Market Update
Global markets experienced renewed volatility. There was a shift away from the technology sector and from large cap stocks in the US markets, leading to a -1.6% decrease in the Nasdaq index, versus the S&P 500 rising by +1.1% and the Russell 2000 gaining +10.6%. Bond markets sustained their upward trajectory amidst declining interest rates, with the US 10-year yield dropping by -0.37% to reach 4.03%.
Mixed signals emerged from the US economy, with manufacturing and services surveys declining, but employment numbers exceeding forecasts. Inflation slowed more than expected. This combination of cooling activity and subdued price pressure has stoked anticipation that the Federal Reserve (Fed) will reduce interest rates in the coming months. The Fed kept interest rates steady at month's end, as expected, but hinted at a potential rate cut in September if the trend of declining inflation persists.
Australian economic indicators have notably changed outlooks. As anticipated, the unemployment rate rose to 4.1%. Earlier this year, inflation prompted predictions of more rate hikes from the Reserve Bank of Australia (RBA), but recent data proved milder than forecasted, leading to a significant drop in interest rates as markets dismissed any hike expectations. The RBA is now predicted to maintain current rates in August.
As anticipated, the Reserve Bank of New Zealand (RBNZ) maintained its official cash rate in July, although the Monetary Policy Statement that followed was more dovish than previous ones. The RBNZ acknowledged the effects of stringent monetary policy on the economy and indicated their expectation for inflation to return to their target range later in the year, which would permit them to begin easing monetary policy by cutting rates.
Subsequent inflation figures supported these predictions with a larger-than-expected drop in CPI to 3.3% from the previous quarter's 4.0%. Interest rate markets expect the RBNZ to start a rate-cutting cycle as early as their August meeting.
The change in stance by the RBNZ led to significant declines in NZ rates, surpassing those seen in global rates. 2-year interest rates fell by -0.77% and 5-year by -0.61%, with these shifts beginning to be reflected in reduced mortgage rates.
The NZD was also weaker over themonth, down -2.31% against the USD, thanks the dovish RBNZ and weaker NZeconomic data.
Investors are increasingly worriedabout a widespread global economic downturn. Central banks are starting toreduce interest rates, with the extent and pace heavily influenced by incomingdata. In New Zealand, the upcoming employment figures will be closely observedbefore the RBNZ's meeting.