Market Update
Global stock markets surged in November, led by the Dow Jones Index up +7.5% in local currency and the S&P 500 Index, +5.7% in local currency. Bond prices fluctuated with increased volatility but ended slightly higher as US 10-year treasury interest rates fell by -0.12% to 4.28%.
The US election was the main market driver. As Trump's victory became evident, markets extended “Trump trades”. The US small and mid-cap stock index rose over +10% on growth optimism. Concerns about increased government borrowing and the potential for inflation from the imposition of tariffs strengthened the USD and initially pushed US interest rates higher, though the gains were short-lived.
US economic data maintained its recent pattern; job numbers indicated a slowing employment market, although the data was impacted by the hurricanes, and inflation matched expectations. The Federal Reserve (Fed) reduced rates by -0.25% as expected. At the time of writing the Fed was anticipated to cut rates by an additional -0.25% in December.
Australian economic data slowed, with employment growth and monthly CPI falling short of expectations. However, this was not significant enough for the Reserve Bank of Australia to consider cutting rates, with the market anticipating the first rate cut in April next year.
The Reserve Bank of New Zealand (RBNZ) reduced rates by -0.50%, a move that was widely anticipated by the market. The RBNZ plans to further reduce rates next year, aiming for an Official Cash Rate of approximately 3.5% by the end of 2025, which is slightly above current market expectations. Governor Adrian Orr indicated they will decrease rates by another -0.50% in February if data continues to align with their projections. This Central Bank easing has contributed to increased confidence in the economic outlook. Partial inflation data suggests that inflation is declining toward the middle of the RBNZ’s target range.
New Zealand's interest rates also experienced volatility in line with global interest rate movements but ended the month with only small changes. The 2-year rate increased by +0.04%, while the 5-year rate decreased by -0.05%.
The USD appreciated over the course of the month due to concerns about US inflation and higher interest rates, resulting in a 1.02% depreciation of the NZD and further enhancing gains from US equities for New Zealand-based investors.
As the holiday period approaches, data flow is expected to slow down. However, markets will continue to closely monitor geopolitical risks while also keeping an eye on any announcements from the incoming Trump administration.