VIDEO COMMENTS
WORLDVIEW
3 April 2024
Greg Fleming
Global Equities delivered very strong gains in the First Quarter, with US shares rallying by 10% and Japan’s by more than 20%, in local currency terms.
The US rally broadened beyond Technology. March Quarter’s fall in the NZD against key currencies boosted returns for unhedged investors.
However, the move up in global bond yields is still triggering volatility.
WORLDVIEW
18 January 2024
Bevan Graham
It’s been something of a rocky start for markets in 2024 as bullish monetary policy expectations have been wound back, particularly in the US. Here in New Zealand, recently weaker-than-expected GDP data has been something of a game-changer, but only up to a point. While in our view it negates the need for further interest rate hikes, it does not of itself bring forward interest rate cuts. That requires weaker activity to be followed up by weaker-than-expected inflation, particularly in the non-tradeable component. Next week's CPI data will be illuminating.
WORLDVIEW
31 October 2023
Bevan Graham
Expect a “hawkish hold” from the US Federal Reserve this week followed by a resumption of tightening from the Reserve Bank of Australia next Tuesday. Here in New Zealand, third quarter labour market data is expected to confirm our view the RBNZ has done enough tightening and now just needs to be patient.
WORLDVIEW
3 October 2023
Greg Fleming
A renewed move higher in global bond yields in September led to negative returns from fixed income and equity assets around the world. Active bond portfolio management could offset some sources of weakness, but government bond securities fell due to persistent fiscal and inflation concerns. In equities, US, NZ and Australian stocks all lost ground last month.
WORLDVIEW
25 August 2023
Bevan Graham
As central banks start to signal their next moves will be “data dependent”, markets will be watching each data point with extra scrutiny. This week the key data points, both offshore and here at home, were weaker than expected. So, what does this mean for monetary policy?
WORLDVIEW
8 August 2023
Greg Fleming
Market sentiment remained positive in July as developed market headline inflation rates continued to retreat, and activity data, to prove resilient. Global stocks performed well over the month, particularly in the US and Emerging Markets. Fixed income also recorded moderate positive returns in July, although a credit rating downgrade for the USA from Fitch Ratings pushed US 10 year yields up to a 2023 high. Corporate bonds outperformed Sovereigns.
WORLDVIEW
20 July 2023
Bevan Graham
Latest CPI data from around the world shows headline inflation rates all retreating to varying degrees. The reality is, however, the bulk of the disinflation to date is narrowly based with core inflation rates proving harder to budge. The path to sustained 2% inflation will be a marathon, not a sprint. The critical question now is whether central banks have done enough to achieve their mandates.
WORLDVIEW
4 July 2023
Bevan Graham
The midpoint of the year gives us an opportunity to both reflect on the first half of the year and postulate what the second half might bring. Two words are sufficient to summarise the first six months of 2023: resilience and persistence. But as we enter the second half of 2023, we believe the global economy may be approaching an important turning point.
WORLDVIEW
16 June 2023
Bevan Graham
While a contraction in March quarter GDP confirmed New Zealand is in a technical recession, it’s important to note there’s a lot of noise in the data. Furthermore, whether we are in a recession or not is a secondary consideration to whether the RBNZ has done enough to return inflation to target.
WORLDVIEW
26 May 2023
Bevan Graham
The RBNZ hiked 25bp this week but also called time on the rate hiking cycle. We’re ok with that - as you will recall from our preview, we think the Bank had already done enough. But its important to emphasise this is just a pause. Further hikes can’t be ruled out if the data warrants it. But for now, we turn our attention to the length of time rates will stay elevated.
WORLDVIEW
12 May 2023
Bevan Graham
Monetary policy is entering an interesting phase as central banks around the world start to pause their aggressive rate hiking cycles. In the US, while the regional banking crisis can’t be ignored, we think it’s the labour market that ultimately matters most. That means we don’t see interest rate cuts this year.
WORLDVIEW
23 March 2023
Bevan Graham
This morning's FOMC rate decisions were in line with expectations. But counter to Chair Powell’s hint of a higher projected terminal rate in the SEP at his recent Senate testimony, the median dot stayed at 5.1%. That suggests recent finance sector issues have had some impact on FOMC participants, however, the median dot for 2024 was higher than projected in December. That dot profile supports our expectation of a bit more tightening still to come, but the real question now being how long rates stay at that peak.
WORLDVIEW
7 March 2023
Greg Fleming
All eyes are on US February payrolls report and Fed Chair Powell’s testimony this week, till-strong global labour markets, despite central banks’ strenuous campaign of interest rate rises, are keeping inflation pressure in the system. This means bond yields are still elevated, though carefully-selected bonds are much better value than last year.
WORLDVIEW
23 February 2023
Bevan Graham
A different tone in global markets this week amid the realisation that central banks aren’t there yet in terms of tightening and that interest rates are likely to stay high for longer than expected. In New Zealand, the RBNZ remained resolute in its fight against inflation in the aftermath of the devastating floods wrought by Cyclone Gabrielle, however it will be some time before the full impact is clear. Our thoughts go out to all those affected.
WORLDVIEW
2 February 2023
Bevan Graham
This week’s softer than expected NZ labour market data adds to recently softer activity data and lower than expected inflation in suggesting tighter monetary conditions are starting to bite. We think the RBNZ still has more work to do, though not as much as they signalled in their most recent Monetary Policy Statement.
WORLDVIEW
23 May 2024
Bevan Graham
This week’s May Monetary Policy Statement from the RBNZ was more hawkish than expected. An interest rate hike was considered and ultimately the first cut was pushed out three months to August next year. The bottom line is my GDP and labour market forecasts are still significantly weaker than the RBNZ’s.
WORLDVIEW
22 March 2024
Bevan Graham
NZ GDP showed the expected mild contraction in activity in the December quarter of last year showing that restrictive monetary policy is continuing to constrain demand, even in the face of strong population growth. And while our current account deficit improved over the same period, it continues to leave us vulnerable to shocks.
WORLDVIEW
1 February 2024
Bevan Graham
There were no surprises from the US Federal Reserve this week. They dropped the reference to the risk of higher rates and adopted a neutral bias, pushing back on rate cuts expected by the market as early as March. And in a speech also this week the RBNZ’s Chief Economist pushed back on early rate cuts in NZ.
WORLDVIEW
21 December 2023
Bevan Graham
Yesterday’s HYEFU and mini-Budget showed a further deterioration in the Crown accounts and that’s before last week’s weak GDP report is incorporated into the numbers. The fiscal situation is getting tighter by the day and the new government is in for a few lean fiscal years. That will make trade-offs and re-prioritisations a key element of their fiscal strategy. From all the team at Salt, have a great Xmas and New Year.
WORLDVIEW
5 September 2023
Greg Fleming
World equities still lack a catalyst for additional gains, and slipped in August as global bond yields once again rose. Government deficits are unnerving traditional bond investors, though the yield levels are increasingly compelling. Energy prices rose, and cost pressures on firms and consumers remain high.
WORLDVIEW
14 August 2023
Bevan Graham
We expect this weeks Monetary Policy Statement from the RBNZ to be a largely uneventful affair. Sure, not everything has gone the RBNZ’s way since the May MPS, but we think they will be quietly confident that higher interest rates are doing the job. We expect they will signal general satisfaction with the current level of interest rates, but also not to expect interest rate cuts until the second half of next year.
WORLDVIEW
31 July 2023
Bevan Graham
We think it’s still too early for this week’s June quarter New Zealand labour market data to show any significant softening. But we still think that’s coming. Pent-up demand for labour will soon run its course and start colliding with weaker demand. So, we remain of the view the RBNZ has tightened enough, but that it will be a long time before we see interest rate cuts.
WORLDVIEW
20 June 2023
Greg Fleming
In June, approaching 2023's mid-point, the long bear markets in equities and bonds dating from January last year have finally ceased. Global equities have gained this month and major markets have now returned 15% or above in 2023. In contrast, NZ has lagged and conditions domestically remain comparatively soft.
WORLDVIEW
19 May 2023
Bevan Graham
Budget 2023 added a bigger demand impulse into the economy than we were expecting. That could shift the dial on the RBNZ’s OCR deliberations. In a stretched economy, what fiscal policy giveth, monetary policy may have to taketh away. We only have to wait till next week to see how the RBNZ responds.
WORLDVIEW
2 May 2023
Bevan Graham
It’s a busy week for central banks with the RBA, the Fed and the ECB all meeting this week. The RBA is expected to remain on hold while the Fed and the ECB are both expected to hike. Important labour market data is also scheduled for release in the US and here in NZ. We expect slightly stronger employment growth in the March quarter when compared with December, but it’s important to note this is likely the result of improving supply conditions in the labour market, rather than a sign of accelerating labour demand.
WORLDVIEW
3 April 2023
Bevan Graham
It’s the turn of the antipodean central banks with both the RBA and the RBNZ meeting this week. Markets are expecting a pause in the RBA hiking cycle on Tuesday, though this might not necessarily mean the bank is finished. With more work to do, we wouldn’t be surprised if the RBA just got on with the job and hiked another 25bps. The RBNZ is expected to lift the OCR a further 25bp to 5.0% in its Monetary Policy Review on Wednesday and signal that inflation remains uncomfortably high and that there is more work to do.
WORLDVIEW
17 March 2023
Bevan Graham
At risk of appearing overly sanguine, we don’t see issues that emerged in a number of financial institutions this week as being systemic. That said, we have recently argued that while monetary policy may tighten a bit further, central banks shouldn’t dismiss the long lags between monetary policy actions and those actions impacting on the real economy. This week’s events are a helpful reminder that those lags also apply to the financial sector. The full implications of over a decade of super-stimulatory monetary followed by an aggressive tightening path will take time to be fully realised and will ultimately expose businesses with poor balance sheets.
WORLDVIEW
28 February 2023
Bevan Graham
New Zealand retail sales volumes fell in the final quarter of last year and are expected to trend lower over the course of this year, reflecting tighter monetary conditions and households on fixed rate mortgages rolling into, in many cases, significantly higher mortgage rates. In Japan, the nominee for Governor of the Bank of Japan was cautious on the outlook for inflation in Japan, but current higher inflation offers a window of opportunity to exit unconventional policy settings.