Harbour Outlook: Crisis of confidence
It was a strong month for absolute returns in New Zealand asset classes in August, with the NZX50 sharemarket index rising around 4.4% and the NZ Government bond index generating a return above 1.2%. This strong performance of financial markets sat in sharp contrast to the continued weakness of New Zealand business confidence, which is shaping the political and policy-making environment.
As usual there was a laundry list of global developments highlighting the ongoing risks to the global backdrop: heightened US trade tensions, this time with Canada; wobbles in the Italian banking sector and sovereign bond market; emerging market strains in Turkey and Argentina; and political changes in Australia generating the 5th prime minister in five years. Despite these developments and headlines, global macroeconomic data, particularly in the United States, continued to show a picture of solid actual economic activity running near economists’ expectations...
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Continued growth of responsible investment in New Zealand
The Responsible Investment Association Australasia (RIAA) has recently published their fourth annual New Zealand Responsible benchmark report[i] that shows the size and growth of responsible investing in New Zealand over the 2017 calendar year.
Harbour is delighted to have been included for the third consecutive year as one of four domestic asset managers that are using a leading approach to Environmental, Social and Governa...
Harbour Investment Horizon: Fiscal Policy Outlook
There is growing coverage in the media that a slowing economy could force a fiscal tightening to stay within the government’s fiscal responsibility rules.
There is little evidence that the market is concerned with this risk, with the New Zealand government bond yields trading below the US for the first time in 25 years.
While providing important political discipline, there is also some flex in the fiscal responsibility rules, ...
Harbour Navigator: Regime Change at the RBNZ
The path of least regret for the RBNZ appears to be letting core inflation rise above 2%.
A broad interpretation of the mandate motivates actions to support growth and business confidence.
As the new regime beds down there may be more volatility in the rates and FX market, with a new voting committee still yet to come in 2019.
In last week’s Monetary Policy Statement (MPS), the RBNZ surprised markets by shifting the projected ...
Harbour Outlook: Slowing growth and rising inflation
Key developments
In recent months, we have highlighted how the New Zealand economy and markets seem at a crossroads, with a moderation in domestic economic activity whilst cost pressures appear to be rising. With further evidence of this scenario playing out in July, we look into the implications for the rates market through monetary and fiscal policy, as well as the impact on New Zealand equity valuations.
But first, looki...
Harbour Navigator: Deflationary risks in New Zealand abating
A key theme for the New Zealand economy in 2018 has been the potential crossroads facing the economic outlook. For the past 5 years, we have seen strong economic activity and low inflation keeping interest rates low and asset prices high. However, looking forward there are signs that economic activity is moderating at the same time as inflation pressures are emerging.
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Tariff Wars
A muted global market reaction so far?
With no further escalation, the implications for New Zealand from the current US-China tariff war are likely to be limited. Any escalation, however, will have a significant impact on global growth, company earnings, the stock market and the general appetite for risk. Already, some sectors may be more impacted via supply chain disruption, competitive pricing changes and the economic spill...
Harbour Outlook - Activity moderating and costs rising
Key developments
In recent months we have highlighted how economies and markets seem at a crossroads. In June, there was further evidence of an upcoming moderation in domestic economic activity whilst cost pressures appear to be rising. Looking forward, this is a theme that remains near the top of our list of what to watch most closely on the horizon.
Looking back over June, while some macroeconomic data in Europe and Asia ...
Investment Horizon: Interest Rate Cycles - Endings and Beginnings
As expected by the market, the US Federal Reserve lifted the US Fed Funds Rate this week to 1.75%-2.00%. This was the second hike in 2018 and a continuation in a cycle that began in late 2015. In a post-GFC environment where interest rates are eventually expected to settle at lower levels, it’s natural to ask how far away the US Federal Reserve is to the end of its interest rate cycle. At the same time, in New Zealand, the ...
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Harbour Outlook: Crossroads
A common theme which came through during May was economies and markets being at crossroads. Globally, the US continued to generate solid economic data, while in Europe political tensions rose. Domestically, solid economic activity masked a growing divergence by type of activity. Equally, subdued near-term inflation pressures concealed the prospect of an uplift in some medium-term inflation drivers.
Bond yields fell over the month. Economic data in the US is continuing to print at very robust levels and markets are placing an 80% chance on the US Federal Reserve delivering another hike at their upcoming June meeting. However, this was more than offset during May by a flight to safety prompted by the failure of leading Italian political parties to form a government, heightened by the very high level of Italian Government debt and concerns that the Italians may wish to redefine aspects of their Eurozone membership. While Italian 2-year yields initially spiked as the market priced an additional risk premium, yields in other developed markets like the US, Australia and NZ fell given their relative safety...
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