Mark Lister, 21 April 2020

It was another strong week for global shares. The S&P 500 in the US finished 3.0% higher, with a strong rally taking place on Friday after a report that a Gilead Sciences drug was showing effectiveness in treating the virus. The S&P 500 is 15.1% below its peak, having rallied 28.5% since late last month (and being down 33.9% at one point). Healthcare, consumer staples, consumer discretionary and technology have held up best through all this, while traditional ‘value’ sectors such as energy, financials and materials have performed worst.

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The NZX 50 had a blinder, surging 8.2% for the best weekly performance in the history of the index (data goes back as far as early 2001). The previous best week was a 5.6% gain in May 2009, as the market was coming off its GFC lows. The NZX 50 is now just 10.7% below its February peak, having rebounded 26.8% over the past four weeks. At its weakest point (on Monday 23 March) the NZX 50 was down 29.6% from its highs. The top NZX 50 movers last week were Vista Group (+54.7%), Air New Zealand (+45.6%) and Kathmandu (+23.4%), while Precinct Properties (-3.1%), Fonterra (-1.3%) and Spark (unchanged) lagged. Interest rates also fell further last week, with the domestic two-year swap rate falling eleven basis points to 0.35% and the five-year rate down ten to 0.51%.

Turning to the week ahead, the global calendar will be dominated by a plethora of earnings reports. More than 70 S&P 500 companies are set to announce results this week. So far, the blended earnings decline (a combination of actual results for the 9% of companies that have already reported and using estimates for the other 81%) for the S&P 500 during the March quarter is expected to be -14.5%. That would make for the largest year-on-year decline since the third quarter of 2009. Some of the global heavyweights set to announce results this week include IBM, Coca-Cola, Netflix, Roche, Intel, Nestle, Unilever and American Express.

Numerous important US economic releases are due, with weekly jobless claims likely to again be most closely watched. With the last four weeks having totalled 22m, the unemployment rate could spike as high as 20% in the coming months, so investors will be hoping for evidence the number of claims has peaked.

Closer to home, the results of the latest global dairy trade (GDT) auction are due midweek. The GDT index gained 1.2% at the previous auction, the first rise since late January and a better performance than futures were suggesting. The GDT index has held up relatively well in recent months, falling just 7.0% year to date to sit only 12.6% below where it was a year ago (before offsetting currency declines are taken into account). Some of the relative resilience has probably been due to a seasonal decline in volumes, as well as the impact of drought conditions in parts of New Zealand. Despite these cautionary points, the Fonterra pay-out should be comfortably above $7.00 this season. However, the next season could be a different story, with a range of economist forecasts all pointing to a softer outlook.

Flash PMIs for the month of April are due on Thursday. These will give us some good insights into how much further economic activity has slowed down as the most dramatic of the shutdown measures have taken effect. In March, flash PMIs were terrible everywhere. Japan fell into an aggressive downturn, with private sector output suffering its fastest drop since the Tsunami in 2011 and services activity declining at the quickest pace on record. Similarly, the flash Eurozone Composite PMI collapsed to 31.4, the largest monthly fall in activity since data collection started in July 1998. The US flash Composite PMI wasn't quite as bad, but it still slumped to 40.5, a new series low. It was the services sector that was hit hardest, given the disruption to consumer-facing industries like restaurants, bars and hotels, as well as tourism which has been one of the worst affected.