Research Team, 14 April 2017

Market movements have been muted this week as investors spent much of their week on the sidelines. Growing geopolitical tensions in Syria and Korea have seen caution creep into global markets, as well as impending French elections and the global corporate reporting season, now underway.

In New Zealand, there were only a few market releases out this week, shortened by the Easter holiday weekend. The NZX50 has made only small movements in in either direction this week, with lower than usual trading volumes, as investors looked to global peers for clues. In addition to the current global concerns, New Zealanders also had to contend with yet another cyclone bearing down on us, with the North Island in particular bunkering down. Cyclone Cook arrived as parts of the nation were still recovering from Cyclone Debbie. This weather event saw an even quieter day for markets on Thursday.

The Real Estate Institute of New Zealand released its March data, which showed a lift in median price, volume and activity levels from the prior month. Median house price firmed, with the annual median rising 10.3% from February’s figure. Eight of the twelve regions hit new record median highs and the average time to sell was 32 days.

News that the US had launched missiles at a Syrian airbase saw stock futures fall and save haven assets like the yen strengthen. Gold prices and US Treasury bonds hit their highest levels since November. However, the news was shrugged off with bond yields closing the trading session well off their lows. Oil prices hit a five-week high following the rising tensions around Syria, with WTI crude now over US$53 a barrel. The situation will no doubt remain in focus, as will news from the meeting that occurred between US President Donald Trump and his Chinese counterpart, Xi Jinping. Last week’s meeting ended with a declaration that the two had made tremendous progress and have agreed to a 100 day plan to address their different economic issues. President Trump hoped to use trade as leverage for getting China to curb North Korea

Also at the end of last week, the ISM manufacturing index in the US printed a strong 57.2 for March, marginally down from the two-and-a-half year high from February. However, the non-farm payrolls report wasn’t able to keep up the momentum, sharply missing expectations with just 98,000 jobs added. This was the weakest we’ve seen since May last year and was well short of forecasts for 180,000 as well as last month’s downwardly revised 219,000. Despite the big miss there was little market reaction, in part because the weak report was impacted by bad weather, following a big snowstorm mid-month in the Northeast. It is also at odds with other data, such as consumer confidence, which hit a 17-year high last month. Fed rate hike expectations were little changed, with odds for the June meeting still sitting at more than 60%.

The global reporting season began this week, with a handful of major global companies set to release results for the first quarter of 2017. Some of the higher profile financial names in the US kicked things off, including JP Morgan, Wells Fargo and Citigroup. S&P500 earnings are forecast to grow by about 10% overall, relative to the same quarter a year ago. This would be the strongest since 2014, although investors will be watching for improvements in top-line revenue as well. Tech, financials and materials are forecast to post the strongest earnings growth, while industrials, consumer discretionary, telecommunications and utilities are expected to experience declines.