Mark Lister, 23 March 2020

It was another rollercoaster week for financial markets, with risk assets declining further and massive market swings (in both directions) reflecting high levels of uncertainty. The S&P 500 fell 15.0%, its worst weekly performance since October 2008. That sees the index 31.9% below the all-time high of February 19 – a mere 23 trading sessions ago. The S&P 500 has dropped 22.0% so far in March and is headed for its worst monthly performance since May 1940. The volatility has been huge. Apart from Thursday last week (which was a rare day of moderate stability), the average daily move (at the close) over the past fortnight has been 7.1% (either up or down).

UK and European shares fell only modestly last week (3.3% and 2.0%), although both these regions have seen larger declines that the US since their peak. Closer to home, the ASX 200 in Australian fell 1.0% to end 32.1% down from its peak, while the NZX 50 was 6.4% lower over the week. The NZX 50 is 23.8% down from its peak and just 2.5% lower than 12 months ago, a solid performance compared to others. The top NZX 50 movers last week were Fisher & Paykel Healthcare (+15.2%), Synlait Milk (+8.5%) and Pushpay (+8.3%), while Kathmandu (-54.0%), Tourism Holdings (-47.7%) and Gentrack (-42.5%) fared worst.

subscribe banner

One reason for our outperformance is the lack of higher-risk sectors on our market, most notably energy which has been the weakest performing sector in Australia and the US by a significant margin. In contrast, investors that have focused on consumer staples, healthcare and technology in those regions will have fared much better than average, with those sectors having held up better than the rest.

Investors have scrambled to the safety of the US dollar, and this saw the NZ dollar decline to under US$0.55 at one point. This is an important shock absorber for us, and it has completely offset the 13.0% decline in dairy prices over the past year. It has also softened the blow for local share investors, in the US market at least. In NZ dollar terms, the S&P 500 is down 15.9% in 2020 (year to date), a big decline but still much more modest than the 28.7% fall in the S&P 500 in local currency terms. The volatility across bond markets continued as well, with the US 10-year Treasury yield ending the week at 0.85%, down from 0.99% a week earlier. It went as high as 1.27% at one point, and as low as 0.70%, so the ups and down were significant.

With all the central banks originally scheduled to meet this week having brought forward monetary policy decisions, there could be little in the way of key events. Although, the Bank of England hasn’t cancelled its meeting on Thursday. However, with financial markets still highly volatile, we could easily see further liquidity injections or other measures announced. Data releases will be largely irrelevant because of how out of date they are, aside from the flash PMIs, which will be of strong interest (even though we all know how terrible they will look). These will give us a good indication of just how sharply things how ground to a halt in some of the major economies this month, and the numbers will not be pretty. Australia and Japan will release flash PMIs during the Tuesday trading day, with the UK, Europe and US set to follow that evening. In February, the Japanese flash Composite PMI suffered its biggest fall in almost six years, US output contracted for the first time since 2013, and while the measures in Australia and Europe held up better, they still saw some sharp declines.

The G7 Foreign Ministers’ summit was due to take place in Pittsburgh, although this will now be a virtual meeting on Tuesday. In corporate news, Nike and Lululemon announce quarterly results, while Disney launches its streaming service in Europe (well timed given millions of people are in lockdown). In New Zealand, there is little on the calendar aside from ANZ Consumer Confidence for March, and the Hallenstein Glasson interim result, both of which are scheduled for Friday.