Weekly Market Commentary 17th August 2020

Markets closed a strong week flat, amidst fluctuating push and pull factors. The virus spread and the economic consequences have influenced market in Europe, the US and Australia/NZ. It has become increasingly clear that the economic damage inflicted by lock downs are immense a cannot be sustained in the US and Europe. NZ and Australia have not reached this realisation, as yet, as both Victoria and NZ are suffering under yet another lock-down. The clue to the destruction these politicians are inflicting is in the economic data and institutional reports. The fiscal support/relief packages have camouflaged much of the real damage, but the deficit/debt numbers revealed by the Central Banks, tell the story.

Europe and the US are suffering the second wave, but have employed a more targeted response to the virus, attacking the hot-spots as they breakout and allowing the remainder of the economy to function, as close to normal as possible. NZ and Victoria have employed an elimination strategy, but this is highly dependent on an early vaccine becoming available. NSW have adopted the US/European strategy, fighting the fires where they ignite and comprehensive contact tracing and quarantine of the aged and sick. This is the only functional strategy, for any extended period, without the advent of vaccines.

Equity markets are forward looking and remain positive, but bond yields and currencies are more reactive. US Bonds yields have been spiking, while NZ Bond yields have crashed, following the RBNZ actions during the previous week. The currency has also been on a downward trajectory, falling below 0.6550, despite a weaker reserve. The AUD is trading below 0.7200, but remains in a healthier position than the KIWI ,which is reflected in the cross rate.

The coming week will be determined by the economic impact of the second wave of the virus, around the world and the fiscal/monetary response of Central Banks and Governments.