan but would be expected to make the cost of imports to New Zealand from Japan higher.

New Zealand exports to Japan include dairy products, fruit, aluminium, meat, and timber with imports from Japan including vehicles, machinery, fuel, and electronics.

The U.S. backed purchasing of the yen was funded by selling Euros which might have been designed to keep overall USD strength. Typically, the currency used to prop up the value of another currency is weakened.

U.S. Treasury Secretary Scott Bessent intended the intervention to strengthen the yen and in turn keep other Asian currencies from weakening by limiting incentives for Asian countries to devalue in competition with each other. He emphasised that the intervention was a strong signal to speculators but noted that fundamentally Japanese adjustments to monetary policy and fiscal strategy will be required to provide ongoing support for the yen.

A major factor and a key catalyst for the joint intervention was that the Bank of Japan has kept interest rates low which has pushed the yen to 40-year lows against the US dollar.

The U.S. Treasury is fearful that if the Bank of Japan requires US dollars to defend the yen’s value then it and other Japanese Financial Institutions will seek to sell US Treasuries.

Japan is the largest holder of U.S. debt outside the USA with over US$1.1trillion in U.S. Treasuries and if a decision is made by one foreign country to sell U.S. debt then it is possible other countries may follow suit.

If U.S. Treasuries are sold off more aggressively it would result in higher interest rates for the U.S. Treasury and by extension higher global interest rates for businesses and consumers with corporate borrowing rates and mortgage rates likely to climb further in such a scenario

10 year U.S. Treasury yields have risen sharply since the initial U.S./Israel strikes on Iran in late February from slightly below 4.00% to over 4.65% today.

Current yields are close to levels not seen since before the 2007/2008 Global Financial Crisis  -the US 10 year treasury rate was last above 5.0% in 2007 before plummeting and staying lower (generally below 3%) throughout the 2010s.

Tariffs that are seen as barriers to trade, geopolitical events that have caused higher energy prices, and US Government spending far exceeding tax revenue are all global inflationary pressures and are impacting the longer-term outlook for interest rates.

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Travel

Johnny Lee - Taupo - 1 September

Johnny Lee - Hamilton - 2 September

Johnny Lee - Tauranga - 3 September

Johnny Lee - Christchurch - 7 September