This article originally appeared in The Press.
US markets
The United States markets had a strong week with the S&P500 posting a 1.6% gain, its fifth positive week in the last six. The Dow Jones made a record high last week. Investors took a stronger than expected consumer price index print in their stride, with a decline in wholesale inflation and a weakening US labour market reinforcing the case for a rate cut by the Federal Reserve this week.
Markets are expecting a 0.25% cut by the US central bank when the Fed makes its decision Thursday NZT and there is also an outside chance of a 0.5% reduction. It would be the first rate cut by the Fed this year. The market is pricing in three more Fed rate cuts this year.
The Bank of Canada is also expected to cut rates again this week, as possibly will Norway’s central bank, while the Bank of England and Bank of Japan (which is an outlier in that it has been increasing rates) are expected to hold. Key data releases this week include retail sales data in the US, UK and China, housing starts in the US, along with inflation prints in the UK and Europe.
The Nasdaq Composite made a record high on Friday, and rose about 2% over the course of last week. The tech sector had a very strong earnings season, and the back end has delivered another major positive surprise.
Last week software giant Oracle had a “Nvidia” moment, stunning markets with AI-related revenues up 1500% in the quarter, driving a 35% jump in the share price in one session. The company announced a US$300 billion (NZ$405b) , five-year agreement with OpenAI, which is one of the largest cloud computing agreements ever signed. The tech titan now forecasts US$18b in 2026 financial year cloud revenue, rising to US$144b in five years. The share price jump saw the company’s founder Larry Ellison briefly overtake Elon Musk as the world’s richest person.
There were some notable economic releases last week and ahead of the Fed’s meeting.
Producer prices at the factory gate fell 0.1% in August. Headline consumer prices rose 0.4% last month, above forecasts for 0.3%, and the strongest since January, annual inflation at 2.9% was in line with forecasts. Core consumer inflation of 0.3% for the month (and 3.1% annually) was also in line with forecasts.
The rise in the monthly CPI did not reduce the prospect for a Fed rate cut this week, with central bank officials (and particularly chairperson Jerome Powell) noting of late that there is an increasing focus on weakness in the US labour market. The Fed’s dual mandate is to achieve price stability and full employment, and the balance of risks appears to have shifted towards the latter from the Fed’s perspective.
Oracle co-founder Larry Ellison briefly overtake Elon Musk as the world’s richest person after the company stunned markets with AI-related revenues up 1500% in the quarter, driving a 35% jump in the share price.
Following on from soft jobs datafor August, last week also showed that 911,000 fewer jobs were created in the year to March than previously reported. Weekly jobless claims have also reached 263,000, the highest level since October 2021.
Ongoing uncertainty around the fallout from tariffs looks to be weighing on hiring in the US economy. Tariffs are also on the minds of US consumers. The University of Michigan's survey released on Friday showed that US consumer sentiment fell for a second straight month in September. The index fell to 55.4, a four-month low, from a final reading of 58.2 in August. This was compared with forecasts for no change from the month before.
US consumers are seeing rising risks to business conditions, the jobs market and inflation, particularly among lower and middle-income consumers. Trade policy remains a big factor, with about 60% of consumers providing unprompted comments about tariffs during interviews. US consumers also aren’t buying the idea that tariffs won’t push inflation up over the longer term. While one year ahead inflation expectations were unchanged at 4.8%, that for inflation over the next five years rose to 3.9% from 3.5% last month.
Everything that has happened this year is clearly affecting sentiment with the index levels more than 20% lower than year-ago. The Fed hasn’t cut borrowing rate cuts this year, but is expected to be “off and running” again this week.
Europe
Across the Atlantic, European indices were about 1% higher as the European Central Bank left rates on hold. There are some views that having cut rates in half from a peak of 4% last year, and inflation around target, that the central bank is done with rate cuts. The UK market was also 1% higher for the week. The Bank of England may need to go again though at some point. The UK economy stalled in July, with zero growth as weakness in production offset growth in services and construction. Chancellor Rachel Reeves is also facing mounting pressure over the economy as she prepares for her budget in November.
Asia
In Asia, Japan was a standout last week with the Nikkei going above 44,000 hitting a new record high and posting a 4% gain for the week. The market was strong in the wake of the resignation of the country’s prime minister the previous weekend, and as the trade deal with the US was implemented. The tech sector was strong with shares in SoftBank soaring over 15% last week following the announcements from key partner Oracle.
Australia
The Australian market was fairly flat over the course of last week. The big four banks were higher, despite further announcements around cost cutting in the sector. Mining giant BHP was lower over the course of the week amid softer iron ore prices. Industrial production data out of China will be in focus today.
New Zealand
The Kiwi market also finished the week flat, with the NZX50 closing at 13277 on Friday. While the earnings season has ended, there are a number of annual meetings this week, including from Contact and Mercury.
There is plenty of economic data to digest. In addition to the GDP print, there is another dairy auction this week. The BNZ Performance of Manufacturing Index for August, meanwhile, showed why some might have got a bit ahead of themselves celebrating the move into expansion territory, with the PMI index fading back to a contractionary 49.9 in August. Manufacturers are continuing to do it tough it seems, although there are positive aspects. The three-month moving average for the PMI edged up to 50.6 so arguably there is an encouraging trend. Also new orders are in pretty good shape, reaching their highest level in three years.
However, manufacturers (despite 250 basis points of OCR cuts) are still not that confident and production levels have gone backwards and are about the same level as a year ago. So it is still hard to call whether the manufacturing sector is contributing positively to the economy in the current quarter. We do know, however, that core manufacturing sales volumes fell 1.9% quarter on quarter in the three months to June. This won’t help the June quarter GDP read this week, which is expected to show the economy contracted (about 0.3% per the consensus) quarter on quarter.
The services sector meanwhile remains in contraction mode. The BNZ Business NZ Performance of Services Index has slipped back from 48.9 to 47.5 in August. The three-month moving average has lifted from 46.9 to 48.0, but all the PSI sub-components remain well below their long-run average. With our service sector in contraction, NZ remains an outlier among many of our larger trading peers.
We have though had some good news from the retail sector, which could benefit the manufacturing and services sectors down the track, and our economy in the current quarter. Stats NZ on Friday reported that the value of electronic card transactions in retail industries increased 0.7% to $6.94b in August on a seasonally adjusted basis. That’s the third straight monthly increase, and the largest this year. The hospitality sector will be happy to know it had one of the larger increases, with spending up 1.4%, the largest increase since November 2024.
The total value of electronic card spending increased by $41 million to $9.3b. The numbers aren’t inflation-adjusted, so you could say that this might be partly due to higher prices. However, the number of transactions also lifted, rising to 174m last month, with an average value of $54.
Retail has been doing it tough, and time will tell if the green shoots are legitimate, and whether further rate cuts help matters running into the year end.