On Point

We're five months out from the US presidential election and the campaign is set to heat up next week. Joe Biden and Donald Trump will face off in the first presidential debate of 2024 on the evening of June 27. While it breaks with tradition for the first debate to be so early in the piece, there's hardly anything normal about this election. Biden should be in pole position, at least according to history, but he’s not and the clock is ticking. There’s still a long way to go, but for now sit back and enjoy the first debate in what is sure to be an intriguing election campaign.

The S&P 500 in the US rose 1.6% and hit new highs last week, as investors were encouraged by a softer than expected May inflation report. In contrast, European shares fell 2.8% in the wake of fresh political uncertainty. Elsewhere, the Australian ASX 200 fell 1.7% and the FTSE 100 in the UK was 1.2% lower. Japanese and emerging markets were little moved, as was the local NZX 50. Looking ahead, retail sales are out in the US this week, while China will release monthly activity indicators on Monday afternoon. Global flash PMIs for June are due on Friday, and central bank decisions loom in Australia and the UK. Here in New Zealand, a housing market report is out on Monday, while later in the week we'll get the results of the latest dairy auction and the March 2024 quarter GDP report.

There’s been a raft of bad news from locally listed companies over the past several weeks, with more than a dozen either downgrading earnings guidance or providing negative trading updates. This hasn’t been limited to the smaller end of town either, with at least ten NZX 50 constituents in the headlines for the wrong reasons too. When it comes to inflation and interest rates, bad news can be good news, to an extent. Slumping activity and a worsening labour market might could see inflation slow more quickly than expected. This might open the door to OCR cuts within six months, rather than sometime in 2025, which would put the local market on a sounder footing.

This week will be an eventful one in the US, with the June Federal Reserve meeting on Tuesday and Wednesday as well as the May consumer price index report. In the UK we'll get monthly GDP and some fresh labour market indicators ahead of the Bank of England meeting next week, while the Bank of Japan will release its latest monetary policy decision on Friday. It'll be a holiday-shortened week across the Tasman, and the highlights will be the NAB business survey (Tuesday) and the labour force report (Thursday), both covering the month of May. The Queensland Budget is also out this week, which will include a debt issuance update that will interest financial markets. There'll be plenty to keep an eye on locally too, with the ANZ truckometer, migration, electronic card transactions and selected price indices for May. The latest monthly Real Estate Institute housing market report is also out this week.

We have a lot of clients from farming backgrounds, either past or present. They’re great people, and many have spent decades overcoming a plethora of challenges to build very successful businesses. When the time comes to think beyond the farm, investing in a portfolio dominated by shares, listed property, private equity and fixed income doesn’t always come naturally. Having less control and influence is a mental hurdle for some, while diversifying far and wide can also be a new concept. However, farmers that can get their head around these differences often become very astute investors. As we gear up for Fieldays this year, let me share a few reasons why.

Global politics are in the spotlight this week, with a presidential election in Mexico, elections for the European parliament to be held on June 6-9, and India's six-week long national election in its final phase. In the US, all eyes will be on Friday's jobs report in the lead up to next week’s Federal Reserve meeting, while the latest ISM indices will also be in focus. In Europe, the key event will be the European Central Bank's monetary policy decision on Thursday, where we might see the first rate cut of this cycle.Across the Tasman, the highlight will be gross domestic product (GDP) for the March 2024 quarter, while it is a holiday-shortened week here in New Zealand.

The Reserve Bank left the Official Cash Rate unchanged last week, and it's forecast track suggests there will be no respite for borrowers until next year, even though the economy is slowing more than expected, unemployment is rising more quickly and inflation has fallen to the lowest level in three years. The headline consumer price index increased at an annual rate of four per cent in the 12 months to the end of March, and the Reserve Bank expects it to end the year at 2.9 per cent. However, this encouraging outlook is tempered by the fact that most of the decline has been driven by falling international (or tradables) prices. In contrast, domestic or non-tradables inflation, is still too high to provide any relief. What is causing this high domestic inflation, and what needs to happen for it to fall?

Inflation indicators across some of the major regions will be in focus this week, with PCE inflation due in the US, as well as preliminary measures in Europe and the Tokyo CPI in Japan. Locally, Budget 2024 will take centre stage on Thursday afternoon, and we'll also get some fresh business confidence figures for May. There's plenty happening on the corporate front too, as the reporting season heats up on the NZX. This week we'll see the latest earnings releases from the likes of Ryman Healthcare, Serko, Fisher & Paykel Healthcare and Mainfreight. Fonterra is scheduled to provide a business update, which should include an opening milk price forecast for the upcoming 2024/25 season.

There are many sayings in the investment world, and one that always comes up at this time of year is “sell in May and go away”. The adage emerged in the Northern Hemisphere and it suggests investors should sell their shares in May, relax and enjoy the summer months before returning to the market in the autumn (or spring, here in New Zealand). It's based on a suggestion the six months from November to April typically offers higher returns than the May to October period. There’s some truth in this, if we look at seasonal patterns over the years, so will selling in May be a good move for investors in 2024?

There's plenty for investors to keep an eye on in the week ahead, with some of the key releases likely to be the flash PMIs for some of the major economies. Markets will also be monitoring the minutes from the most recent Fed and Reserve Bank of Australia meetings, as well as inflation prints in the UK and Japan. Share investors will also be highly attuned to the latest earnings release from NVIDIA (its share prices is up 87% this year, following a gain of 239% in 2023!). Locally, the Reserve Bank of New Zealand will be in the spotlight on Wednesday afternoon, while there are numerous company results due throughout the week.

We’re starting to see an increasing divergence in the outlook for growth, inflation and the likely next move from many of the world’s central banks. Some are on track to cut policy interest rates as expected, such as the European Central Bank (ECB) and the Bank of England (BOE). Others, like the US Federal Reserve and our own Reserve Bank of New Zealand (RBNZ), are grappling with stubbornly high inflation that has delayed any plans for policy easing. What does this mean for the New Zealand economy, and the outlook for interest rates?

The S&P 500 in the US was up 1.9% last week, while the UK and Europe were stronger still, rising 2.7% and 3.2% respectively. In contrast, it was a tough week for the local market. The NZX 50 fell 1.5% in the wake of a string of recent profit warnings and poor trading updates from the likes of Air New Zealand, Spark, Tourism Holdings and The Warehouse. In the US, the latest CPI and retail sales reports will be in focus on Wednesday, while monthly activity indicators are due in China and Federal Reserve Chair Jerome Powell is speaking on Tuesday. Here in New Zealand, the latest RBNZ survey of expectations and a housing market report will be of interest.

Some women are apprehensive about investing, but there’s plenty of evidence they’re better at it than their male counterparts. There have been several studies conducted over the years, and many of these have shown that on average, women often achieve better investment returns than men. Women are more likely to follow tried and tested investing principles, while men often think they know better. Studies also show women trade a lot less, are more willing to stick to a long-term plan and are much more open to seeking advice. In contrast, men tend to overestimate their abilities, while they believe their more frequent trading will make them money (more often than not, all it does is cost them more in fees). Women are less likely to persevere with a losing position too long, and they don't tend to hold such concentrated portfolios. Women don’t have the monopoly on all these attributes, and there are plenty of sensible, level-headed male investors too. However, when considering these statistics it's surprising there aren't more women working in financial services!

It was the second good week in a row for global sharemarkets, with many continuing to rebound from the weakness we saw in April. Markets still see interest rate cuts on the horizon, with some comforting Federal Reserve comments and a softer jobs report adding to hopes last week. This week, the US consumer will be in focus as the University of Michigan consumer survey is due for release. We'll also get the latest Fed Senior Loan Officer Opinion Survey (SLOOS) on credit conditions, while monetary policy decisions are due in Australia and the UK. The US quarterly reporting season is about 80% complete, but some of the highlights this week will include BP, Disney, Ferrari, FMC Corporation and Nintendo. In New Zealand and Australia, earnings releases will be forthcoming from Infratil, Westpac and ANZ Bank.

If you buy a share or exchange traded fund (ETF) listed outside New Zealand, it’s not just changes in the share price that will determine your return. You also need to keep an eye on the exchange rate between the New Zealand dollar and the currency in question. While currency moves don’t have a significant bearing on long-term returns and at times they can help reduce volatility, over shorter periods they can have quite a big impact. Many local investors are happy to take on some currency risk, and the best way to think about this is to consider it an insurance policy against our small, vulnerable economy. However, if that worries you or if you dislike the idea of something else to try and predict, there are ways to mitigate the impact of potential changes. Holding a portion of your wealth outside our shores is crucial for New Zealand investors, and we shouldn’t let the prospect of currency movements dissuade us from taking opportunities in other markets.

After an April sell-off saw the US market fall 5.5% from its all time, the S&P 500 rebounded 2.7% last week, its best performance in almost six months. This came despite another hotter than expected inflation report, with the headline PCE (the Fed's preferred inflation gauge) increasing at an annual rate of 2.7%. Solid earnings releases drove the gains, and with 46% of the market having reported 80% of companies have beaten expectations. Most other sharemarkets followed suit, with the FTSE 100 in the UK rising 3.1% to a fresh highs and emerging market shares gaining 3.7%. This coming week is a very busy one, with some major US economic releases due as well as a Federal Reserve meeting. There's plenty happening locally too, with the ANZ Business Outlook survey for April due on Tuesday and the labour force report for the March 2024 quarter out on Wednesday. The unemployment rate is expected to rise from 4.0% to 4.3%, the highest in three years and well above multi-decade low of 3.2% from early 2022. Last but not least, there will be more international earnings releases to monitor across the world, with 175 S&P 500 companies scheduled to announce results.

Markets were volatile last week, with another stronger than expected inflation report in the US rattling investors and pushing out hope for interest rate cuts. Wednesday's release of our own consumer price index for the March 2024 quarter will be the key event here in New Zealand, with markets hopeful this will be fall further and open the door to Official Cash Rate cuts later in the year. Elsewhere, Federal Reserve speakers will be closely watched to see recent developments have changed their view, while the quarterly international reporting season heats up. More than 40 S&P 500 companies scheduled to announce results in the days ahead, with some of the highlights likely to be Bank of America, Johnson & Johnson, UnitedHeatlh, ASML, LVMH, Netflix, TSMC and Procter & Gamble.

Several sharemarkets hit new highs during the first few months of this year, but the most significant milestone of all came in Japan, where the Nikkei 225 index finally retook the level it reached 34 years ago in 1989. After a stellar performance in 2023 which saw the Nikkei surge 28.2 per cent, even outpacing the mighty S&P 500, Japanese shares rose another 20.6 per cent in the first three months of this year and stormed through those previous highs. The rally hasn’t been because of a weaker yen and massive stimulus alone. We’ve seen a notable increase in governance standards, while valuations also look reasonable even after the gains of the past 18 months. Perhaps most importantly of all, Japan is finding its way back onto the radar of investors. After being ignored for decades, these recent positive developments might see Japanese shares increasingly included in portfolios as a diversification opportunity following big moves in US shares.

The highlight of the coming week will be the consumer price index report in the US, after two months of stronger-than-expected figures. The odds of a June rate cut from the Fed have fallen from almost 90% to about 50/50 in recent weeks. The European Central Bank will release a monetary policy decision on Thursday and while no change is expected, markets will be looking for clues that a rate cut is imminent. In contrast to the US, recent inflation readings in Europe have come in below forecasts. The local highlight will be the monetary policy decision from the Reserve Bank of New Zealand on Wednesday afternoon. No change is expected, but the tone and language will be closely monitored. Last but not least, the first quarter international reporting season beings and we’ll hear from some of the US financial heavyweights first up. Blackrock, Citigroup, JPMorgan and Wells Fargo are all announcing earnings on Friday in what is shaping up as a pivotal earnings season for the high-flying US market.

This year has started very strongly for share investors, with returns in the March quarter much better than many would’ve expected. World shares rose 7.8 per cent and as was the case in 2023, the US and Japan led the charge. New Zealand assets lagged, with the NZX 50 sharemarket index rising 2.8 per cent and corporate bonds posting a marginal gain. As was the case in 2023, well-diversified investors with a global mindset have been handsomely rewarded. Central banks will remain a focal point in the months ahead, with interest rate cuts on the horizon but the timing difficult to pick. Another important test for financial markets could be the US corporate reporting season, which starts next week, with the bar higher on the back of recent share price gains.