Mark Lister, 20 July 2020

Sharemarkets around the world continued to rise last week. The S&P 500 index in the US was 1.2% higher, despite a surge in COVID-19 cases. The country saw its death toll pass 140,000 during the weekend, and almost all 50 states are now experiencing rising case numbers. The strongest US sectors were industrials (+5.8%), materials (+5.4%) and healthcare (+5.1%), while consumer discretionary (-1.6%), technology (-1.2%) and communication services (-0.9%) were the weakest.

Most other major indices finished the week higher, with the FTSE 100 in the UK up 3.2% and the European Stoxx 600 rising 1.7%. The Australian ASX 200 increased 1.9%, while the local NZX 50 gained 1.7%, winning back some of last week’s losses. The top NZX 50 movers last week were Arvida (+7.5%), Oceania Healthcare (+7.4%) and Property for Industry (+6.3%), while Pushpay (-13.0%), Tourism Holdings (-7.9%) and Refining NZ (-6.8%) lagged.

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The NZ dollar declined against most major trading partners, despite generally positive sentiment and a nice upgrade to the Fonterra milk payout for the upcoming season. This week, investors will focus on the challenges some countries are facing as they try to reopen economies, while keeping the virus outbreak under control. US retail giants Walmart, Target and CVS Health are all now requiring customers to wear masks, while in the UK it has become mandatory to wear masks in shops. The situation in Australia is also worsening, which could see further restrictions imposed. Victoria has now had 14 consecutive days of triple-digit increases in case numbers, while New South Wales is also seeing a re-emergence.

The global reporting season continues this week. Several big hitters are set to announce earnings, including Coca Cola, IBM, Microsoft, Tesla, Amazon, Unilever and American Express. It's been a solid start to the reporting season so far, with some of the US banks posting impressive numbers and Netflix the only notable company to disappoint. It's very early days, with just 9% of S&P 500 companies having reported so far, but earnings are tracking very close to forecasts (in aggregate, that is). Estimates suggest the second quarter will see earnings down almost 45% relative to the same quarter last year.

Closer to home, the latest dairy auction will be of interest. Early on Wednesday morning we will get the results of the latest global diary trade (GDT) auction. Prices were up strongly a fortnight ago, with the headline index rising 8.4%. This was the biggest gain since November 2016, and it sees the GDT index down just 1.5% since the beginning of 2020 and up marginally (+0.3%) on a year ago. The rise was driven by a very strong 14.0% rise in whole milk powder, a key export commodity for New Zealand.

Flash PMIs for July will also be a highlight of the economic calendar. The Flash PMIs are due this week and will provide an early indication of how the third quarter has started. The Japanese PMI is out just after lunch on Wednesday, while corresponding measures for Europe and the US are out on Friday evening. Last month, these suggested that while the backdrop remains challenging, the downturn has eased markedly as lockdowns have lifted and economies have begun returning to normal. The flash US Composite Output Index improved to a four-month high of 46.8, up from 37.0 in May, while Europe rebounded even more strongly to 47.5 (up from 31.9 last month).

Thursday's Economic and Fiscal Update will be the key event across the Tasman. A key event on the Australian economic calendar will be the July Economic and Fiscal Update (JEFU), which is scheduled for release at 11:30am (NZ time) on Thursday. Australian Treasurer Josh Frydenberg is likely to release a mini budget, which should include a full suite of economic and fiscal forecasts.