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