THE WEEK AHEAD: LOCAL RESULTS IN THE SPOTLIGHT
Mark Lister, 17 February 2020
Equity markets had another strong week. Investors shrugged off coronavirus concerns last week, as the US reporting season continued to deliver good news and Federal Reserve Chair Jerome Powell remained upbeat on the state of the US economy. US shares gained 1.6% during the week, with both the S&P 500 and the Nasdaq finishing at new record highs on Friday. European equities were up 1.5% and the Shanghai Composite was 1.4% higher, while the UK and Japan bucked the positive trend with falls of 0.8% and 0.6% over the week.
Coronavirus is still a concern, especially with question marks over the accuracy of the figures coming from Chinese authorities regarding the number of infections. While the disruption is likely to impact growth in China and other regions, markets seem to believe the worst is over and that any impact on economic activity and corporate earnings will be temporary. The Reserve Bank of New Zealand (RBNZ) sees coronavirus as a downside risk, although its current forecasts assume there is no significant outbreak domestically, and that the international situation is on the way to being under control by the end of February. Travel disruption is assumed to be significant throughout the month of February, before gradually easing from March onward. The RBNZ sees the key impacts being felt via reduced exports, a weaker exchange rate and lower business and consumer confidence. This would see GDP growth 0.3% lower (than otherwise) in the March 2020 quarter.
Closer to home, the ASX 200 in Australia rallied 1.6% and the local NZX 50 rose 0.6%. Given the reliance on China for sectors such as agriculture and tourism, the local economy could feel the brunt of any coronavirus fallout more severely than most. The top NZX 50 movers last week were Pushpay, which was up 7.5%, Ryman Healthcare gained 7.1% and Gentrack rose 3.4%, while the worst performers were Synlait, which plummeted 21.0%, Auckland Airport, which dropped 4.6% and Port of Tauranga, falling 4.4%.
It’s a holiday shortened week in the US, with markets closed on Monday for Presidents’ Day. Outside of any coronavirus developments, global investors will remain focused on the earnings season. Some 50 S&P 500 companies set to report results, including Ecolab and Walmart. Flash PMIs for February will also be of interest late in the week, as these might provide some of the first indications of just how troublesome the situation in China is becoming.
Locally, a housing market report and the latest dairy auction are due, but it will earnings that gets the most attention. Fletcher Building, Spark, Auckland Airport and Genesis Energy are some of the NZX heavyweights due to announce results this week. It’s a similar story across the Tasman. The January employment report is due Thursday, but investors will be more focused on earnings from the likes of Brambles, APA Group, BHP, Wesfarmers, Lend Lease and Sydney Airport.