Mark Lister, 14 September 2020

US shares declined further last week as investors continued to take profits after a strong run. The S&P 500 fell 2.5%, which sees it 6.7% below the record high from earlier this month. Technology led the declines, falling 4.4% for the week to see the sector down 11.1% over the past seven trading sessions. The technology-heavy Nasdaq remained under additional pressure, slipping 4.0% over the course of the week. The Nasdaq is 10.0% below its peak, although the index is still up a stunning 21.0% so far in 2020.

Closer to home, the ASX 200 in Australia fell 1.0%, while the local NZX 50 declined 0.6%. The top performers in the NZX 50 last week were Sky City (+8.7%), Sky TV (+7.9%) and Chorus (+7.8%), while Tourism Holdings (-10.2%), Refining NZ (-4.4%) and Pushpay (- 3.9%) lagged. In contrast, European and UK markets performed better with the Stoxx 600 up 1.7% and the FTSE 100 up 4.0%.

subscribe banner

The UK market (which is dominated by multinationals) was boosted by a weaker British pound, which came under pressure as the Brexit standoff continued. The European Union urged the UK not to renege on the Brexit Withdrawal Agreement, threatening legal action. However, Britain intends to press despite Prime Minister Boris Johnson acknowledging the moves could violate international law.

Turning to the week ahead, there is plenty of action on the local economic front. The highlight of the domestic week will undoubtedly be the June quarter GDP report, which is set to be released at 10:45am on Thursday. While it will be looking dated, it will still be very interesting given the likely magnitude of the decline, and the fact that it will almost certainly be the sharpest quarterly contraction most of us will ever witness.

Another key local economic release, the Pre-Election Economic and Fiscal Update (PREFU), is set to be released on Wednesday. Originally scheduled for release last month but delayed along with the election, the PREFU is due on Wednesday at 1:00pm. The Treasury publishes forecasts for the Government’s finances and the economy twice a year. The most recent set of Crown Accounts (for the 11 months to the end of May) were better than expected, with a higher GST take suggesting annual tax revenue will be stronger than forecast.

The results of another global dairy trade auction will also be released early Wednesday morning. A fortnight ago the index fell for the fourth consecutive auction, as headline prices declined 1.0% and whole milk powder dropped 2.0%. That sees the GDT index down 9.7% since the beginning of 2020 and 7.6% lower than where it was 12 months ago. The NZ dollar has recovered back to where it started the year against the US dollar, which will be proving an added headwind for the local agricultural sector.

There are three key central bank meetings to monitor, with the Federal Reserve, Bank of Japan and Bank of England all convening in the days ahead. The Fed meeting will be the most closely watched, with the decision due for release at 6:00am on Thursday NZ time and a press conference to follow shortly after. This meeting will be notable as it will see the Fed release a new set of economic projections, the first since the June meeting a little over three months ago. A lot has happened during this period, and we have also seen the Fed move to an average inflation targeting approach.

Global markets will also be watching key indicators in the US and China. US retail sales for August should provide some insight into the extent to which consumer spending has been impacted by the unemployment benefits which expired at the end of July and the Chinese monthly activity indicators (including fixed asset investment, industrial production and retail sales) for August are also due for release on Tuesday.