Market Update

Global markets continued to rally in March. Equity markets saw healthy gains, with the S&P500 index up +3.1% in USD terms, while US bond yields moved slightly lower, with the US 10-year rate moving down -0.05% to 4.20%. 

Global markets are growing more optimistic of a “soft landing” as US economic resilience continues. US inflation was slightly higher than expected, prompting interest rate markets to taper expectations for interest rate cuts this year. 

The Federal Reserve held their benchmark rate unchanged, and in a dovish surprise continued to signal 0.75% of cuts this year. They raised their projection for the rate at the end of 2025, indicating that higher rates may be needed for longer to tame inflation. The Fed repeated their message that they are looking for more evidence before they decide to cut. Interest rate markets retraced earlier moves higher on the slightly more dovish outlook, with the first cut now expected by July this year. Equities benefited from the prospect of eventual interest rate cuts.

Australia continued to show robust job growth, with the jobless rate surprisingly dropping to 3.7% from 4.1%. Despite the risk of higher wages from the tight labour market, CPI inflation stayed steady at 3.4%, which would have been welcome news for the Reserve Bank of Australia (RBA). The RBA are still waiting for more data before changing their policy, with interest rate markets predicting the first reduction by September this year.

New Zealand has re-entered a recession, as GDP in the 4th Quarter of 2023 fell by -0.1%, after a drop of -0.3% in the previous quarter. This was below forecasts and highlights the ongoing slowdown of the NZ economy. The situation is even worse when we consider the very high population growth driven by net-migration, with GDP per capita down -3.1% over the year. The market now believes that the Reserve Bank of New Zealand (RBNZ) has stopped raising rates, with expectations for the first cut in August this year.

The weak GDP data and late month move lower in global interest rates pushed NZ rates lower. The 2-year rate ended the month down 20 basis points and the 5-year rate was down 18 basis points.

The disappointing NZ data and move lower in NZ interest rates drove the NZD down -1.9%.

Incoming data is still the main focus of global markets as they try to assess if central banks will have room to lower rates this year. After the solid gains in stocks so far, investors are getting more wary of any signs of higher for longer interest rates and an increase in geopolitical risks. 

Market Update

Global markets fell back in April after a strong start to the year. The S&P500 index declined -4.2% in USD terms, while US bond yields moved higher, with the 10-year treasury rate rising 0.48% to 4.72%. 

There is concern in markets that inflation is stubbornly remaining above central bank targets whilst economic growth is becoming sluggish. This means that the global economy may be in a state of stagflation - a scenario characterised by low growth and high inflation, and a difficult situation for central banks to navigate. The threat of stagflation reduced the likelihood of rate cuts this year and dampened risk appetites across markets.  

Data from the US revealed that labour markets remain resilient, raising questions about how the US Federal Reserve will respond. Markets subsequently revised their expectations, and now anticipate that the Fed will only cut interest rates once this year. These new expectations caused interest rates to rise, and equities to fall. Lower-than-expected GDP growth also put pressure on equities.  

In Australia, inflationary pressures continue to weigh on the Reserve Bank of Australia. Australian inflation was reported at 3.6% for the first quarter of 2024, lower than 4.1% in the previous quarter, but above the 3.5% forecast. This led to a significant adjustment of interest rate expectations - the Australian market now sees a 50% possibility of another rate hike this year with no chance of an interest rate cut before 2025. 

New Zealand's economic data, on the other hand, was mixed in April. Inflation was down from 4.7% to 4.0% and in line with forecasts. However, the breakdown showed that non-tradables inflation in fact increased. Higher non-tradables inflation reflects ongoing inflationary pressure in the domestic economy and could mean the RBNZ will maintain rates at current levels forlonger.  

However, business confidence dropped further, indicating a challenging economic outlook. NZ employment data also came in weaker than expected. Employment growth slowing to 0.2% compared to the anticipated 0.3% growth, while the unemployment rate climbed to 4.3%. This employment data is favourable for the RBNZ because it eases the pressure on wage growth and inflation.  

Rising global interest rates pushed NZ rates higher, but to a lesser extent than our global peers due to our weaker domestic data. The domestic 2-year interest rate increased by +0.34% and the 5-year rose by +0.42%.  Stronger US data, risk aversion by investors, and weaker NZ data pushed the NZD down -1.4% over the month.  

Markets continue to focus on macro-economic data to assess when central banks will be able to ease their restrictive monetary policy.  

Market Update

Global markets resumed their upward trend in May, boosted by optimism about easing inflation and a resilient economy. Stock markets rose, with the S&P500 index increasing +4.8% in USD terms and the Nasdaq, which has more technology stocks, rising +6.3%. Bonds also advanced as interest rates dropped, with the US 10-year rate declining -0.18% to 4.50%.

As anticipated, the US Federal Reserve (Fed) did not alter the Fed Funds Rate. The Fed is still concerned about getting inflation back to 2% but believes that the next change in rates will be lower.

US data was encouraging for taming inflation. Job growth was a bit weaker than forecast with slower wage rises. Inflation measures kept easing, and economic activity signs all showed a cooling economy, which will hopefully result in further disinflation. Interest rate markets anticipate the Fed to start reducing rates by November.

The Reserve Bank of Australia (RBA) kept rates steady and repeated their neutral position. Australian economic data has revealed some worrisome signs of stagflation, with employment, consumer and construction activity weakening more than anticipated while CPI inflation unexpectedly rose. Markets do not anticipate the RBA to have room to cut rates this year. 

New Zealand's economic indicators keep worsening. Unemployment increased more than forecast, business and consumer confidence declined further, and construction activity dropped. The positive news is that inflation expectations also eased.

As anticipated, the Reserve Bank of New Zealand (RBNZ) kept rates steady, but they signalled a more hawkish stance, pointing out the dangers of domestic non-tradable inflation being more persistent than expected. They repeated that they do not foresee reducing the OCR until the latter half of 2025. 

NZ rates fell along with global interest rates, but the RBNZ's less dovish stance kept shorter-term rates from dropping materially. 2-year interest rates decreased by -0.04% and 5-year by -0.10%.

The NZD had a very strong month, boosted by the cooling US economic data, positive risk sentiment and the RBNZ's more hawkish outlook. It rose +4.3% against the USD and +1.5% against the AUD.

Some important economic events coming up in June are the US CPI print, the Fed meeting and the NZ GDP release. Investors will be looking at the data for clues on the timing for when central banks can start cutting interest rates. 

Market Update

Global markets continued to rally in June as the US economy remained resilient and global inflation moderated. The S&P500 index rose 3.5% in USD terms, and the technology-oriented Nasdaq climbed 6.2%. Bonds also delivered positive returns as interest rates fell with the US 10-year rate decreasing -0.1% to 4.45%.  

Economic data from US manufacturing and services sectors showed signs of optimism with job creation exceeding expectations and inflation falling. The improved economic data boosted investors’ confidence in the US economy’s growth potential while lower-than-expected inflation raised hopes that the Federal reserve will begin cutting interest rates later this year.  

For the moment though, the Federal Reserve left interest rates unchanged in June, which came as no surprise to the markets. At the same time, Federal Reserve members lowered their expected interest rate cuts to only one -0.25% cut this year - down from the three cuts expected at the beginning of the year. However, Federal Reserve members simultaneously raised their expectations for cuts in 2025 and are now projecting up to -1% worth of interest rate cuts next year. This ‘higher for longer’ stance is a reaction to the improved economic outlook and an inflation level that, despite growing more slowly than last year, remains above target. Ultimately, inflation data is still moving in the right direction and interest rate relief is expected before the end of the year.  

There was no change in the Reserve Bank of Australia’s (RBA) stance in June due to a worrying rise in CPI inflation to 4% from 3.6%. Australia’s higher-than-expected inflation has led investors to consider the possibility that the RBA may have to raise interest rates again soon. Despite this, the Australian economy continues to show signs of strength, which may be contributing to their sticky inflation. 

New Zealand's economy worsened with domestic manufacturing and service surveys hitting lows not seen since the COVID pandemic. Households faced more pressure in June and consumer confidence dropped. The economy grew 0.3% in the first quarter, slightly above estimates, but this is still negative on a per capita basis. The economy will likely continue to struggle over the next few quarters.    

NZ rates fell faster than global peers in June due to the deteriorating outlook in domestic economic conditions. Two-year interest rates decreased by -0.14% and five-year rates decreased by -0.16%. The NZD weakened -0.83% against the USD over the month, driven by a stronger USD and weak NZ economic data.  

Key events to watch in July include the RBNZ meeting, NZ and US CPI (inflation) data, and Australian employment.