Mark Lister, 7 September 2020

Global sharemarkets have started September on a nervous footing, with the S&P 500 falling 2.3% last week, the first negative week in six. The only S&P 500 sectors to rise last week were materials (+0.8%) and utilities (+0.4%), while the weakest performances came from energy (-4.5%), technology (-4.2%) and consumer discretionary (-2.5%). Major indices in the UK and Europe were down 2.8% and 1.9%, while the ASX 200 slipped 2.1%.

The local NZX 50 followed suit and declined 2.2% for the week. After such a strong run it is no great surprise that markets are taking a breather, particularly for some parts of the market that have been very strong of late. The top NZX 50 movers last week were Sky City (+10.9%), Stride Property (+6.1%) and Auckland Airport (+5.9%), while Pushpay (-11.7%), Fisher & Paykel Healthcare (-9.1%) and Meridian Energy (-7.1%) lagged.

We’ve seen some encouraging US economic releases of late, including the ISM index and the latest jobs report. While this bodes well for the economy, it has seen some investors make portfolio adjustments and rotate out of the recent winners into some of the sectors that have been left behind. Monday is Labor Day in the US, so markets will be closed. The key US economic releases to watch will be the NFIB survey and the latest monthly CPI release, while the only earnings announcement of note is that of Lululemon.

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One of the key forward looking indicators in the US is the monthly survey from the National Federation of Independent Business (NFIB). Produced since 1974, the NFIB survey provides very useful insights into the state of small business in main street America, as opposed to the messages we regularly get from large listed companies. The August survey results are due on Tuesday, and it will be interesting to note if we see any bounce in small business optimism. Last month the headline index slipped to 98.8, which is almost exactly in line with the long-term average. The survey hit a seven-year low of 90.9 back in April, having averaged a very healthy 104.8 in the three years leading up to the pandemic.

There will be a little more action across the Atlantic, with Brexit talks set to resume in London on Monday, and the European Central Bank (ECB) scheduled to meet on Thursday. The strength of the euro will no doubt get a bit of attention at the ECB’s monetary policy meeting, with the common currency hitting its highest levels against the US dollar since May 2018 last week. The euro has gained at the expense of the greenback in recent months, and this has been compounded since Fed Chair Jerome Powell confirmed the policy shift to a more flexible inflation target. The euro is up almost 6% this year against the dollar and is more than 11% higher than where it was in late March. The euro is the only real alternative to the US dollar for many, and it has a significant weighting in the US dollar index (DXY) of 58%. ECB chief economist Philip Lane made some rare comments about the strength of the euro last week, which came as Eurozone headline inflation fell to -0.2% on an annual basis in August. This is the first time inflation has been in negative territory since May 2016, and it highlights the challenges European policymakers face in getting inflation back towards targets.

Here in New Zealand, it’s a reasonably light week on the economic calendar. Although, highlights on the local front could be high frequency indicators like the ANZ truckometer for August and the flash ANZ Business Outlook survey for September. The flash ANZ Business Outlook survey for September is due for release at 1:00pm on Wednesday. We’ll be hoping for an improvement on the back of a slightly clearer path to lower alert levels and no sign of any significant resurgence in virus cases in Auckland. On the corporate front, Briscoe Group, Restaurant Brands and Sky TV are all reporting earnings this week, while AFT Pharmaceuticals and Investore Property hold AGMs.