Market Update - Monday 12 October

Last was a very strong one for global equity markets, with the US S&P500 gaining 3.3%, its best weekly performance since December last year.  Markets took heart from Federal Reserve meeting minutes that suggested the central bank was more united in its view to leave interest rates on hold than previously thought. This saw the US dollar weaken, equity markets rise and commodity prices rebound strongly after a long period of weakness.

European shares were 4.3% higher, Australian shares were up 4.5% and the domestic market was up 0.8%.

The NZ dollar was up stronger against most major trading partners, rising 3.8% against the US dollar to almost US$0.67 c, the higher level since July. The currency was flat against the Australian dollar that rose more strongly in line with a sharp rebound in commodity prices.

The 10-year US Treasury yield increased from 1.99% to 2.09% during the week, while the 10-year German bund yield rose from 0.51% to 0.62%.

Locally, the NZ two-year swap rate was two basis points higher at 2.72%, while the five-year rate was up by a similar degree at 3.06%.

Oil was sharply higher during the week, with Brent crude oil finishing 9.1% higher at US$52 and WTI over US$50.

In the US, energy (+7.8%) and materials (+6.8%) were the strongest sectors.  The weakest performances came from healthcare (+0.3%), utilities (+1.1%) and consumer discretionary (+2.4%). In Australia, energy (+14.6%), materials (+10.3%) and utilities (+4.4%) were the best performers. Telcos (+0.5%), tech (+0.6%) and real estate (+0.7%) were weakest. A2 Milk (+9.9%), Air New Zealand (+9.4%) and Xero (+6.7%) were the best share price performers on the NZX50. Tower (-4.8%), Mighty River Power (-3.4%) and Auckland Airport (-2.7%) were the worst (the last two went ex-dividend during the week).

Key events last week:

- The TPP trade deal looks like a net positive at first glance. Last week the Trans-Pacific Partnership (TPP) was settled, after a long negotiation period. The twelve countries involved in the TPP represent around 40% of world GDP, so this is an important agreement. In short, we will see tariffs removed for everything but dairy exports products (which will see just a partial liberalisation) and beef exports to Japan (where the tariff will be reduced substantially, but not completely). It has been estimated that tariff removal will save more than $250m annually once implemented. As an export nation, New Zealand has a lot to gain from increasing trade opportunities. In this regard, the TPP is a clear net positive for the economy and therefore the financial markets. However, it might be 2-3 years before it is fully implemented, with government approvals required in various countries. We will watch this space for further detail.

- Headline QSBO unsurprisingly softens in Q3. The Quarterly Survey of Business Opinion (QSBO) for the September quarter reflected an unsurprisingly fall in confidence. Net optimism regarding the general business situation fell 15 points from +6% to -9%, with a net 9% of respondents held a pessimistic view in the third quarter, compared with a net 6% being optimistic in the June quarter. The September reading is the lowest since the March quarter of 2011 (which was in the wake of the Christchurch earthquake). However, while many businesses appear somewhat concerned about the general economy, there is much more optimism with regard to their own businesses. A net 12% of firms reported stronger trading activity in the September quarter, up from net 10% in the June quarter.

- However, there were positive indicators in other parts of the survey. Looking forward, a net 17% of firms were expecting trading activity to strengthen over the coming three months, up from 13% in the June quarter. This part of the survey is now back above the historical average. A net 13% of respondents reported an increase in employment levels over the past three months, up from 11% the previous quarter. This is a high reading for this part of the survey and bodes well for the strength in the labour market. We saw a similar rising in the forward looking employment intentions aspect, with this series also rising to a net positive 13%, up two points from 11% previously.

- Dairy price continue their rebound. We saw global dairy prices rebound further at last weeks global dairy trade (GDT) auction, with the headline index up another 9.9% and whole milk powder (WMP) prices up 12.9%. Since the lows reached in August, prices have now bounded 63.0% and 81.7% respectively over the last four auctions. However, if we compare current prices to the average price for the first half of 2014, we are still approximately 35% below those levels. Lower milk production has definitely had an impact, with Fonterra’s latest update suggesting production is currently running 8-10% behind last year. Nonetheless, the recent price moves, if sustained, could put some upward pressure on the current $4.60 payout forecast, and could it push above $5.00. 

What to watch for this week:

- September CPI and final 2014/15 governments accounts due in NZ. Third-quarter inflation figures are out this Friday, and they are likely to remain very subdued. The RBNZ is forecasting quarterly CPI of 0.3%, and an annual rate of 0.2%, down from 0.4% and 0.3% in the June quarter. However, some economists expect the September quarter CPI to be even weaker than this, primarily due to July's reduced ACC component of car registrations, lower airfares (Jetstar-driven competition) and lower healthcare costs (more generous subsidies post-Budget). A weak CPI might not be enough to prompt the RBNZ into cutting the OCR again at its October 29 meeting, especially given the rebound we've seen in dairy prices (whole milk powder prices are 36% higher than where they were at the time of the last RBNZ meeting). The other interesting piece of news comes on Wednesday, when the Government releases its final accounts for the 2014/2015 year. These could unveil a smaller deficit than May Budget estimates, and there is even a possibility of a small surplus.

- Labour force data, FSR and confidence surveys due in Australia. The key event in Australia this week will be Thursday’s September labour force numbers. In August the Australian economy added 17,400 jobs and the unemployment rate was 6.2%. These are expected to improve slightly this month. On Tuesday the NAB business survey for September is released, while the Westpac-Melbourne Institute consumer sentiment survey for October is out on Wednesday. Finally, the Reserve Bank of Australia (RBA) releases the latest Financial Stability Review (FSR) on Friday, and the commentary on the housing market will be of most interest in this.

- CPI in China, the US and Europe due this week. In addition to New Zealand, the latest CPI figures will also be out this week for China, Europe and the US. On Wednesday, Chinese inflation data will give further clues regarding the state of the economy, ahead of third quarter GDP data later this month. In August, the annual China CPI was up 2.0%. Thursdays US CPI will be of interest given questions around the likelihood of the Fed rate hikes. In the year to August, the CPI was up just 0.2% in the US, and the Fed has lowered its inflation forecasts for the coming year further. On Friday, Eurozone CPI is released and according a Eurostat flash estimate, prices fell 0.1% in September. The falls in energy prices are likely to be the culprit, although this would still reflect the first fall into deflationary territory since March.

- Third quarter earnings season ramps up in the US. The third quarter earnings season continues, with many of the big financial names reporting results in the week ahead. The JP Morgan result comes after the close on Tuesday, with a number of other financials to follow. Bank of America and Wells Fargo are on Wednesday, followed by Goldman Sachs and Citigroup on Thursday. Other than earnings and the aforementioned CPI, key data from the US next week includes retail sales on Wednesday and industrial production on Friday.

AUTHOR

Mark Lister
Head of Private Wealth Research
DDI +64 7 927 7995 / F +64 7 577 8625

158 Cameron Road
PO Box 13155, Tauranga 3141, New Zealand
mark.lister@craigsip.com
www.craigsip.com

Market Update - Monday 24 August

Equity markets took a hammering last week, as concerns over slowing global growth, falling commodity prices and worries over China saw risk sentiment turn sharply negative. The Greek Prime Minister called for snap elections on Thursday, in the hope of strengthening his position. This also played a part in the volatility late in the week. The VIX index rose 46% on Friday to 28, the highest level since December 2011. The VIX is up 131% so far in August.

The S&P500 in the US fell 5.8% for the week, the largest weekly decline since September 2011. UK shares were down 5.5% for the week, European shares were 6.5% lower and Australian shares were down 2.3%. The NZX50 gained 1.0% as some solid results from local companies offset the negative leads from offshore. However, Friday was an awful day with the S&P500 falling 3.2%, its biggest one-day decline in almost four years. The Asian region, including Australia and New Zealand, was closed during this trading session.

The US market has now given back all of its gains for 2015 and is down 4.3% year-to-date. The UK and Australian markets are also now in negative territory for the year, while New Zealand and Europe remain higher. However, in NZ dollar terms all of the aforementioned markets are up solidly, as this year's decline in the currency more than outweighs the equity market weakness.

The NZ dollar rose about 2% against most other currencies, aside from the Euro, which has bizarrely been acting like a safe haven currency of late. Bond yields were down, with the 10-year US Treasury yield falling from 2.20% to 2.04% and 10-year German bund yields feel from 0.66% to 0.56%. The NZ two-year swap rate was down three basis points to 2.85% and the five-year swap rate was four basis points lower at 3.14%.

Oil prices fell heavily, with WTI down 6.2% to US$40.45 and Brent 7.6% lower at US$45.46. US oil has fallen for eight straight weeks now, the longest weekly losing streak since 1986. The WTI oil price was last at these levels in March 2009, and got as low as US$34 during that period. On Friday, prices briefly dipped below US$40.

In the US, all sectors were down with energy (-8.6%) and tech (-7.4%) falling hardest. Utilities performed best with a 1.2% gain. In Australia, all sectors declined with energy (-6.2%) again the weakest. Consumer staples (-0.2%) were the best performer for the week. Skellerup (+15.0%), Spark (+13.5%) and Trade Me (+12.6%) were the best share price performers on the NZX50. A2 Milk (-8.8%), Xero (-6.7%) and Sky TV (-5.8%) were the worst.

Key events last week:

• Scope of the pullback so far. The table below outlines where some of the major markets are currently sitting, in relation to their 2015 peak (which are also noted below, along with the dates those peaks occurred). Aside from China, European, Australian and UK shares are all in correction (a 10%+ decline) territory now. The Dow Jones index in the US (which only contains 30 stocks) is also in this camp, while the broader S&P500 is down 7.5% at present. The NZX50 held up best with just a 3.5% fall. However, being a gross index that includes cash dividends paid, the NZX50 has a slight advantage over the other markets listed below, which are all capital indices. Many people, ourselves included, would suggest that a decent correction is long overdue (and would probably be healthy, given how strong markets have been), with the US market not having suffered a 10%+ decline since October 2011, almost four years ago.

• Fed minutes more dovish than expected. Markets have moved to price in a much lower chance of the Fed hiking interest rates next month, with expectations having fallen to 34% as of Friday (from 48% a week earlier). December is now shaping up as a more likely time to move, if the Fed wants to hold on to its aim of beginning the normalisation process in 2015. Markets are pricing a 65% chance of a move in December (down from 74% a week earlier). Aside from general caution across markets and the negative sentiment surrounding China and many emerging economies, FOMC minutes released last week had an impact on hiking expectations. The minutes were more dovish than expected, and reflected some concern around the level of wage inflation, or lack thereof. With oil prices down another 15% since the July Fed meeting, downward pressure on inflation, and therefore future wage growth, has likely increased.

• Finally a GDT auction turns positive. After eleven straight declines, we finally saw whole milk powder (WMP) prices rebound at last week's auction. WMP prices were up 19.1%, rising for the first time since February. The broader global dairy trade (GDT) index was up 14.8%, rebounding from the lowest levels since 2002 that were reached at the previous auction. The market wasn't terribly surprised by the strong rebound, with Fonterra having announced that it would significantly reduce the volumes to be sold in this auction. The amount offered was almost 25% below the previous auction. The agricultural sector will breathe a sigh of relief that we may have finally seen a stabilisation in diary prices, with Fonterra's $3.85 payout looking more realistic now. Westpac continues to forecast a $3.70 payout, although in the wake of the GDT auction result ANZ upgraded its view back into a $3.75-$4.00 range.

• NZ migration hits new records. We saw another exceptionally strong set of monthly migration numbers for July. Net migration was 5,740 for the month, the highest on record, which pushes annual migration to 59,600, equivalent to a very healthy population increase of 1.3%. Almost 50% of those 59,600 people came from four places - India (21%), China (14%), Philippines (7%) and the UK (7%). The other big driver of migration has been the lack of NZers moving to Australia. Three years ago almost 40,000 people left for the lucky country, compared with just 843 in the year to July. While migration trends continue to look exceptionally strong, creating economic activity as well as adding to labour market capacity, we should note that a major factor in July was the number of arrivals on student visas.

• Final verdict on Q2 US reporting season. The US Q2 reporting season is all but finished, with 482 S&P500 having now reported. Year-on-year earnings growth turned out to be 0.04%, hardly anything to get excited about, although better than the -4.4% expected at the beginning of reporting season. When the energy sector (which reported a decline in earnings of 55.8%) is excluded, S&P500 earnings improves to 7.7%. Healthcare (+14.7%), telecommunications (+11.8%) and consumer discretionary (+10.5%) led the charge in terms of sector to post the strongest results.

• China flash PMI weakens more than expected. The Caixin flash PMI for China fell to a six-year low of 47.1 in August, below market forecasts of 47.7 and the worst reading for 77 months. The final PMI dropped to a two-year low of 47.8 in July, and this flash reading for August suggests that factory activity continues to get worse in China. Details from the survey showed that both the new orders and new export orders sub-indexes were declining at a faster rate than in July, suggesting that weakness in both domestic activity and external demand is weakening.

• Other flash PMIs show European momentum strongest. The flash Eurozone composite PMI for August was 54.1, up from 53.9 in July and close to the four-year high we saw in June. Manufacturing output growth hit a 15-month high and services growth was at the highest level in 49 months, with both sectors seeing a rise in the rate of growth. By country, output growth accelerated in Germany and the periphery, although France remained subdued. The US flash PMI fell to 52.9 in August from 53.8 in July - well above the breakeven 50.0 level, but the lowest reading since October 2013. The Japanese flash PMI was 51.9 - up from 51.2 in July and the second fastest pace of growth this year.

What to watch for this week:

• 2nd estimate of Q2 US GDP, as well as July personal income. The highlights this week in the US will be the second estimates of the Q2 GDP report, due for release Thursday, and the July personal income and spending report, due Friday. Second quarter GDP is expected to be revised up to 3.4%, ahead of the original estimates of 2.3% on the back of inventory building, as well as better contributions from construction and consumption. The personal income and spending report for July will also be scrutinised following its release on Friday, and the core PCE deflator is forecast to remain unchanged from 0.1% a month earlier. Durable goods orders are out on Wednesday, while Fed speakers throughout the week will get more attention than usual given the recent shift in thinking with regard to the potential for "lift off" to occur in September.

• Another bumper week of Australasian earnings. We're roughly two thirds of the way through the Australasian reporting season so far, and while the New Zealand market is faring ok, Australia has been a minefield of sharp share price reactions and disappointing results. By my count, 27 NZX50 companies had either reported a result (or held an AGM and given a trading update) as of Friday. Of these, 13 (48%) have seen their FY16 consensus earnings expectations downgraded, with the rest holding up ok or being increased. The average change to FY16 EPS was a 1.1% decline, although 2-3 large revisions dragged this down. In Australia, 35 of the top 50 companies have reported and 27 of these (77%) have seen FY16 EPS forecasts downgraded by an average 3.7%. This week we will hear from market heavyweights like Auckland Airport, Chorus, Air New Zealand and Mighty River Power in New Zealand. In Australia Lend Lease, BHP, APA Group and Woolworths are among the companies due to report.

• A slow week for NZ and Australia on the economic front. There isn't much of interest on the New Zealand or Australian economic calendar this week, so the last big week of reporting season will certainly dominate the headlines. In New Zealand, Tuesday will give some insights into inflation and wage growth expectations, as the latest RBNZ Survey of Expectations is released, and on Wednesday merchandise trade is reported for July. The RBNZ Deputy Governor is also scheduled to speak about the RBNZ's view of the property market on Monday. In Australia, the highlight of the week ahead will be Q2 CAPEX, which is out Thursday. Also on Thursday, Q2 preliminary construction work done will be released. There is also a speech from the RBA Governor on Wednesday, where he will talk at the National Reform Summit in Sydney.

Monday: US - Fed's Lockhart speaking NZ - RBNZ Deputy Governor speaking Aust/NZ earnings - AIA, CNU, S32, LLC, SKI, SGH

Tuesday: US - Home prices, consumer confidence Europe - Germany Q2 GDP, Germany IFO survey NZ - RBNZ survey of inflation expectations Aust/NZ earnings - AMC, BHP, GNE, SCG

Wednesday: US - Durable goods, Fed's Dudley speaking Australia - Q2 construction work done, RBA Governor speaking NZ - Trade balance Aust/NZ earnings - AIR, EBO, MET, MPG, ORI, APA, PGH

Thursday: Jackson Hole symposium begins US - Q2 GDP (2nd estimate) Australia - Q2 CAPEX Aust/NZ earnings - HBY, RHC, SCL, THL, WFD Aust/NZ AGMs - FPH

Friday: US - Personal income and spending (July), Uni of Michigan consumer sentiment Europe - Consumer confidence UK - Q2 GDP (2nd estimate) Japan - Unemployment, CPI, retail sales Aust/NZ earnings - DGL, IFL, MRP, VCT, WOW, NZO

Market Update - Monday 17 August

Most equity markets were down sharply last week, apart from the S&P500 which bucked the trend with a 0.7% rise. European shares were down 2.7%, the UK market was 2.5% lower and Australian shares were down 2.0% for the week. The local NZX50 was 2.9% lower.

The resources-heavy Australian market seems to have felt the brunt of the recent volatility more so than other markets, with the ASX200 10.5% below the 2015 peak from late April. In contrast, the NZX50 is down just 3.6% from its peak and the S&P500 in the US is only 1.9% lower.

The NZ dollar fell further against all currencies, falling 1.3% against the US dollar, 2.3% against the British pound and 2.0% against the euro. The Australian dollar was also weak so the NZ dollar held up slightly better against it, with just a 0.7% fall.

Bond yields were little changed, with the 10-year US Treasury yield rising slightly from 2.16% to 2.20% and 10-year German bunds unchanged at 0.66%.

Locally, the two-year swap rate was down two basis points to 2.88% and the five-year swap rate was lower by the same amount at 3.17%.

Oil prices didn't change much during the week, but with WTI at US$42.50 and Brent at US$49.19, prices are down 29% and 24% since the end of June.

In the US, energy (+3.4%), utilities (+1.5%) and telcos (+0.7%) were the best performing sectors, while financials (-0.4%) were the weakest.

In Australia, utilities (+0.4%) and consumer discretionary (+0.1%) were the only two sectors to rise, while tech (-11.9%), energy (-4.2%) and consumer staples (-3.1%) were the poorest performers.

In New Zealand, Vital Healthcare (+0.9%), Coats (+0.8%) and Genesis Energy (+0.6%) were the best share price performers on the NZX50. Metro Performance Glass (-12.3%), Spark (-7.6%) and Xero (-6.4%) were the worst.

Key events last week:

• China devalues the Yuan. The big news of the week (and probably the year) was China's surprise move to devalue the Chinese Yuan (CNY). Further depreciation is likely, and concerns over a global currency war have reignited. Key implications of this development (and further incremental moves) look to be a stronger US dollar, further weakness in commodity prices, and a global deflationary effect that will put downward pressure on global bond yields. We expect it to be a little more difficult for the Fed and the Bank of England to hike interest rates and see a greater chance of the RBNZ and the RBA reducing interest rates. This latter point will keep the NZ dollar and the Australian dollar on a weak footing. In terms of equities, the winners from this backdrop will be high yielders, US dollar earners and companies with a significant Chinese cost base. The losers will include companies selling products into China, such as automotive companies, industrials, luxury goods and consumer staples. Companies that have Chinese competitors, such as industrials, hardware and some technology companies will also do it tough as their Chinese counterparts become more competitive. Commodity producers are also likely to remain under pressure.

• China activity data slows further. China's currency devaluation stole all the headlines on Wednesday, so monthly activity data released the same day went largely unnoticed. Industrial production, fixed asset investment and exports were all weak in July. Industrial production growth slipped further, declining to 6.0% from 6.8% in June and 6.1% in May) much lower than the consensus of 6.6%. This was consistent with the trend seen in power generation, which saw a 2.0% year-on-year drop. Investment also remained weak, with year-to-date Fixed Asset Investment growth falling to 11.2% (compared with 11.4% in June and May, and 12% in April). Exports were weaker than expectations with an 8.3% year-on-year decline and retail sales growth slowed from 10.6% to 10.4%.

• Eurozone GDP growth disappoints in the second quarter. Flash Eurozone GDP data for the June quarter came in at 0.3%, below expectations for 0.4%. Germany and France were both disappointing, with German growth of 0.4% below expectations of 0.5% and flat GDP growth for France below forecasts for 0.2%. Greece surprisingly posted very strong real GDP growth of 0.8%. However, nominal GDP actually fell 0.7%, so it was purely the impact of subtracting Greece's negative inflation rate from that which pushed real (inflation adjusted) GDP into positive territory.

• US retail sales revisions look solid. US headline retail sales for July met market expectations with a gain of 0.6% month-on-month. However, it was the revisions to previous months that were particularly encouraging. Retail sales growth for May was revised up to 1.2% (from 1.0% previously) while June figures were upgraded to flat (from a decline of 0.3%). The part of the report that flows into the national accounts, control group retail sales, was up 0.3% in July and the aggregate contribution from May and June was revised up by 0.4%. For the three months ending July the annualised rate of retail sales growth (relative to the previous three months) was 5.2%, which points to stronger consumer spending in the June quarter than previously estimated, and also a robust start to the third quarter on this front. This could ultimately see second quarter GDP growth in the US revised higher than the initial 2.3% rate that was reported.

• US reporting season almost wrapped up. The US reporting season is almost over, with 460 S&P500 companies having now reported. Aggregate Q2 S&P500 earnings growth was 0.02% year-on-year, compared with expectations of a 4.3% fall in early July. This would have been the first quarterly decline since the third quarter of 2009. Excluding the energy sector, S&P500 EPS growth for Q2 improves substantially to +7.7%. Of the 460 companies that have reported, 47.6% have beaten estimates at the revenue level and 73.7% at the EPS level. Next week, 19 companies are expected to report with retail companies like Walmart, Home Depot and Gap making up the majority.

• New Zealand retail sales point to a slowdown. The volume of total retail sales rose 0.1% in the June 2015 quarter, a sharp slowdown from the 2.3% gain in the March quarter and the 2.1% rise in the December 2014 quarter. The previous two quarters were boosted by much lower petrol prices, which boosted disposable incomes and saw increased spending in other areas. While oil prices have remained weak, the NZ dollar fell sharply in the June quarter, which saw pump prices rebound and diverted household spending away from other areas and back towards petrol. Eight of the 15 retail industries had higher sales volumes, with the "non-store and commission-based industry" experiencing the largest rise (+8.1%). Other industries that saw big gains were motor vehicle and parts retailing (+0.6%), supermarket and grocery stores (+0.3%) and pharmaceutical (+0.7%). The weakest areas were fuel retailing (-0.9%) and accommodation (-1.7%), the latter probably reflecting a slowdown from the Cricket World Cup in the March quarter. Overall, this data adds to signs that the economy has been losing momentum over recent months.

What to watch for this week:

• Fed minutes the key US release this week. With just over a month to go until the September 17 FOMC meeting statement, the minutes from the July meeting will be watched closely this Wednesday. Market pricing is currently suggesting a 48% chance of a rate hike in September. This is down slightly from 54% a fortnight ago, but despite all of the recent volatility and the CNY devaluation, it is still a close call. Inflation (or lack thereof) remains a problem for the Fed. The core PCE (the Fed's preferred inflation measure) is still running at just 1.3% compared with 1.8% for core CPI (for which the July reading is also due Wednesday). However, we saw some positive news on Friday with the producer price index beating expectations and industrial production for July also surprising on the upside.

• NZ reporting season due for its busiest week. While this week is relatively quiet on the economic front, the next two weeks will be exceptionally busy in terms of corporate reporting in New Zealand and Australia. A number of market heavyweights will report results this week, including Contact, Meridian, Fletcher Building, Auckland Airport, Sky TV and Spark in New Zealand. From Australia, Sydney Airport, QBE, AMP and Wesfarmers are some of the companies scheduled to report. Wednesday, Thursday and Friday are shaping up as particularly interesting days.

• We could see a rebound in this week's GDT auction. Early Wednesday morning we will see the release of the latest global dairy trade (GDT) auction results, and after ten consecutive auctions that have seen a fall in the headline GDT index, we might be due for a bounce. NZX whole milk powder futures from August through to June 2016 have all gained over recent days, with the April contract up 12% to $2500. This coincides with an announcement last week that Fonterra will cut milk powder auction volumes in response to lower prices. At the next four auctions Fonterra will sell 72,000 metric tons of whole milk powder, down from a previous projection of 108,700 metric tons.

• Aside from GDT, it is a light economic calendar this week. Consumer confidence is out on Thursday, which will provide an insight into whether recent Official Cash Rate cuts have offset other negative news and had any impact on optimism. Migration data for July is out on Friday, which will be of interest given the strong tourism sector this year. Statistics NZ said on Friday that the population grew by 86,900 people (1.9%) in the year to 30 June 2015. This came from net migration (arrivals minus departures) of 58,300, and natural increase (births minus deaths) of 28,700 and was the strongest growth rate in more than a decade (in 2003 the population grew by 2.0%). In Australia, the only release of note is Tuesday's release of the minutes for the RBA's August board meeting. However, with the RBA Statement of Monetary Policy released a few days after the meeting, there is unlikely to be anything new in the minutes.

Market Update - Monday 10 August

Most equity markets were down last week as concerns over stalling global growth gathered pace in the wake of mediocre corporate earnings and collapsing commodity prices. The S&P500 in the US suffered its worst week in four months, finishing the week down 2.2%. European shares were down 2.7% and the UK market was 2.9% lower. The Australian market fell 1.8% while the local NZX50 bucked the trend with a 0.7% rise, getting some support as the OCR was reduced again.

The NZ dollar had a mixed week, falling 0.6% against the Euro but rising against other major currencies. The NZ dollar rallied as high as US$0.6696 on the day of the OCR cut, as some parts of the market expressed disappointment at a more measured statement from the RBNZ. However, this rebound was short-lived and the currency finished the week back below US$0.66. The Australian dollar fell to six-year lows, falling below US$0.73 as a weak Chinese PMI print on Friday afternoon added to the negative tone already set by falling commodity prices. This saw the NZ dollar rise more than 2% against the Australian dollar for the week, closing above A$0.90.

Bond yields were lower last week. The yield on a 10-year US government bond fell from 2.35% to 2.26%, while yields on 10-year German bunds declined from 0.79% to 0.69%. Locally, the two-year swap rate was up one basis point to 2.88% and the five-year swap rate was down six basis points to 3.17%. New Zealand two and five-year swap rates began the year at 3.80% and 3.97% respectively, 92 and 80 basis points higher than where they are today.

Oil prices were down again, with WTI oil finishing last week another 6.0% lower at US$48 and Brent crude down 4.3% at US$55. WTI is now down 19.5% in July and Brent is 14.8% lower. Other commodities fared just as bad, with gold prices hitting the lowest levels since 2010. Copper prices are down 8.8% this month (and down 15.6% in 2015) to levels not seen since 2009.

In the US, all ten sectors finished the week in the red. Financials (-0.1%), healthcare (-0.2%) and consumer staples (-0.4%) were the best performing sectors, while materials (-3.3%), telcos (-3.0%) and industrials (-2.5%) were the weakest. In Australia, tech was the only sector to rise (+0.5%), with healthcare (-0.7%) and consumer discretionary (-0.7%) the other two sectors to hold up best. Materials (-4.5%), energy (3.5%) and utilities (+3.1%) were the worst performers. In New Zealand, Ebos (+7.5%), Fisher & Paykel Healthcare (+5.3%) and a2 Milk (+5.2%) were the best share price performers on the NZX50. Heartland (-3.3%), Pacific Edge (-3.1%) and Contact Energy (-2.9%) were the worst.

Key events last week:

• OCR falls another 25 basis points, as expected. The RBNZ reduced the OCR by another 0.25% to 3.00%, as the market had expected and as was priced in. There was a minor sell-off in rates markets in reaction, with two-year swap rates increasing about five basis points. This was due to a more measured statement that some had expected, as well as some minor disappointment that the RBNZ didn't go one step further and slash the OCR by 0.50%, as a few people had hoped. It is unsurprising that the RBNZ was slightly more guarded in its comments that some would have hoped, given that this was a 300-word statement and the September release will be a full MPS with a new set of forecasts and much more information.

• More cuts to come, with the next one likely in September. The RBNZ used the words "some further easing seems likely" when discussing where it will go from here. This seems to point to another cut at the September meeting, most likely by a further 0.25%, which would take the OCR to 2.75%. From there, the consensus expectation is still for one more cut, taking the OCR to 2.50%, where it began last year. A couple of forecasters (Westpac and Capital Economics) are suggesting it will go down to 2.00% but they are in the minority, with most others (ANZ, ASB, BNZ, Deustche Bank, HSBC, KiwiBank) seeing a terminal rate of 2.50%.

• NZ dollar rally unlikely to be sustained. The NZ dollar rallied strongly in response to the RBNZ statement, presumably because of that small probability of a more aggressive 0.50% cut and because the RBNZ softened its commentary on the currency. The RBNZ dropped its "unjustified and unsustainable" wording when discussing the NZ dollar, instead saying "further depreciation is necessary". The RBNZ still wants to see the currency fall a little further, but after such sharp declines so far it didn't need to talk in such strong terms. Despite the market reaction, the path of the currency (as is the case of the cash rate) is still down.

• Migration and tourism arrivals remain very strong. A net 4,800 permanent migrants arrived in New Zealand in June, keeping immigration flows very strong at close to 5,000 a month, where they have been since last year. The annual net inflow was 58,000, which equates to annual population growth of a healthy 1.3%, and New Zealand experienced a third monthly net gain from Australia. Short-term visitor arrivals fell 0.2% for the month of June, but were still 9.3% higher than last year. The tourism sector continues to look very strong, even before taking into account the decline in the currency. China has been one of the strongest markets in this regard, with visitor arrivals in the June quarter more than 30% higher than last year and China now making up more than 10% of all visitors. This was corroborated by similar June passenger arrivals data from Auckland Airport last week. Non-resident visitor arrivals to Auckland in the year to June were up 7.7% on the prior year. The largest increases came from China (up 28.8%), the US (up 10.6%) and Australia (up 2.3%).

• July flash PMIs add weight to expectations of stalling growth. On Friday we saw July flash PMIs released for China, Japan, the US and the Eurozone. The average of all four was unchanged from the previous month at 51.8, although some divergences emerged between regions. China posted a particularly weak manufacturing PMI of 48.2, a sharp fall from 49.4 in June. This was a 15-month low, well below expectations and the breakeven level of 50. Japan was surprisingly good, rising to 51.4 from 50.1 in June and signaling the strongest conditions since February. The US flash PMI increased slightly to 53.8 in July, ahead of the June 20-month low of 53.6. While this remains well above 50, it is a long way down from the high levels we saw in 2014. The Eurozone composite PMI for July was 53.7, down from 54.2 in June but still solid considering all of the uncertainty the region has seen in the last month.

What to watch for this week:

• ANZ Business survey the highlight of the local economic calendar. The most interesting economic event on the local calendar this week looks to be Friday's ANZ Business Outlook survey for July. Last month this survey saw confidence slip into negative territory for the first time since the February 2011 Christchurch earthquake. This month we will look for signs of whether sharp falls in the currency and growing expectations of further interest rate cuts were enough to offset further declines.

• A few more annual meetings set to take place this week in NZ. There are also a handful of AGMs set to take place, which will mean more trading updates and outlook statements to help us gauge the health of corporate New Zealand. On Wednesday heavyweights Ryman Healthcare and Mainfreight hold annual meetings, along with Goodman Property. Kiwi Property Group follows on Friday.

• First look at US second quarter GDP due this week. On Thursday this week we will see the first estimate of US GDP for the June quarter. First quarter GDP ended up at -0.2% (having been initially reported at +0.2% and revised down to -0.7% at one point) so there is an expectation of a strong rebound in the second quarter. The market is expecting +2.5%, and PMI surveys certainly imply a 2.5-3.0% rate of growth. However, retail sales, factory output, wage growth and other business surveys have been decidedly more mediocre, so there is certainly a chance it could be a slightly disappointing number. The employment cost index (ECI) for Q2 is also released on Friday, while durable goods orders are out on Monday.

• July FOMC meeting unlikely to see any change. The July Fed meeting takes place this week, wrapping up on Wednesday in the US and with a statement due at 7:00am on Thursday NZ time. No change is expected at this meeting, with most people still expecting "lift-off" to occur at the next Fed meeting on 16/17 September. However, the statement will be as important as ever, given that Janet Yellen has been trying to build expectations that rates will rise for the first time in nine years at some point in 2015. There will be no press conference or updated economic projections from the Fed at this week's meeting. The Fed won't have seen the Q2 GDP report or the Q2 ECI when they statement comes out, although they will have received the durable goods report.

• US reporting season due for its busiest week yet. There are 163 S&P500 companies due to report this week, a third of the index, making this week the biggest in terms of the number of results. This week we will hear from the likes of BP, Exxon Mobil, Chevron, Twitter, Facebook, Samsung, GlaxoSmithKline, Procter & Gamble, Diageo. So far, 185 companies have reported with 72% beating estimates at the earnings level and 53% at the revenue level.

Monday: US - Durable goods orders Europe - Germany IFO survey New Zealand - BNZ-Business NZ Performance of Services Index Aust/NZ earnings/AGMs - Navitas FY, QBE trading statement Global earnings - Canon

Tuesday: US - S&P/CS homes prices, consumer confidence UK - Q2 GDP (first estimate Aust/NZ earnings/AGMs - Billabong FY, Green Cross Health AGM Global earnings - BP, Twitter, LVMH, Ford, UPS

Wednesday: US - FOMC decision, pending home sales Japan - Retail sales Aust/NZ earnings/AGMs - Goodman AGM, Ryman AGM, Mainfreight AGM, Genesis Q4 trading statement Global earnings - Facebook, Samsung, GSK, Mastercard

Thursday: US - Q2 GDP (first estimate) Europe - Consumer confidence Japan - Industrial production Australia - International trade prices, building approvals, Glenn Stevens speech New Zealand - Building consents Aust/NZ earnings/AGMs - Moa AGM Global earnings - Procter & Gamble, Diageo, ConocoPhillips, Sanofi, LinkedIn

Friday: US - Employment Cist Index (ECI) Q2, University of Michigan consumer sentiment Europe - Flash CPI (Jul), unemployment (Jun) New Zealand - ANZ Business survey (Jul) Aust/NZ earnings/AGMs - Kiwi Property AGM, Origin Energy trading statement, Resmed Q4 earnings Global earnings - Exxon Mobil, Chevron