Mark Lister, 3 August 2020

Global sharemarkets remained under pressure last week, with major indices in Europe and the UK falling 3.0 and 3.7% respectively. In contrast, the S&P 500 in the US gained 1.7% on the back of some strong earnings releases across the technology sector. The ASX 200 was down 1.6% as virus cases continued to rise, while the NZX 50 managed a 0.8% gain with a positive trading update from Mainfreight helping its cause. The top NZX 50 movers were Mainfreight (+11.1%), Tourism Holdings (+6.8%) and Kiwi Property (+3.9%), while Sky TV (-7.9%), Z Energy (-4.4%) and Synlait (-4.2%) lagged. The strongest US sectors were technology (+5.0%), real estate (+4.1%) and consumer discretionary (+2.1%), while energy (-4.2%), materials (-1.8%) and financials (-0.9%) were the weakest.

The NZ dollar slipped against most other currencies, notably the British pound where it fell 2.4%. Interest rates continued to decline, with three and five-year US Treasury yields hitting new all-time lows and the local five-year swap rate falling to 0.28%. Gold prices rose further, boosted by a combination a of very low interest rates, nervousness about the path of the global economy and a soft US dollar (like most commodities, gold does well when the US dollar is weak).

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Gold prices gained 10.9% in July, the best month since February 2016 and the fifth consecutive monthly gain. Since the beginning of the year gold has rallied 30.2%. It hit a new record high on Friday, having recently surpassed the previous high that was reached in September 2011.

The global reporting season will remain in focus this week. Earnings releases are expected from Tyson Foods, Diageo, Disney, Vulcan Materials, CVS Health, Adidas, Republic Services, Zoetis and Berkshire Hathaway. So far,62%of S&P 500 companies have reported and 81% of these have beaten earnings estimates. The aggregate earnings decline for the S&P 500 is sitting at -35.7%, pretty terrible but not nearly as bad as the 44.6% decline that was forecast before the reporting season began. Technology and healthcare have been the best performers, with earnings growth of -0.5% and +2.4% respectively, compared with expectations for declines of 9.4% and 14.0% previously.

The US labour market will also be in the spotlight, with the July employment report due at the end of the week. This takes on more importance with the number of people filing for unemployment benefits having started to increase again over the past two weeks, after falling consistently since the last week of March.

US politics should also be in the headlines. Congress is struggling to find consensus on a new fiscal spending package as the US$600 per week unemployment supplement that has been in place since March expires. In addition, Joe Biden is expected to name his running mate sometime this week.

Locally, the June employment report is the key economic release. The highlight of the domestic calendar will be the June quarter labour force report, which is out at 10:45am on Wednesday morning. The unemployment rate was 4.0% at the end of 2019, and it rose slightly to 4.2% in the March quarter. It will have increased in the June quarter, although it is difficult to predict by exactly how much.

New Zealand investors will also have the dairy auction and the RBNZ survey of expectations to look forward to. The most recent Global Dairy Trade (GDT) auction saw prices ease back slightly, after a strong rally during May and June. The headline index fell 0.7%, while whole milk powder gained 0.6%. The GDT index is down 1.5% since the beginning of 2020 and is flat relative to a year ago. The RBNZ will release its survey of expectations for the September quarter at 3:00pm on Thursday. The Bank will be hoping inflation expectations have improved (or at least stabilised) from where they fell to three months ago.