The New Zealand financial markets start the week on the back foot as heightened fears over another wave of covid-19 cases keeps investors on edge.
Case numbers in some US states are accelerating exponentially and while US Vice President Mike Pence pushed back on the prospect of a second wave, Minneapolis Federal Reserve president Neel Kashkari has built in another outbreak into his base case scenario. Apple's plans to re-close 11 stores in four states with high covid incidence also weighed on investor sentiment, with Wall Street ending weaker on Friday.
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"The continued rise in covid-19 cases in several southern US states, and the risk this hampers the nascent economic recovery, remains on the market's radar," Bank of New Zealand strategist Nick Smyth said in a note.
NZ's own issues at the border, with new cases discovered in managed isolation, have also got some rethinking the success of the local response and whether the recovery will be as swift as some had hoped.
Government officials are working with airlines to better manage the inflow of returning New Zealanders. On Saturday, it took over two hotels in Rotorua to boost managed isolation capacity, which is nearing its upper limit, and more are expected to join the 20 facilities across Auckland, Rotorua, and Christchurch.
In Australia, NZ's second-largest trading partner, Victoria reimposed limits on gatherings as case numbers there climbed.
Travel and tourism stocks came off the boil last week amid renewed concerns over the pandemic. Air NZ fell 6.8 per cent last week to close at $1.51 on Friday, while Tourism Holdings dropped 14.3 per cent to $1.98.
NZ's S&P/NZX 50 Index closed last week at 11,254.74, getting a boost on Friday when index reweightings drove heavy trading. Wall Street will see a similar move at the end of this week in the annual review of the FTSE Russell indices.
Currency markets have followed suit, with risk-sensitive currencies such as the kiwi falling out of favour with investors. The NZ dollar fell to 63.79 US cents at 8am in Wellington from 64.05 cents on Friday in New York and 64.18 cents at 5pm on Friday local time.
ANZ Bank's NZ chief economist Sharon Zollner and strategist David Croy said risk-off sentiment has regained the upper hand with investors fretting about new outbreaks and second waves.
"New imported virus cases here don't help the tone; nor does Victoria's decision to ratchet up restrictions," they said in a note.
"None of this speaks to an imminent collapse in the kiwi, but the market seems to have more of an ear out for negative themes."
ANZ economists see fair value in the kiwi dollar at 65 US cents, and while there are risks in both directions, they said there's slightly more downside.
The Reserve Bank tapered its planned bond-buying to $940 million this week from $1.08 billion last week. The central bank will review monetary policy on Wednesday, but isn't expected to make any changes to its 0.25 per cent official cash rate or its $60 billion quantitative easing programme.
Local data today include the Reserve Bank's credit card spending and balances for May.