Mark Lister, 24 February 2020

Equity markets were mixed last week. Shares in New Zealand and Australia rose to fresh all-time highs and finished in positive territory, up 2.0% and 0.4% respectively. The top NZX 50 movers last week were Fisher & Paykel Healthcare, which rose 7.3%, Synlait Milk, gaining 6.5% and EBOS Group, up 6.1%. Meanwhile, PushPay dropped 8.8%, Refining NZ fell 6.3% and Sky TV lost 4.6%, making them the worst performers. The S&P 500 also posted a new record, although late in the week some nervousness set in and that saw the market finish 1.3% lower.

Investors took notice of flash PMIs for the month of February, which were released on Friday. The data pointed to a more significant impact from the coronavirus outbreak than some had expected. The US Composite PMI, which measures activity across both the manufacturing and services sectors, was well below expectations and fell into contraction for the first time since October 2013. The services sector, which has been very resilient throughout this expansion, was also notably weaker.

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Haven assets rallied further on the back of ongoing uncertainty. Gold prices rose to a seven-year high, the US dollar at its strongest level since April 2017 and the US 10-year Treasury yield falling to the lowest since July 2016. Looking ahead, markets will be watching for further coronavirus developments, with no major economic releases or central bank meetings due. On Monday, China will consider whether to delay the annual National People’s Congress (scheduled for March 5) on the back of the outbreak. The Official PMIs for China are out on Saturday afternoon, and should provide further insights into economic disruption in the region.

In New Zealand, retail sales are out Monday and ANZ will release its first business confidence report of the year on Thursday. The latter will be of particular interest, given the contrast between our improving economic backdrop and the effect the situation in China is having on some sectors of the economy. The ANZ Business Outlook survey for 2020 will cover the month of February, and investors will be watching for evidence of how much impact the situation in China is having on sentiment. With trade tensions easing, the UK having ‘Brexited’, house prices experiencing a resurgence and forecasts for additional spending from the Government this year, we would've expected a further improvement in business confidence, following a solid bounce in December (which saw the Own Activity measure rise to a 19-month high). However, coronavirus uncertainty has emerged over the last several weeks and those in the tourism and hospitality sectors will be feeling the effects.

The reporting season continues, and this will be the key focus for most investors. It will be a busier five days than last week, as this week we will hear form the likes of Summerset, Meridian Energy, Scales, a2 Milk, Air New Zealand, Vista Group, Port of Tauranga and Tourism Holdings. Outlook statements will be eagerly awaited, with investors keen to hear how just much disruption local companies have seen across Chinese customer bases or business units. Many of these businesses will be seeing some impact on either customer demand or supply chains, so trading updates and outlook commentaries could be key.