Mark Lister, 19 May 2020

Most equity markets were down last week, with the S&P 500 in the US falling 2.3%. UK shares declined by a similar degree, while European shares finished the week down 3.7%. In contrast, the ASX 200 and the NZX 50 managed very small gains. Last week’s top NZX 50 movers were Vista (+16.0%), NZX (+9.4%) and Sky TV (+9.4%), while Tourism Holdings (-10.0%), Refining NZ (-9.2%) and Z Energy (-4.5%) were weakest. After a strong April, markets have been more cautious this month, with weak economic reports and rising US/China tensions contributing to the nervousness. The Trump administration moved to block shipments of semiconductors to Huawei, while reports out of China suggest retaliatory actions could include restrictions on some American companies including Qualcomm, Cisco Systems and Apple.

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The NZ dollar was down sharply, falling 1.5% last week on a trade weighted basis, while declining more than 3% against the US dollar and the euro. This weakness came after the Reserve Bank of New Zealand doubled the size of its quantitative easing programme and signalled a willingness to take further action if necessary.

Turning to the week ahead, investors will continue to monitor the reopening of economies and lifting of lockdowns in various places. The National People’s Congress takes place in China. The World Health Organization’s governing body also meets on Monday, for the first time since COVID-19 emerged. This could see China's handling of the virus challenged, in the wake of difficult questions from the US, the European Union and Australia, and it represents another potential source of geopolitical risk and volatility.

May flash PMIs (due Thursday) will be a highlight of the global economic calendar this week, as one of the first indicators we will see covering this month. Investors will be very keen to gauge whether there are any emerging signs of restarting economic activity, and if business sentiment has improved at all from April levels. Last month, the Japanese flash Composite PMI slumped to 27.8, reflecting the largest decline in activity on record. It was an even more discouraging picture in Europe, with the Composite PMI plummeting to a record low of 13.5, the weakest seen in more than two decades of data collection (and well below the GFC low of 36.2 from 2009). In the US, the Composite PMI fell to 27.4, signalling the fastest reduction in private sector output since the series began in late-2009.

The Federal Reserve releases the minutes from its latest meeting, and Fed Chair Jerome Powell testifies before the Senate Banking Committee with Treasury Secretary Steven Mnuchin on Tuesday. Meanwhile, Argentina’s bondholders have until the end of this week to approve the latest restructuring offer, otherwise the country will default for the ninth time in the last 200 years.

The US retail sector will also be in focus, with a slew of consumer businesses due to announce results, including Home Depot, Kohl's, Walmart and Target. Chinese heavyweights Baidu and Alibaba are also set to report, as is US chipmaker Nvidia.

Locally, investors will look towards the latest global dairy trade (GDT) auction, with results due for release early on Wednesday morning. Prices fell slightly at the last auction, but not nearly as much as had been expected. The GDT index declined 0.9%, while milk powder posted a very marginal increase of 0.1%. Despite an 11.7% decline this year, most economists expect a Fonterra payout for this season of slightly more than $7.00, in line with Fonterra's forecast range of $7.00-7.60. The latest retail sales report will also be in focus domestically, while a handful of Australasian companies are reporting earnings or holding annual meetings.