Mark Lister, 11 February 2020

Global sharemarkets rallied strongly last week, bouncing back from the previous week's losses. The S&P 500 hit a new record high on Thursday, shaking off the coronavirus worries against the backdrop of a strong earnings season. However, US shares finished the week on a more cautious note as investors began to consider the impact of the disruption in China on the global economy.

US shares were up 3.2% for the week, with Europe and the UK also posting impressive gains. The Australian and New Zealand markets finished in positive territory, although only marginally. The top NZX 50 movers last week were Kathmandu, rallying 15.1%, Gentrack which gained 9.5% and Vital Healthcare, rising 3.6%, while Vista Group dropped 8.9%, Synlait Milk fell 7.4% and Fonterra lost 4.9%. The NZ dollar was mixed, falling against the Australia and US dollar, but rebounding against the British pound and holding its own against the euro. Interest rates moved higher, both here and offshore, while oil prices fell for the fifth consecutive week.

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Another busy week looms for global investors, with the reporting season set to continue over the coming days. The global reporting season has now passed its peak, with around two thirds of companies having reported. Aggregate S&P 500 earnings have pushed their way into positive territory and are now sitting at 0.7% (compared with the same quarter a year ago). This would be the first improvement in year-on-year earnings since December 2018. The earnings season continues 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 Air Liquide, Martin Marietta Materials, CVS Health, Alibaba, Coca Cola, Nestle, Republic Services and Zoetis. With the earnings season around two thirds complete, it has been a solid one so far. Of the 320 S&P 500 companies that have reported to date, 74% have exceeded earnings expectations. Key US economic releases will include inflation and retail sales, while Fed Chair Powell testifies to Congress on Tuesday and Wednesday.

Coronavirus developments will take centre stage, and investors will watch with interest as a number of factories reopen after the extended Lunar New Year holiday. The pace of new cases being reported has slowed and the death rate remains low (compared with the likes of SARS) at around 2.0%, although the impact of the disruption on economic growth could be significant.

US politics will also be in focus, especially after the reporting shambles at last week’s Iowa caucuses. Investors might instead look to the New Hampshire primary on Tuesday for clearer guidance of how the Democratic nomination race is shaping up. Domestically, the Reserve Bank will be the highlight this Wednesday afternoon. While no change to interest rates is expected, it will be particularly interesting to hear what the Bank thinks about the likely flow on effect of the situation in China.

The local reporting season also starts this week, with Contact Energy, Sky TV, Sky City and NZX set to kick things off over the coming days. Across the Tasman, Transurban, Amcor, CSL and Goodman Group will be some of the highlights. Outlook statements will be eagerly awaited, with investors keen to hear just how much disruption local companies have seen across Chinese customer bases or business units.