Mark Lister, 5 May 2020

It was a mixed week for equity markets globally. Some caution crept in on Friday after some strong comments from President Trump reignited trade tensions between the US and China. US shares slipped marginally for the week, while Australia, the UK and New Zealand managed to eke out small rises. Europe bucked the trend, with the Stoxx 600 index increasing 2.4% for the week.

April turned out to be a stunning month for equity markets. World shares rose 10.5%, the best month since 2011. The S&P 500 in the US rallied 12.7%, which was the third strongest monthly gain over the past 50 years (behind a 16.3% rise in October 1974 and a 13.2% gain in January 1987). The local NZX 50 rose 7.5%, its strongest month in four years and the fourth best monthly gain in its near 20-year history. The top NZX 50 movers last week were Sky City (+20.3%), Tourism Holdings (+6.7%) and Air New Zealand (+6.6%), while Oceania Healthcare (-6.3%), Goodman Property Trust (-5.1%) and Summerset (-5.0%) were the weakest.

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Local interest rates continued to fall. The two-year swap rate declined 11 basis points to 0.19% and the five-year rate 13 basis points lower at 0.33%. The currency was slightly higher against the Australian dollar and US dollar, but it fell against the euro and the British pound. US crude oil rebounded almost 17%, although it remains under US$20 a barrel, having fallen 68% since the beginning of the year.

This week, the global economic calendar will see the Reserve Bank of Australia and Bank of England hold meetings. Meanwhile, UK Prime Minister Boris Johnson’s government is due to review the nationwide lockdown on Thursday. Despite growing pressure, Johnson isn’t expected to dramatically loosen restrictions.

In the US, earnings will continue to dominate headlines, with the likes of Disney, CVS Health, PayPal and Zoetis all due to report results. So far, 55% of S&P 500 companies have reported, and the overall earnings decline (relative to the same quarter a year ago) is sitting at -13.7%, a small improvement relative to a week ago. Of those companies that have reported, 63% having reported a positive revenue surprise and 65% exceeding earnings estimates. Investors are also bracing themselves for an awful jobs report, which is likely to see the unemployment rate surge to about 16.0%, the highest in more than 80 years.

Locally, highlights will include the March quarter labour force report. The labour force report is out at 10:45am on Wednesday, and while this is usually an economic highlight, it will be somewhat valueless this time around. Unemployment is set to rise substantially over the coming months, so all this release will tell us is what the labour market looked like heading into the lockdown.

Investors will also look towards the results of another global dairy auction. The latest global dairy trade (GDT) auction results are due for release early on Wednesday. At the last auction, the headline GDT index fell 4.2%, with whole milk powder prices down 3.9%. This was a slightly bigger fall than expected, with severe oil price weakness at the time seemingly weighing on sentiment for commodities more generally.

The US unemployment rate is set to rise dramatically. The highlight of the US economic calendar will be the April jobs report, which is due for release on Friday. Markets are expecting a staggering 22 million jobs to have been lost for the month, following 700,000 in March. This is forecast to see the unemployment rate rise to 16.0%, compared with the 50- year low of 3.5% that prevailed at the beginning of 2020. This would be the highest unemployment rate the US has experienced since the 1930s.