Mark Lister, 6 April 2020

It was another volatile week for US shares, with the S&P 500 falling 2.1% after posting a 10.3% gain the previous week. As of Friday’s close, the key US index is down 26.7% from its record high. UK and European shares slipped a little, falling 1.7% and 0.6% respectively, while the ASX 200 in Australia posted a strong 4.7% gain for the week. The local NZX 50 rallied almost 4.0%, its best weekly performance since September to build on the gains of the previous week. The index remains 17.9% below the February peak, although it has bounced 21.0% over the last ten trading days or so, having been down 32.2% at its worst point (using intraday prices). The top NZX 50 movers last week were Refining NZ (+40.3%), Gentrack (+40.0%) and Kathmandu (+28.3%), while Tourism Holdings (-16.7%), Sky TV (-10.0%) and Auckland Airport (-8.9%) fared worst.

The NZ dollar was generally weaker, falling 3.0% and 1.5% against the US dollar and the British pound. It was little moved against the euro and its Australian counterpart. Interest rates were more stable, although the local five-year swap rate declined six basis points to 0.60%, and the 10-year US Treasury yield fell from 0.67% to 0.59%. Domestically, we will be watching the latest dairy auction this week, with results due early Wednesday morning. Dairy prices slipped further at the last auction, although not nearly as much as many had expected. The headline global dairy trade (GDT) index fell 3.9%, while whole milk powder declined 4.2%. That saw the GDT index 8.1% lower than where it began the year and 13.0% below where it was at the same point in 2019. Dairy commodities are priced in US dollars, so the fall in prices will have been more than offset by declines in the NZ dollar against the greenback, which is comforting.

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Local investors will also keep an eye on the ANZ truckometer results. The ANZ truckometer for March is out on Thursday and could provide some clues to the extent of the slowdown. Given the speed at which the current situation has been moving and the limited use of many traditional economic indicators, this could be of much more interest than usual. Trucks are still moving around the country transporting food, medicine, fuel or other essential supplies, although there is a lot less of them on our roads. This could be a good up-to-date indicator of just how much and how quickly the brakes have been applied.

Meanwhile, across the ditch, The Reserve Bank of Australia (RBA) meets on Tuesday afternoon. The cash rate target will be left unchanged at 0.25%, and there is unlikely to be any additional stimulus given the significant initiatives the RBA announced on March 18. However, markets will still be very interested in the detail for insights into any new developments. The RBA's latest Financial Stability Review is due two days later, on Thursday, and investors will be equally interested to know how the RBA believes the COVID-19 outbreak could be impacting the financial system.

Globally, investors remain focused on COVID-19 as case numbers and deaths continue to mount. US banks must submit capital and stress test information to the Federal Reserve on Monday (results due in June), while European finance ministers will meet (virtually) to discuss strategies to deal with the pandemic on Tuesday. Fed minutes are released this week, while China intends to ease quarantine measures in Wuhan, which implies the virus threat has reduced. It will be a short week with some markets (including New Zealand and Australia) closed for Good Friday.

Oil is likely to have another volatile few days. After crashing to the lowest levels in almost two decades, crude prices rebounded late in the week on news that Saudi Arabia had requested a virtual meeting on Monday of OPEC+ producers, to talk about production cuts to stabilise the oil market. However, fresh tensions between Saudi Arabia and Russia emerged over the weekend and the meeting now looks to have been postponed until Thursday, all going to plan.