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