Research Team, 12 April 2019

It was a mixed week for global markets as concerns over the outlook for the global economy continued to weigh on sentiment. On Tuesday, the International Monetary Fund cut its global growth forecast for 2019 to 3.3%, the lowest expansion since 2016 and down from its earlier projection of 3.5% in January.

Back home, the NZX continued to cool after hitting a record high last Tuesday.

Retirement village operators remained under pressure as fears of a softening housing market continued to weigh on the sector. Shares in Trustpower fell 2.4% after it dropped its profit guidance, due to below average generation volumes. The company also warned that it expects 2020 earnings to drop further.

In corporate news, Tourism Holdings' TH2 venture with Thor Industries will merge its CamperMate and Roadtrippers Australasia businesses with Australian outdoor tourism marketplaces GoSeeAustralia and Outdoria. The transaction brings together all four businesses into one entity, in which TH2 will become the largest shareholder with a 35% stake.

Off the main index, Comvita announced it has entered into a conditional agreement to acquire the remaining 49% of its China Joint Venture for $20.8m. The honey maker will acquire the JV by issuing 4.05 million Comvita shares at $4.35 per share and an additional cash payment of $3.2m. Chief Executive Scott Coulter said "this completes the 'final piece of the jigsaw' with respect to our China Strategy, which we have been working on for a number of years". Shares gained 0.7% following the announcement.

The United States announced it was considering tariffs on $11bn of European goods, heightening tensions over a long-running translantic aircraft subsidy dispute.

President Donald Trump tweeted "The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put tariffs on $11bn of EU products! … The EU has taken advantage of the US on trade for many years. It will soon stop!”. His comments came a day after the US Trade Representative proposed a list of EU products targeted for tariffs, ranging from large commercial aircraft to dairy products and wine, as retaliation for European aircraft subsidies. In response, the European Commission said it had started to draw up plans to retaliate over Boeing subsidies.

The European Central Bank (ECB) President Mario Draghi left interest rates unchanged.

He said risks surrounding the euro area were "tilted toward the downside”. Draghi said the ECB has been forced to backtrack its plans to tighten monetary policy, due to the climate of the global economy.

Staying in Europe, European leaders have offered to delay Brexit until the end of October.

However, the UK government has yet to sign off the extension. UK lawmakers have so far rejected May’s agreement three times but they’ve also failed to reach a majority of support for an alternative option. The UK was meant to leave the EU on March 29 following two years of negotiations.

Looking ahead, the focus will be on the US reporting season where investors will be able to take the pulse of corporate America.

Earnings growth has been very strong over the last four or five quarters, in part due to the Trump Administration’s tax cuts that were implemented in early 2018. This helped push annual earnings growth to more than 20%, levels we hadn’t seen since 2011. However, the one-off boost from the tax cuts is behind us and the global economy has slowed over the past six months. In the week ahead we will be watching results from Johnson & Johnson, L’Oreal, Schlumberger and Nestle.