Mark Lister, 31 March 2020

The volatility in global sharemarkets continued last week. The S&P 500 in the US rallied 10.3%, its best weekly performance since March 2009 (which happened to be the bottom of the market during the GFC). However, the index is still on pace for its worst monthly decline since October 2008, having fallen 14.0% in March. As of Friday’s close, the S&P 500 was 24.9% below its February closing high, but 16.1% above last Monday’s lows. The top NZX 50 movers last week were Summerset (+23.6%), Ryman Healthcare (+21.4%) and Mainfreight (+20.7%), while Metlifecare (-24.8%), Argosy Property (-15.8%) and Refining NZ (-15.1%) fared worst.

Shares in the UK and Europe were up a little more than 6.0% last week, while the ASX 200 lagged amid increasing restrictions on people’s movements. The local NZX 50 rose 3.9% and is currently 20.8% down from last month’s record high. There are just two trading days left this quarter, and it’s shaping up as the worst for US shares since December 2008. The NZX 50 has held up much better and is down a more modest 16.8% so far this quarter. However, the key local index is still headed for its biggest quarterly decline in its almost 20-year history, surpassing the 14.1% fall in the three months to the end of December 2008.

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Interest rates fell last week, as dramatic measures from the world’s central banks to calm dislocated financial markets seemed to ease some of the pressures. The US 10- year Treasury yield fell to 0.68% from 0.86%, while the five-year swap rate in New Zealand declined 26 basis points to 0.66%. In line with the increase in risk appetite, the NZ dollar rebounded strongly against the US dollar, rising 5.9% last week. However, it remains 10.2% below where it started the year, meaning US shares have performed relatively well in NZ dollar terms during 2020

The week ahead will likely be another bumpy ride for investors, and the bad news could overwhelm the good as the shutdowns and disruptions find their way into some economic indicators. With most stimulus announcements now behind us, investors might focus on the negatives. This could see a risk-off tone dominate the market narrative, and risk assets might give back some of last week’s strong gains. Investors brace for a weak monthly US jobs report, as this Friday we will probably see the first decline in US payrolls in ten years. Economists are expecting a decline of 100,000 jobs, compared with a gain of 273,000 a month ago. The unemployment rate is expected to rise to 3.8% this month, up from a half-century low of 3.5% in February. However, we should all expect these numbers to get much worse. The March unemployment rate won't yet reflect the extent of the shutdowns and layoffs, given the reference period was just before the bulk of these took place. Investors should brace for some extremely poor labour market readings over the coming month or two.

Meanwhile, China PMIs could improve and provide a rare bright spot. While most newsflow will be overwhelmingly negative over the coming week, there could be one bright spot amongst the gloom. China releases its Official manufacturing PMI on Tuesday at 2:00pm, while the alternate Caixin manufacturing PMIs are out the following day at 2:45pm. Both will cover the month of March. In February, the official PMI declined to 35.7 in February, the worst on record, while the Caixin PMI slumped to an all-time low of 40.3. Economists expect the PMIs to remain below 50, which would still signal contraction, although these are forecast to improve to somewhere in the mid-40s.

Oil prices, which have collapsed this year, could be set for yet another volatile week. From Wednesday 1 April, every OPEC+ member country (representing half of world output) will be free of production limits, with the current OPEC+ deal set to expire.