Expect share markets both in New Zealand and around the world to rally today after two of the bogeymen spooking investors have abated, at least for now.
Bogeyman one was the trade war between China and the United States. They called a truce when their presidents, Xi Jinping and Donald Trump, met for dinner at the G20 meeting in Buenos Aires over the weekend.
And bogeyman two was the threat of higher US interest rates. US Federal Reserve chair Jerome Powell last week moderated his stance to interest rates, saying they were now “just below neutral”, in contrast to previous comments that rates were “a long way from neutral.”
NZX, the first market in the world to open after the weekend, should lead the way higher after gaining 1.4 percent last week, easing its losses for the quarter-to-date to 5.6 percent.
The key US index, the S&P 500 Index, had an even stronger 4.9 percent rebound and it’s now just 5.8 percent lower than its record closing high in September – at one point, it was more than 10 percent down.
“It’s pretty safe to say last week’s rally will continue because two big issues have been diffused for the time being,” said Mark Lister, the head of wealth research at Craigs Investment Partners.
The US-China trade truce “is definitely a positive. I think that will be good enough to keep last week’s rebound continuing. Markets will now be on a surer footing.”
Nevertheless, Lister warns that the trade stoush still has a long way to play out.
Trump and Xi both sent out positive signals and Trump reportedly agreed not to go ahead with plans to increase tariffs on US$200 billion of Chinese imports to 25 percent from January, up from 10 percent currently.
“The issues between the US and China go a lot deeper than trade but, for the time being, that will be taken as a positive,” Lister said.
Powell’s more dovish statements last week led the market to pare back expectations of how much interest rates will rise in the US.
“The Fed is still likely to increase rates by 25 basis points at the December meeting, although there is now just one more hike priced in over the next 12 months,” Lister said.
The US 10-year Treasury bond slipped back under the 3 percent mark to 2.99 percent last week.
A stock with strong links to China, Synlait Milk, was one of the strongest performers last week, gaining 5.6 percent, although Pushpay, which sells electronic donation systems to churches in the US, was the best performer with a 7.5 percent gain.
Gentrack, which provides software to utilities and airports, was the biggest decliner last week, shedding 7.4 percent, after reporting softer than expected first-half results and very cautious comments about the outlook. Gentrack said it’s cautious about how Brexit will affect its business in Britain and Europe in the short-term, even though it remains confident it can grow organic operating earnings at 15 percent or more in the long term.
It reported a 17 percent increase in net profit to $13.9 million for the six months ended September and its underlying result was up 30 percent.
Gentrack “is a very solid business but it’s still in that technology space” and it still has to win new customers. “We’ve seen a lot of companies this year reporting good results, but not quite up to lofty expectations,” Lister said.