Mark Lister, 12 October 2020

Global sharemarkets rallied strongly last week, rebounding from their poor performance in September as US lawmakers appeared to move closer to a new fiscal support package. The S&P 500 gained 3.8% for the week, its best in three months, which sees the index just 2.9% below the all-time high from early last month. All eleven S&P 500 sectors were up last week. The strongest sectors were materials (+5.1%), energy (+5.0%) and utilities (+4.6%, while the laggards were real estate (+1.4%), communication services (+2.2%) and consumer staples (+2.7%).

The NZX 50 also had a very strong week, rising 3.9% to a new record. This was the strongest weekly gain since April, and it sees the index 1.5% above the previous peak (from August), up 44.5% from the March lows and 6.9% higher than where it began the year. The top performers in the NZX 50 last week were Contact Energy (+13.3%), Fletcher Building (+9.9%) and Oceania Healthcare (+9.2%), while Vital Healthcare Properties (-2.5%) and Sanford (-1.6%) were the only stocks to fall. Australian shares were stronger still, with the ASX 200 surging 5.4% as some of the unloved sectors of 2020 (such as banks and energy) found support.

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This week, global investors will be watching out for any further developments from Washington on further fiscal support, while Friday’s September retail sales will be the key US economic release. Consumer spending is a significant driver of the US economy, and last month’s retail sales report was somewhat disappointing. Brexit will also remain in focus, with UK Prime Minister Boris Johnson having set a deadline of Thursday to reach a post-Brexit trade deal with the European Union. There have been signs of progress, although a few sticking points remain (such as fisheries) and Johnson has threatened to walk away if there is no agreement.

It'll be busy on the corporate front, with the global earnings season kicking off this week. Some of the companies due to announce results include Citigroup, Johnson & Johnson, JPMorgan, UnitedHealth, Wells Fargo and Intuitive Surgical. Meanwhile, tech giant Apple is holding a product launch on Tuesday, where it is expected to reveal four new iPhones featuring 5G connectivity, upgraded cameras, and a wider range of screen sizes.

Closer to home, the focal point this week will undoubtedly be the New Zealand general election on Saturday. Jacinda Ardern is in the box seat to serve another three years as Prime Minister. However, that doesn't mean it won't be an exciting election night. The Greens and NZ First are both on shaky ground, with the 5% threshold looking challenging based on some polls, and neither party likely to win an electorate seat. NZ First looks certain to be out of parliament, and while the Greens probably won't do as well as usual with overseas or special votes this year, they should have a strong enough base to get at least 5%. Act looks set to be the success story of 2020, with the party headed for as high as 7-8% of the party vote, much of which will have come at the expense of National.

The latest REINZ monthly housing market report will also be of note locally. The latest monthly REINZ housing report is due at 9:00am on Tuesday, and we would expect the market to have remained strong. Like the NZX 50 index, which has reached fresh highs in recent days, the New Zealand housing market has defied expectations of a COVID-induced slump in 2020 and remained extremely buoyant. We suspect there are several factors at play here, including very low mortgage rates (which make servicing costs much lower), a shortage of listings in many regions, the advent of remote working, and improved sentiment as we head into the summer months. The number of properties sold in Auckland rose 44.2% in August from a year earlier, while sales volumes elsewhere increased 16.7%. Days to sell also fell across the board, while prices continued to increase in most regions.