Mark Lister, 31 May 2021

Global sharemarkets performed strongly last week, with the S&P 500 in the US rising 1.2% and closing just 0.7% below its record high from earlier in the month. With the Memorial Day holiday on Monday, that’s May wrapped up for the US market. The S&P 500 posted a small monthly gain of 0.5% and the strongest sectors were the more cyclical ones - materials (+5.0%), energy (+4.9%) and financials (+4.7%).

The UK was flat last week, while the ASX 200 in Australia and the Stoxx 600 in Europe rose 2.1% and 1,0% respectively. That saw Australia and Europe (which have been the standout performers during May) close at new all-time highs.

In contrast, the local NZX 50 had a tough week. The index fell 2.2%, dragged down by its most dominant company - Fisher & Paykel Healthcare. The NZX 50 is 10.1% below its early January peak and continues to lag global peers.

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Bitcoin had another volatile week, finishing virtually unchanged from seven days earlier at about US$35,000. The cryptocurrency is still well up for the year, but it is down almost 50% from its high of almost US$65,000 in April.

The US 10-year Treasury yield fell from 1.62% to 1.58%, despite the release of another strong inflation measure on Friday. Here in New Zealand, the five-year swap rate surged from 1.19% to 1.35%, the highest since before the pandemic. This came after new Reserve Bank forecasts suggested the OCR could begin rising in 2022.

It will be a holiday-shortened week offshore, with the US and UK both closed on Monday. In terms of economic releases, markets will be watching the ISM manufacturing index and the jobs report in the US, as well as the latest set of PMIs in China (all of which will cover the month of May).

There are a handful of earnings releases due, including those from Hewlett Packard, Zoom, Lululemon and Slack Technologies. Across the Tasman, an RBA meeting and the March quarter GDP report will be highlights.

We will see the results of the latest GDT auction early on Wednesday morning. At the last auction, both the headline GDT index and whole milk powder prices were down 0.2%. After a strong move higher during the first three months of the year, which saw prices reach a seven-year high, the GDT index has flatlined for the last couple of months. It remains at buoyant levels, up 25.7% in 2021 and 42.7% higher than it was a year ago.

The US week will be bookended by two top tier economic releases - the Institute for Supply Management (ISM) manufacturing index on Tuesday and the jobs report on Friday, both of which will cover the month of May. Last month, the ISM index fell from March’s 38-year high to a still very buoyant 60.7, while the survey’s measure of prices paid by manufacturers rose to 89.6, the highest since July 2008.

The key events across the Tasman will be the Reserve Bank of Australia (RBA) meeting, for which the outcome is due to be announced at 4:30pm on Tuesday, and the March 2021 quarter GDP report, which is set to be released on Wednesday at 1:30pm. The RBA will no doubt acknowledge the soft labour market print we saw in April, while noting some one-off impacts that makes the next one even more relevant. The RBA has said that in July it will consider whether to suspend its bond yield target, as well as review its plans for the asset purchase programme (given the current one is set to expire in September). We will be looking for confirmation this is still the case, which will put the July meeting in focus as an important crossroads for Australian monetary policy.