INSIGHTS BLOG

THE WEEK AHEAD: BREXIT NEGOTIATIONS GOING DOWN TO THE WIRE

Mark Lister, 14 December 2020

Despite all the challenges 2020 has thrown at markets, it will have been a profitable year for most share investors. The MSCI All Country World Share index is up 11.4%, above the average annual return of the past two decades and a great achievement considering the index was down 33.9% at one point.

Equities in New Zealand and the US have both produced strong gains, while Australian shares have surged back into positive territory with a late charge in recent months. The top performers in the NZX 50 last week were Infratil (+24.5%), Pacific Edge (+25.5%) and TrustPower (+8.5%), while Serko (-5.1%), Investore Property (-2.3%) and Chorus (-2.1%) lagged. UK and European markets are still some way off where they began the year, although these regions have also rebounded strongly of late.


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This is the last full trading week of the year, and a key event will be whether US Congress can finalise a new pandemic support package, with both sides currently at a stalemate. In addition, the Food and Drug Administration (FDA) could approve the Moderna vaccine on Thursday having considered Pfizer’s vaccine last week. Also of interest will be changes to the S&P 500 at the close on Friday, where Tesla is set to be the biggest ever company added to the index.

Brexit negotiations are also going down to the wire, ahead of the December 31 deadline. UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed during a phone call on Sunday to try and salvage something out of the talks which have so far been unsuccessful.

There are three major central bank meetings taking place this week - the Federal Reserve, Bank of England and Bank of Japan. Chinese activity indicators for November are out on Tuesday afternoon, while December flash PMIs will be in focus on Wednesday. The latter should tell us what sort of shape some of the world’s the major economies are in as 2020 draws to a close. Finally, Nike, Fedex and US homebuilder Lennar are all set to announce quarterly results.

It’s a busy week locally as well, with September quarter GDP to reflect a strong rebound. The September quarter GDP report is out at 10:45am on Thursday, and economists are expecting a very strong rebound from the severe weakness of the June quarter. June quarter GDP fell 12.2%, the worst quarterly contraction since records began in 1987. This was understandable, given that New Zealand started the June quarter in level 4 lockdown, before moving to level 3 near the end of April, then to level 2 in mid-May, and then finally back to level 1 on Monday 8 June. The borders were closed for the entire quarter. Reserve Bank of New Zealand forecasts suggest a 13.4% rebound occurred in September, while economists have pencilled in a slightly more modest rebound of 12.8%.

HYEFU due this week as well. Another highlight of the domestic calendar will be the release of the half-yearly economic and fiscal update (HYFEU) by The Treasury, which is set for release on Wednesday at 1:00pm. Given the solid improvement in the economy since the pre-election update two months ago, as well as an improving picture of the global economic outlook, we would expect this to look more optimistic.

The last dairy auction of 2020. Results of the final global dairy trade (GDT) auction of 2020 will be released early Wednesday morning. The headline GDT index gained 4.3% at the last auction, which was the strongest rise since early July. That saw prices move back into positive territory (just) for 2020. Whole milk powder was strong, up 5.0%, while all other commodities showed impressive gains as well. On the back of this, Fonterra confirmed its earnings guidance and narrowed its forecast range for the 2020/21 milk payout. Fonterra has increased this from a range of $6.30 to $7.30, to $6.70 to $7.30. That saw the midpoint of the range increase from $6.80 to $7.00, a rise of 2.9%.