Mark Lister, 5 October 2020

The S&P 500 in the US posted a 1.5% rise last week, its first weekly gain since late August. However, the market was down slightly on Friday after President Trump and first lady Melania Trump tested positive for COVID-19. CDC guidelines suggest a 14 day quarantine, so it is now unclear whether Trump will appear at the second Presidential debate on October 15 (which would be 13 days after his diagnosis).

The FTSE 100 in the UK gained 1.0%, while the European Stoxx 600 increased 2.0%. The Australian ASX 200 suffered its worst weekly decline since April, with the index slumping 2.9%. The only sectors to rise were technology and real estate. The local NZX 50 managed to eke out a 0.2% gain, despite heavyweight a2 Milk falling sharply. The top performers in the NZX 50 last week were Air New Zealand (+13.3%), Contact Energy (+10.5%) and Oceania Healthcare (+10.2%), while a2 Milk (-17.6%), Synlait Milk (-9.9%) and Vista Group (-6.4%) lagged.

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A key US event this week will be the Vice Presidential debate on Wednesday in Salt Lake City, which will be aired at 2:00pm on Thursday, NZ time. The debate will pit incumbent Vice President Mike Pence against California Senator Kamala Harris. Markets are also awaiting progress on another support package from US policymakers. The House passed a US$2.2 trillion package last week, although Republicans are yet to agree to it. Treasury Secretary Steven Mnuchin has favoured a smaller package of US$1.6 trillion.

It's a relatively busy week on the central bank front. Federal Reserve Chair Jerome Powell is giving a speech to the National Association for Business Economics, while the latest Fed meeting minutes are also out. European Central Bank President Christine Lagarde is speaking on Tuesday and Wednesday at separate events.

The latest Reserve Bank of Australia decision is due Tuesday afternoon, and while no policy moves are expected the commentary about potential future changes will be of interest. Tuesday’s Federal Budget will also be a highlight, while there are annual meetings scheduled for the likes of AGL Energy, Brambles and Transurban.

Locally, the latest dairy auction will be closely watched. The results of the latest global dairy trade (GDT) auction are out early on Wednesday morning. The agricultural sector breathed a sigh of relief three weeks ago, with the GDT index seeing its first increase in more than two months. Dairy prices rose 3.6%, with whole milk powder up 3.2% and skim milk powder the star performer with a gain of 8.4%. That sees the headline GDT index down 6.3% since the beginning of 2020, and 6.1% lower than a year ago. Fonterra recently confirmed a $7.19 payout for the 2019/20 milk season, including a five-cent dividend for the year. The outlook for the 2020/21 season remains uncertain, although Fonterra has maintained its forecast for a payout within the range of $5.90-6.90. This implies a midpoint of $6.40, and if we assume a 10c dividend that would suggest a full cash payout of $6.50, which is above the $6.23 average of the previous five years.

The flash ANZ Business Outlook survey for October will also be a highlight. The final report for September was released last week, and it was encouraging. Headline business confidence was -28.5%, slightly lower than the flash estimate but still the best since February. More importantly, the Own Activity index (which is traditionally a better indicator for growth) improved from -9.9% to -5.4%. This was also the best since February and is well above the dismal April low of -55.1%. Investment and employment intentions increased, as did profit expectations. Politics will remain in focus in New Zealand too, with The Press holding a leaders debate on Tuesday and TVNZ a multi-party debate on Thursday.