Harbour Outlook: Downside risks reduced
- Risks of an escalation in trade conflict and a disorderly Brexit subsided in December, boosting equity markets further. The improved sentiment was somewhat dampened by rising geopolitical uncertainty in the Middle East.
- Activity indicators were stronger in December, with a further recovery in New Zealand confidence. The US manufacturing sector remains the fly in the ointment.
- Generally improving economic indicators and the reduction of tail risks saw bond yields rise over the quarter, meaning negative returns for fixed interest investments.
- Domestically, the Government confirmed additional capital expenditure ($12bn over the 5-year forecast period) that should provide further support to economic activity. The Government forecasts that the package will add 1.4% to GDP.
Top 10 risks (and opportunities) for 2020
What a difference a year makes. When we sat down to write down the risks and opportunities for 2019, we were amid a sharp market drawdown. The US earnings season had raised concerns about an earnings recession, the market was worried the Fed was too hawkish and the trade war had injected fear into markets. Fast forward to today and earnings have been resilient, the Fed is on hold and the trade war, which did escalate during 20...READ MORE
Harbour Outlook: Earnings deliver, trade fears fade
Key pointsEquity markets rallied on the back of positive trade developments, better than expected earnings and improved activity indicators.
The New Zealand market performed strongly on the back of a strong AGM and reporting season. Notably, the more defensive stocks which have outperformed in 2019 delivered weaker returns due to an increase in interest rate expectations.
Lead economic indicators have improved, but it is too e...
Harbour Macro Research Day: Mixed Signals
Harbour’s internal Macro Research Day is a chance to hear from external research providers, challenge assumptions and anchor our medium-term view.
The local outlook is mixed. Monetary conditions have eased and should support a recovery, but structural impediments mean business confidence may not pick up.
The global picture has improved which makes additional central bank support less likely.
Harbour held its bi-annual interna...
Harbour Outlook: Risks reduced but not removed
- Global equities outperformed bonds in October as trade risks abated, US earnings impressed and central bank easing supported sentiment.
- The economic outlook for Australasia improved and the associated higher interest rates reduced the value of fixed income assets. Equities underperformed their global counterparts due to sectoral weakness in electricity, banking and materials stocks.
- We retain a degree of scepticism in the macro outlook. The global backdrop has improved but remains fragile. Domestically, large amounts of monetary stimulus have been delivered but confidence is poor and activity soft.
- This environment should favour growth stocks where Harbour equity portfolio exposure is concentrated alongside maintaining exposure to several defensive investments. Within fixed interest portfolios, we reduced duration in October but remain long relative to benchmark given soft economic activity and residual risk.
Harbour Outlook: Deteriorating Data
- Trade developments continued to whipsaw markets during September. The optimism instigated from a planned resumption in trade talks was soon dampened after a planned visit to US farms by Chinese officials was cancelled. Sentiment recovered later in September in anticipation of October’s round of negotiations.
- Global economic data generally came in weaker than expected during September, though some Chinese data did buck the trend of weak data prints.
- Domestically business confidence surveys have continued to weaken. NZIER’s Quarterly Survey of Business Opinion (QSBO) showed a decline in firms’ own trading activity with a net 11% of businesses reporting demand fell over the quarter, the weakest level since September 2010.
Harbour Outlook: Downside risks
Lead economic indicators continued to weaken and uncertainty around trade negotiations dragged on during September. It was against this uncertain backdrop that global equity markets fell 2.0% (in local currency). New Zealand equities held up comparatively well, down -0.9%, with higher yielding companies faring best after the RBNZ’s surprised 50bp cut to interest rates. Australia suffered the brunt of falling commodity prices, down 2.4% (in AUD)...READ MORE
Harbour Outlook: Lower and lower domestic interest rates
Key pointsThe trade tensions roller coaster continued during July. Hopes were initially raised with the announcement of further trade talks in China, though that hope turned quickly to despair as Trump announced further tariffs on Chinese imports.
The US Federal Reserve delivered its much-anticipated rate cut in July, just eight months after its last hike. The Fed’s view that this is a “midcycle adjustment to policy” disappoin...
Harbour Outlook: Finely balanced, markets walking a tightrope
Key points Trade tensions again dominated the headlines during June, while the “truce” reached at G20 summit mitigated some left-tail event fears, there is plenty yet to play out and the outcomes are likely to be non-binary.
Trade tensions and a string of softer than expected economic data led global yields lower in June.
In line with the global trend, domestic data erred on the side of disappointing with low PMI and busines...
Harbour Outlook: Trade tensions impact global growth
Global equity markets retraced from their highs in May with the MSCI World index (in local currency) returning -6.0%. Risk aversion picked up almost entirely due to the breakdown in trade talks between the US and China. This resulted in the US increasing tariffs on US$200 billion of Chinese goods; China promptly retaliated.
New Zealand and Australian equities weathered the volatility in global markets well...READ MORE