Market Update - June 2024


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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.