Mark Lister, 28 April 2020

It was a soft week for most equity markets, with investors taking a more cautious stance after some very strong performances of late. The S&P 500 in the US was down 1.3%, while shares in the UK and Europe posted smaller declines. The local NZX 50 fell more sharply, finishing 3.3% lower after a record gain the previous week. Property stocks were the top NZX 50 movers last week, with Goodman Property (+6.6%), Argosy Property (+3.8%) and Property for Industry (+3.2%) rising most. Vista Group (-17.5%), Sky City (-16.2%) and Tourism Holdings (-14.9%) were the weakest. Across the Tasman, the ASX 200 in Australia was down 4.5% for the week.

However, most equity markets are still set up to finish the month strongly. With just a few trading days to go, the S&P 500 is up 9.8% in April, putting it on track for the best monthly performance since October 2011. Similarly, the NZX 50 is 6.4% higher, which would make for the best month since July 2016.

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Interest rates fell slightly last week. The US 10-year Treasury yield declined from 0.64% to 0.60% and the domestic five-year swap rate slipped six basis points to 0.46%. US crude oil finished 7.3% lower at US$16.94, amid an exceptionally volatile week. Oil remains down more than 70% compared to where it began the year, and energy has been the weakest of all equity market sectors by far during 2020.

Looking ahead, COVID-19 headlines will again dominate sentiment, with some countries set to relax their lockdowns this week. New Zealand moves to level three on Tuesday, and while it won't feel much different for many of us, this is a crucial development for many businesses that will be able to begin trading again in some form. Investors will also be watching activity levels in some US states, with the likes of Georgia, Texas, Oklahoma and South Carolina set to reopen over the coming days.

The Federal Reserve, European Central Bank and Bank of Japan are all due to announce rate decisions, while several major economies (including the US) will release GDP numbers for the March quarter. The March quarter GDP report is due on Thursday in the US, with markets expecting annualised GDP to fall by 3.7% for the quarter. That compares with an increase of 2.1% during the December quarter, and it would be the first contraction since the first quarter of 2014, six years ago. This is likely to prove a fairly modest decline compared to what we will see for the June quarter, where the brunt of the shutdown will be felt. Some of the numbers being talked about for the June quarter are scary, although we should point out that the US (unlike most other countries) annualises its quarterly GDP readings.

Perhaps most importantly, it will be an absolute monster week for earnings reports. The global reporting season really ramps up over the coming days, with almost 30% of the S&P 500 (about 140 companies) set to announce results. Some of the global heavyweights set to release earnings this week include Adidas, 3M, Google, Starbucks, Facebook, Microsoft, Amazon, Apple and Visa. So far, 25% of S&P 500 companies have reported. The blended earnings decline is currently sitting to be -15.8% (compared with -4.5% a week ago), and 60% of companies have reported positive earnings and revenue surprises.

April ISM index also likely to look downbeat. The ISM manufacturing index for April is out in the US on Friday, and markets are expecting this to collapse to 36.1, down from 49.1 last month. This would be the worst reading since the 34.5 that was registered in December 2008, and it isn't a whole lot better than the record low of 29.4 that was reached in May 1980.