Mark Lister, 26 May 2020

Global equity markets had a strong week, with optimism over economies starting to reopen and news of progress on a COVID-19 vaccine boosting confidence. This came despite further tension between the US and China, increasing economic uncertainty and China scrapping its annual growth target for the first time.

Key indices in the US, UK and Europe were all up more than 3% for the week, while the ASX 200 in Australia gained 1.8%. The NZX 50, which rose the previous week in contrast to weakness elsewhere, slipped 0.6%. Last week’s top NZX 50 movers were Argosy Property (+8.9%), Arvida (+6.8%) and Oceania Healthcare (+6.7%), while Refining NZ (-10.1%), Z Energy (-6.7%) and Freightways (-5.9%) were weakest. The NZ dollar rebounded in line with the more upbeat tone, gaining 2.7% against the US dollar and 0.8% against the Australia dollar. On a trade weighted basis, the currency is 7.7% down from its 2019 highs (from March last year).

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It will be a holiday-shortened week in some of the major regions, with markets closed in the US and UK on Monday for Memorial Day and the Spring Bank holiday. Investors will be watching as many governments continue to ease lockdowns, as well as the partial reopening of the New York Stock Exchange trading floor on Tuesday. Several US economic releases are due over the coming days, including the Fed’s beige book, new home sales for April and the latest personal income and spending report. Two consumer confidence releases (on Tuesday and Friday) could have more relevance to the short-term outlook, given the importance of the US consumer.

China’s National People’s Congress (which kicked off last Friday) continues this week in Beijing. Meanwhile, Australian Prime Minister Scott Morrison is scheduled to address the National Press Club in Canberra on Tuesday. This speech will be closely watched across the Tasman. Morrison will presumably discuss the state of the economy, but he might also touch on increasing tensions with China over Australian exports.

Locally, we will be watching the latest Financial Stability Report from the Reserve Bank. On Wednesday, the Reserve Bank of New Zealand (RBNZ) will release its six-monthly Financial Stability Report (FSR). The last FSR was released in late November, and the overall message was that New Zealand's financial system remained resilient. However, at that time the RBNZ said international risks had increased, largely on the back of ongoing trade uncertainty. The RBNZ noted that lower interest rates were helping to cushion the economy and borrowers from the effects of weaker growth, but that this could also exacerbate pre-existing debt as well as imbalances in the economy.

New Zealand investors will also look towards the final ANZ Business Outlook survey for May. ANZ will release the May Business Outlook survey on Thursday at 1pm. This should see sentiment improve compared with April levels, given the preliminary May release reflected a small bounce across all forward-looking activity indicators. Nonetheless, in an absolute sense we would expect to see most indicators remain extremely low. In April headline business confidence fell to -66.6%. That was the worst reading since April 1988. The Own Activity index fell to -55.1%, compared with -26.7% in March.

There will also be plenty of corporate news to follow across the local market this week. Several companies are due to report earnings, including a few that have rescheduled results from earlier in the month. In New Zealand, earnings releases will be forthcoming from the likes of Kiwi Property, Arvida, Napier Port, Mainfreight, TrustPower, Sanford, Gentrack and Infratil. In addition, Restaurant Brands and Vista Group are holding annual meetings. These will cover the period ending 31 March, and it will therefore be trading updates and outlook statements that will be more relevant in the eyes of investors. Across the Tasman, Brambles is hosting an analyst day and Spark Infrastructure is holding an annual meeting.