THE WEEK AHEAD: TRY TO KEEP UP
Mark Lister, 16 March 2020
Few people who work in financial markets will be able to recount a week as volatile as last week. It truly was a rollercoaster ride for investors as global equity markets fell into bear market territory (down 20% from recent peak prices), with fears over the potential impact of the coronavirus outbreak growing. Traders will be hoping such extreme volatility could mean the most turbulent period is over, although with something as unique as a virus-induced economic shock, few will be getting too optimistic.
The NZX 50 slumped 14.0%, the worst weekly performance in its history (going back to early 2001). The local index is down 18.6% from its peak three weeks ago. It hasn’t fallen into an official bear market and is back at April 2019 levels. Somewhat surprisingly, despite the sell off the NZX 50 remains 4.7% higher than a year ago. The top NZX 50 movers last week were Fonterra (-3.1%), Mercury (-6.1%) and EBOS (-6.3%), while Vista (-31.3%), Sky TV (-27.8%) and Tourism Holdings (-26.1%) fared worst. Local shares should theoretically start the week positively after Friday’s US rally. However, given news of further disruptions over the weekend, this might not be the case.
Gold gave back some of its 2020 gains, declining 8.6% last week and seeing it fall to mid-January levels. For investors looking to take out some form of insurance against further bad news, gold is looking reasonable at these levels. The NZ dollar rose against the British pound, after the Bank of England cut interest rates. However, it fell 4.6% against the US dollar, which will have softened the blow to local investors in US shares.
The S&P 500 fell 8.8% for the week, although that could’ve been a lot worst had it not been for a massive rally on Friday. After Thursday saw US shares fall 9.5% (the worst day since 1987’s 20.5% one-day collapse), the market rallied 9.3% on Friday (the best day since 2008). President Trump declared a national emergency, freeing up some US$50bn in financial resources to stem the impact of the virus. The S&P 500 finished the week 19.9% down from the peak last month, although it had been down 26.7% after Thursday’s horror performance. US shares are now back at February 2019 levels.
Locally, the Q4 New Zealand GDP report is likely to be largely ignored this week. The December 2019 quarter GDP report is out on Wednesday at 10:45am, with the Reserve Bank of New Zealand forecasting 0.4% for the quarter and 1.6% on an annual basis. The market is slightly more optimistic and is expecting 0.5% and 1.7%. Quarterly GDP reports are always somewhat dated, but this one is just about irrelevant given developments over the past month and the likely disruption over the next quarter or two.
A few company results will be released locally, where the outlook will again be key. There are a handful of earnings releases on the local market this week, including the Fonterra interim result on Wednesday. Fonterra has been one of the better performers throughout the recent volatility. Briscoe Group, The Warehouse and Synlait are the other companies due to report. Markets will be more focused on the outlook from all of these, given how quickly things have changed in the last month and with earnings estimates being constantly reevaluated at present.
Early Wednesday morning we will see the results from the latest dairy auction. Dairy prices fell further at the last auction, although by a smaller magnitude than expected. The headline global dairy trade (GDT) index slipped 1.2%, taking the decline over the past three auctions to 8.5%. This sees it 4.5% below where it began the year, and 7.8% down from where it was 12 months ago.