Harbour Navigator: Is inflation sticky?
After an aggressive RBNZ tightening cycle, the New Zealand economy is likely to enter recession later this year.
Inflation, however, is unlikely to quickly return to the RBNZ’s 1-3% target range and involves three broad steps – supply chain normalisation, lower housing costs and a drop in wage growth. Only the first step is complete.
We expect the RBNZ to increasingly recognise the impact of its rapid rate hikes to highly...
Harbour Outlook: Catch-22 - Inflation vs. Earnings
At a headline level, stock markets appear to be in a “catch-22”, digesting lower inflation numbers while trying to assess how much of this inflation is down to lower growth, which may then flow through to earnings. See more under ‘what to watch’.
New Zealand equities and bonds both delivered strong returns over the month, with the S&P/NZX 50 Gross index (with imputation credits) returning 1.1% and the Bloomberg NZ ...
Harbour Navigator: New Zealand's external reliance is in the spotlight
New Zealand is a small, open economy with a heavy reliance on the rest of the world for export revenue and funding.
The funding reliance is particularly acute currently as our tourism sector isn’t generating its normal amount of foreign revenue, pushing our current account balance to its largest deficit on record, almost 9% of GDP.
While our current account balance should improve as tourists continue to return to New Zea...
Harbour Outlook: Financial conditions starting to pinch?
The MSCI All Country World Index returned 2.1% in New Zealand dollar terms, and 2.5% in New Zealand dollar-hedged terms. At the sub-sector level financials lagged after events in the US and European banking sectors early in the month. The aftermath saw investors shift towards ‘Big-Tech’ sectors such as information technology and communication services.
The New Zealand equity market (S&P/NZX 50 Gross with imputati...
Harbour Navigator: Chinese economic recovery accelerating
Less than six months ago the Chinese economy was partly locked down with COVID restrictions and commentary remained bearish across a range of industries.
Fast forward to now and Chinese non-manufacturing purchasing managers’ index (PMI) readings are pointing to a very solid recovery in Chinese economic activity from 2022’s COVID lockdowns.
A core indicator, the China non-manufacturing PMI for March of +58.2 was well up fro...
Harbour Navigator: Fortress Australia
The banking system in Australia has multiple points of difference compared to the US, all pointing to a greater capacity to weather financial and economic stress. What we heard in our visit to Australia this week was exceptionalism and resilience in the banking system.
“A show of force” is how the Australian Financial Review subsequently described their Summit. In previous years you might have heard the regulators bemoan the ...
Harbour Navigator: What does global banking stress mean for the RBNZ?
The recent failure of Silicon Valley Bank (SVB) and rescue of Credit Suisse have tightened global financial conditions and reduced the need for monetary policy to be as restrictive.
As a small open economy with a heavy reliance on global investors to fund our current account deficit, New Zealand has a high sensitivity to the health of the global economy and international financial markets.
At this stage, we expect the...
Harbour Navigator: Harbour's solution to measuring carbon performance for fixed interest funds
An entity’s carbon intensity is an input into Harbour’s ESG assessment of a borrower, alongside an appraisal of behaviours and performance in other environmental, social and governance (ESG) aspects.
Carbon footprint is calculated as the weighted average of a portfolio’s ownership share of each holding company’s carbon output. This is a useful metric for equity fund investors, however fixed interest investors don’t have an ‘o...
Harbour Outlook: Inflation not giving up without a fight
The MSCI All Country World Index returned 1.3% in New Zealand dollar terms, and -1.9% in New Zealand dollar-hedged terms. At the sub-sector level, we saw a continuation of last month’s thematic with defensive sectors (utilities, materials) lagging as investors rotated into the more interest rate-sensitive sectors such as information technology and financials.
The New Zealand equity market (S&P/NZX 50 Gross with i...
Harbour Navigator: RBNZ not done yet but getting close
The RBNZ lifted the OCR by 50bps at the February MPS and continues to anticipate further tightening from the current 4.75% to 5.5% as inflation remains too high and labour markets are too tight for comfort.
The North Island floods are likely to add to inflation and activity in the medium term. Beyond the floods, the tension between strong historical data and weak forward indicators continues in New Zealand – we believe the...