KEY POINTS:
New Zealand share investors will be bracing themselves for another uncomfortable week, as bearish sentiment at home and abroad continues unabated.
On Wall Street the Dow Jones Industrial Average closed down nearly a per cent on Friday night, in the face of further oil price hikes and little
prospect of relief.
This capped a week in which the NZX-50 slumped to a two-and-a-half year low of 3226.9. It has shed more than 20 per cent for the year.
As well as being hit by fallout from the US, the NZX also faces falling confidence among local investors as the economy works through a recession which will hurt domestically focused companies.
Several companies have already downgraded profit forecasts for the financial year which ends today.
US commentators are picking the American market may finish June with its worst monthly percentage decline since September 2002.
"The combination of a banking system that's on its knees and high commodity prices is just making investors nervous," said Ray Rund, managing director and head of research at Shaker Investments in Cleveland. "Even though we are not technically in a recession, it certainly feels that way."
At home on Friday, the market reacted to news that the local economy shrank 0.3 per cent in the three months to March, potentially the first of the two consecutive negative quarters required to constitute a technical recession.
Market commentator Arthur Lim, of investment banking firm Giffney & Jones, said the New Zealand market was being forced to dance to the overseas tune.
But there was precious little good news on the home front to counter it.
The June 30 year-end reporting season was about to get underway, and already there was evidence of companies' profitability under pressure with the profit warnings from retailers Briscoes and The Warehouse.
"It doesn't look like locally that there's any catalyst in the short term to give the market a spark along."
He said the New Zealand market was now suffering from what he called the "de-multiplier effect" - whereas for the past seven years it was buoyed by consumer confidence and economic growth, now it was being brought down by factors, such as the rise in living expenses and the spate of finance company collapses. "Because you can imagine all those people [finance company collapse victims] have now got money locked up."
While an interest rate cut could help turn that sentiment around, the prospect of falling rates was also putting off overseas investors. New Zealand stocks may look cheap now, but a rate cut would cause the kiwi dollar to fall.
But Lim said all was not doom and gloom on the New Zealand bourse, as a lot of the bad news had been factored in. "Markets do look ahead and currently the market is pricing in a very, very grim scenario indeed."