Mark Lister, 30 June 2020

Global equity markets declined last week, with US shares ending on a cautious note. The S&P 500 finished the week down 2.9%, which sees the index 6.9% below the second quarter peak of 8 June, about three weeks ago. The local market also ended the week lower, with the NZX 50 dropping 1.1%, as local investors digested the Reserve Bank of New Zealand’s (RBNZ) decision to leave the Official Cash Rate (OCR) unchanged at 0.25% and keep the Large-Scale Asset Purchase (LSAP) programme set at $60bn. This was in line with expectations, and while most market participants see an increase in the LSAP programme as inevitable, the mid-August Monetary Policy Statement looks to be a more logical time to communicate this.

The top NZX 50 movers were Pushpay (+12.3%), Fisher & Paykel Healthcare (+11.5%) and Stride Property (+8.6%), while Air New Zealand (-14.6%), Vista Group (-13.8%) and Refining NZ (-11.9%) lagged. All S&P 500 sectors fell, although technology (-0.4%), consumer discretionary (-1.9%) and materials (-2.5%) held up best. The weakest were energy (-6.4%), financials (-5.3%) and communication services (-5.2%).

A trifecta of uncertainty has hit markets in recent days. Surging virus numbers in some US states have been one driver of the sentiment change, with Texas and Florida both rolling back some reopening measures.

US banks were also under pressure late in the week, with Federal Reserve stress tests indicating some would get close to minimum capital levels under certain scenarios. Banks must now suspend buybacks and cap third quarter dividends, while analysts have suggested that some might even be forced to cut dividends to comply.

Finally, the communication services sector suffered as more large companies announced they would temporarily cease paid advertising on social media platforms. Consumer staples heavyweight Unilever said it will halt all advertising for the rest of this year, and Coca-Cola announced it would do the same for at least 30 days.

Facebook shares fell 8.3% on Friday, in response to these announcements. The social media giant has a mixed track record on social responsibility and is under increasing pressure to minimise harmful content on its platform. This has prompted civil rights groups to campaign for an advertising boycott.

In the days ahead, Fed minutes, the ISM manufacturing index and the monthly jobs report will be highlights of the holiday-shortened US week. US jobs report for June could see further gains in employment. A key event on the global economic calendar this week will be the US jobs report for June. This is set to be released on Thursday in the US, a day earlier than usual due to the Independence Day public holiday on Friday. After a much better than expected jobs report last month, expectations are high for further improvements in the labour market. Markets are looking for another 3.0million jobs to have been created, after a surprise addition of 2.5 million in May. The unemployment rate is expected to fall to 12.5% (compared with 13.3%). We will also be watching the participation rate, and the broader U6 unemployment measure. Elsewhere, Russia will vote on changes allowing Vladimir Putin to remain in power until 2036.

June PMIs should tell us how the second quarter has ended in China. Two separate PMI surveys for China will be released this week, both covering the month of June. The Official PMI is out at 1:00pm on Tuesday, while the Caixin manufacturing and services measures will be released at 1:45pm on Wednesday and Friday respectively. All of these are expected to be above the breakeven 50-level, although forecasts suggest they could be a bit weaker than we saw last month as the pace of the rebound softens a little.