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Harbour Outlook: Coronavirus contagion uncertainty

Key points

  • The conflict between the US and Iran caused some market volatility but proved to be short lived.
  • Activity indicators were generally stronger in January. US manufacturing, which had been an area of weakness, posted a strong print in early February, well above expectations.
  • The US earnings season was very strong. At the time of writing, 320 S&P 500 companies have reported with 238 (74%) of those companies beating consensus earnings expectations.
  • The outbreak of Novel Coronavirus (2019-nCov), a relatively less deadly but more contagious coronavirus than SARS, will have an impact on global economic activity due to cities being in lockdown and supply chains being disrupted.
  • Interest rates and commodity prices have dropped substantially in response to the coronavirus outbreak. Equities, however, appear to have been supported by strong earnings and greater emphasis on the prior uptick in economic activity.
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Harbour team | Posted on Feb 11, 2020
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Novel Coronavirus – What you need to know

Key Points

  • Novel Coronavirus (2019-nCoV) is a more contagious coronavirus than Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), but fortunately, has a lower fatality rate so far.
  • While we can look to SARS for the potential economic impact, China’s position in the global economy is far larger now than it was in 2002/03.
  • Equity markets have typically rallied once the number of new cases peaks. We are not yet at that stage and expect volatility until that happens.
  • We have added to some stocks with structural tailwinds that have been sold off as a result of the event. But otherwise, we are taking a vigilant stance continuing to emphasise longer term positive structural influences.
  • This is continually evolving, World Health Organisation (WHO) situation reports are being produced daily and are available online. In addition, cases are being tracked in real time here.

 

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Harbour Team | Posted on Feb 4, 2020
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Fiscal friendliness extends to housing

Key Points

  • The Reserve Bank of New Zealand (RBNZ) has found a fiscal friend in the past two months. Following the $12bn of capital spending announced in the Government’s December Budget, Kāinga Ora (Housing NZ’s parent) plans to borrow an additional $4bn to help its state housing efforts.
  • While there is uncertainty about delivery, any additional government capital spending is likely to add to inflation via increased construction demand.
  • RBNZ rate cuts are less likely as a result and activity indicators are already picking up. Rate hikes remain a long way off however, with still-low inflation suggesting the RBNZ can adopt
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Hamish Pepper | Posted on Jan 28, 2020
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Harbour Outlook: Downside risks reduced

Key points
  • 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.
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Harbour team | Posted on Jan 10, 2020
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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...

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Harbour Team | Posted on Dec 18, 2019
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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...

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Harbour team | Posted on Dec 9, 2019
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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...

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Hamish Pepper | Posted on Nov 28, 2019
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Harbour Outlook: Risks reduced but not removed

Key points

  • 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.
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Harbour team | Posted on Nov 8, 2019
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Harbour Outlook: Deteriorating Data

Key points

  • 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.
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Harbour team | Posted on Oct 8, 2019
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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)...

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Harbour team | Posted on Sep 6, 2019