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. 

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.

Market Update

Although August saw a fair amount of market volatility, stocks swiftly recovered from their initial losses and ended the month on a positive note with the S&P 500 delivering 2.4% in USD returns over the month. Meanwhile, bond markets maintained their upward trajectory as interest rates fell, with the US 10-year yield decreasing by -0.12% to settle at 3.90%.  

US economic data showed signs of weakness with employment reports raising fears of a sharper-than-expected slowdown. This led to declines in equities and interest rates, which were further impacted by a significant drop in the Japanese market. However, markets quickly rebounded after determining the fears were exaggerated.   

The Federal Reserve Bank in the U.S. (the Fed) is likely to start reducing interest rates in September as inflation continues to decline and the economy begins to weaken. Markets anticipate the Fed will at least implement a -0.25% cut, with a 40% chance of a -0.50% cut at the time of writing.  

Australian economic data remained robust. The Reserve Bank of Australia kept Australian interest rates steady (as anticipated) and indicated there would be no rate cuts this year given the strength of the Australian economy.   

At home, the RBNZ initiated its easing cycle by reducing the OCR by -0.25% on the 14th of August. The market largely anticipated this move by factoring in a ~60% probability of a rate cut before the decision was made. Additionally, the RBNZ struck a more cautious tone about future monetary policy, forecasting a lower ‘final’ interest rate than many market participants had expected.   

The initial rate cut, and the accompanying conservative outlook, led to a decline in New Zealand rates. The 2-year interest rate decreased by -0.25%, and the 5-year rate dropped by -0.10%, which are now being reflected in lower mortgage rates. The market now anticipates a minimum of a -0.25% cut at each of the two remaining meetings, with a high probability of a -0.50% cut at the November meeting.  

Expectations of imminent rate cuts in the US, and a recovery in risk assets, outweighed the RBNZ’s rate cut and drove the NZD to appreciate by 5.0% against the USD over the month. 

Markets continue to closely monitor data as it becomes available. US employment figures in early September will influence the Fed's interest rate cut decision later in the month while equity markets will continue to weigh the severity of any potential economic slowdown against the relief provided by the Fed’s monetary policy easing. 

Market Update

In September, the soft-landing narrative grew stronger. Central banks' easing measures and increased risk appetite boosted global equity markets, with China at the forefront. In the US, the S&P 500 ended the month with a +2.0% increase. Bond prices also rose as interest rates declined, with the yield on the US 10-year treasury bond dropping by -0.12% to 3.78%.

Early in the month, US economic data led to conflicting opinions on the likely scale of the Fed's first rate cut. While some indicators suggested a robust economy, weaker employment figures countered this view. The market was divided on whether the Fed would opt for a 0.25% or 0.50% rate cut. In the end, the much-anticipated first US Fed rate cut came with a larger than expected 0.50% reduction. Confident that inflation is stabilising, the Fed showed it is intent on removing restrictive monetary policy. This "front-loaded" easing was intended to bolster the economy and prevent further job market weakness. Updated Fed forecasts indicate a relatively quick rate cut cycle, bringing the Fed rate down to 3.375% by late 2025.

In Australia, economic indicators continued to show strength, with the labour market adding more jobs than anticipated and the unemployment rate maintaining a relatively low level of 4.2%. CPI inflation saw a further decline, bringing headline inflation down to 2.7%. However, at 3.4%, the Reserve Bank of Australia's (RBA) preferred 'trimmed mean' measure remains significantly above their target range of 1-2%. Hence, as anticipated, the RBA kept rates unchanged. They mentioned that they don't expect inflation to fall within the target range until 2026 and reaffirmed that rates will remain steady this year as they monitor progress. With rates more than 1% lower compared to the US and NZ, they have the flexibility to be patient in reducing them.

Data from New Zealand presented a mixed picture, with confidence surveys improving as consumers and businesses felt more positive about the future following the Reserve Bank of New Zealand’s (RBNZ) decision to lower interest rates. GDP for the second quarter saw a contraction of -0.2%, which was better than the expected -0.4% decline. However, broader business surveys indicated that economic activity was still on a downward trend, with both consumers and businesses facing significant challenges. This pessimistic outlook influenced the interest rate market, which is now anticipating a high probability of a 0.50% rate cut by the RBNZ in both October and November.

Global rate cuts, a weakening NZ economy, and the expectation of larger RBNZ rate cuts this year led to lower domestic term interest rates. The 2-year rate fell by -0.35%, and the 5-year rate declined by -0.18%, resulting in reduced mortgage rates.

The dovish Federal Reserve resulted in a weaker USD, which pushed the NZD up +1.60% on the month.

Markets are closely monitoring new economic data and geopolitical uncertainties. The interest rate markets have already factored in a significant easing cycle, which now requires confirmation. Currently, the balance between the pace of rate reductions and the decelerating economy seems to be positive for risk and equity markets.