Mark Lister, 17 November 2020

Global sharemarkets rallied strongly last week, as some encouraging news on the vaccine front saw investors refocus on companies that would benefit from an easing of restrictions and a broad reopening of the global economy. The S&P 500 in the US rose 2.2% for the week, closing at a new record high. The gains were driven by some of the sectors that have been unloved for most of this year, such as energy (+16.5% for the week), financials (+8.3%) and industrials (+5.3%).

Shares in the UK, Europe and Australia were stronger still, likely because of the dominance of cyclical and economically sensitive companies in those regions. The local NZX 50 gained 2.9% and closed at a fresh record high. The top performers in the NZX 50 last week were Fletcher Building (+21.5%), Sky TV (+13.4%) and Vista (+12.8%), while Pushpay (-11.1%), Fisher & Paykel Healthcare (-6.3%) and Goodman Property Trust (-2.5%) lagged.

In line with this renewed optimism, longer-term bond yields spiked and bond prices fell. The US 10-year Treasury yield rose from 0.82% to 0.89%, almost hitting 1.00% for the first time since March at one point. Similar moves occurred here in New Zealand, with the five-year swap rate rising from 0.15% to 0.37%.

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Despite the positive vaccine news, the COVID-19 situation is likely to get worse before it gets better. Case numbers and deaths are surging in many parts of the world, which is forcing governments to impose tighter restrictions. Hospitalisations in the US reached a record last week, Germany reported the highest number of deaths since April, while daily infections hit a new record in Japan.

The US consumer will be in focus this week. October retail sales are due on Tuesday and are forecast to increase for the sixth consecutive month. We will also get earnings releases from Home Depot, Kohl's, Walmart, Target and Macy's. Across the Atlantic, Brexit talks continue in Brussels, with the latest deadline fast approaching. Signs of compromise between the UK and European Union have emerged, although it’s unlikely to be an easy week of negotiations.

It's a busy week on the corporate front in this part of the world. Locally we can expect earnings releases from Investore, Napier Port, Serko and Ryman Healthcare, while Precinct Properties and a2 Milk hold annual meetings. Across the Tasman, Afterpay, Goodman Group, Resmed and Lendlease are holding annual meetings.

GDT auction results are also due this week. Results from the latest global dairy trade (GDT) auction are due early on Wednesday morning. The last auction results were a little softer than expected, with the headline GDT index falling 2.0% and whole milk powder down by a similar amount. That was the first decline since early September, after three consecutive increases. Prices are now 5.8% lower year to date and are down 9.5% from a year ago.

Australian unemployment will be the highlight across the Tasman. October labour force figures are due on Thursday at 1:30pm, and markets are expecting 30,000 jobs to have been lost and for the unemployment rate to have increased from 6.9% in September to 7.1% this month. That doesn’t compare particularly well with the 5.3% unemployment rate that New Zealand recently reporting, although the Australian figures are still being influenced by the tail end of Victoria's second lockdown. Melbourne’s restrictions were only lifted at the beginning of November, so it might be another month or two before we get a clearer picture of the state of the labour market.