Mark Lister, 3 February 2020

It was a rough end to the first month of the 2020 for global sharemarkets. The Dow Jones index in the US fell more than 600 points, or 2.1% on Friday, the worst day since October. This wiped out the gains for January and saw US shares end the month marginally down. The top NZX 50 movers last week were Investore Property, up 3.9%, Meridian Energy, which gained 2.4% and Fisher & Paykel Healthcare climbing 2.3%. Meanwhile, the worst performers were Gentrack, which lost 10.7%, Sky City, falling 10.6% and Oceania Healthcare, dropping 6.9%.

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It was a busy week with a plethora of earnings releases, some major central bank meetings, and Britain finally Brexiting. However, growing fears over the spread of coronavirus and what it could mean for economic growth overshadowed all that, and saw risk assets sold off sharply as investors flocked to safe haven assets. There are now close to 12,000 confirmed cases of the virus right across the world, and the death toll has risen to more than 250 (with all of these in mainland China).

Australia’s CPI was stronger than expected last week. Inflation figures out of Australia were stronger than expected for the December quarter, with the headline consumer price index (CPI) increasing 0.7% (compared with 0.5% during the previous three months and forecasts for 0.6%). On an annual basis, the CPI increased 1.8%, slightly ahead of forecasts and the highest since the December 2018 quarter. Odds of a rate cut from the Reserve Bank of Australian on Tuesday are now looking relatively slim.

Equities in the UK and Europe fell 3-4% last week, while markets in Australia and New Zealand held up better (and will likely play catch up on Monday morning). Oil prices slumped another 4.9%, the fourth consecutive weekly decline. Bonds and fixed income assets outperformed, with the 10-year US Treasury yield falling to 1.50%, the lowest since September. This saw part of the US yield curve become inverted again.

Aside from following coronavirus updates, the global reporting season will continue this week, with more than 90 S&P 500 companies due to announce quarterly results. Some of the higher profile global companies set to release earnings include Alphabet (Google), BP, Disney, GlaxoSmithKline, Spotify, Baidu, FMC Corporation, L’Oréal and Twitter. With the earnings season almost at the half-way point, it has been a solid one so far. Of the 225 S&P 500 companies that have reported to date, 72% have exceeded earnings expectations. Key economic releases in the US will include the January ISM index and the latest monthly jobs report.

US investors will always be watching the Iowa caucuses on Monday, the first contests to choose a Democratic nominee to run against President Trump in November. Former Vice President Joe Biden is still the frontrunner nationally, but Vermont Senator Bernie Sanders (widely considered market unfriendly) is leading Iowa polls.

Locally, it will be another holiday-shortened week so the market will be quieter than usual with many participants likely to be away on Friday too. The labour force report for the December quarter and the latest dairy auction will be highlights. The NZ labour force report is scheduled for release on Wednesday morning, with expectations for another quarter of growth in employment but for the headline unemployment rate to remain unchanged at 4.2%. The dairy prices look for three in a row on Wednesday morning, as the prices rose further at the last auction.