Mark Lister, 13 July 2020

US shares pushed higher last week, with the S&P 500 rising another 1.8%, helped along by some positive news about vaccine progress. The Nasdaq index rose 4.0% to a new record, with Amazon, Netflix and Tesla all hitting fresh all-time highs. The strongest US sectors were consumer discretionary (+4.8%), communication services (+4.7%) and technology (+2.7%), while energy (-4.6%), real estate (-1.8%) and industrials (-1.4%) were the weakest.

In contrast to the US, shares in New Zealand fell 1.4% last week. The Tiwai decision saw the electricity sector sold off, while Chorus (one of the top performers in 2020) also fell as news of potential regulatory changes caused some uncertainty. The top NZX 50 movers last week were Metlifecare (+11.9%), Skellerup (+11.8%) and Summerset (+6.2%), while Contact Energy (-16.1%), Meridian Energy (-8.7%) and Air New Zealand (-8.6%) lagged. Across the Tasman, the resurgence of virus cases saw risk sentiment turn cautious, sending the ASX 200 down 2.3% for the week. Several public housing towers in Victoria were quarantined, and the border between Victoria and New South Wales closed.

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The NZ dollar continued to rise against most other currencies, buoyed by some impressive local data points. Dairy prices increased strongly at last week’s auction, while the ANZ Truckometer and flash Business Outlook pointed to a steady recovery.

The gradual easing of lockdowns across the world will remain in focus this week, with Singapore set to open movie theatres and hotels, and US banking heavyweight JP Morgan ready to let workers return to the office where daily health checks will occur. It’s more challenging elsewhere in the US, as reopenings are rolled back where cases are climbing again. Miami has closed all beaches, as well as theatres and casinos.

The start of the quarterly global earnings season will be a highlight, with a number of high-profile companies set to announce results in the days ahead. Investors will be eagerly anticipating results to see just how badly corporate profitability has been impacted by virus-related disruption. Consensus estimates suggest the aggregate earnings decline for the S&P 500 will be -44.6%, relative to the same quarter a year ago. This would make for the largest fall in earnings since December 2008 (-69.1%). All sectors are forecast to see earnings fall, with energy, consumer discretionary, industrials and financials expected to be hit hardest. It's a busy first week of reporting season with results due from PepsiCo, JP Morgan, Wells Fargo, Netflix and Johnson & Johnson.

Thursday afternoon will see a big data dump out of China, including June quarter GDP. Thursday will be important for China watchers, as well as countries that trade with China (such as New Zealand and Australia). A big data dump is due at 2:00pm, and June quarter gross domestic product (GDP) will be the highlight. Markets are expecting a 2.3% increase over the same period a year ago, which will follow the 6.8% slump in GDP in the three months to the end of March. That was the first contraction in the Chinese economy since at least 1992 (when official quarterly GDP records started). Monthly activity indicators for June will be released at the same time, with expectations for an across the board improvement in these, compared with the relatively mixed levels we saw in May.

In New Zealand, June quarter inflation figures are likely to be a highlight, while the latest housing market report will make interesting reading. The June housing market report from the Real Estate Institute of New Zealand (REINZ), is likely to be released at 9:00am on Tuesday morning. National sales volumes rebounded strongly last month as the country moved out of level four, with the number of properties sold increasing 191.0% from 1,371 to 3,990. However, this remains 46.6% down from the same month last year, so the COVID-19 lockdowns are still very much being felt across the market.