InvestNow News 9th August – Harbour Outlook – Lower and lower domestic interest rates

Aug 8, 2019

Key points

  • The 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” disappointed the market, which had priced in three further cuts over the following 12-month period.
  • Domestically, business confidence is in the doldrums which has led to further cuts being priced into the NZ bond markets during July. The RBNZ surprised the market with a 50bps cut in early August (compared to 25bps cut priced in).

Key developments

Global markets continued their rally in July with the MSCI World index (in local currency) returning 1.2%. Markets were buoyed early in the month due to a positive result from the G20 talks between Presidents Xi and Trump. The market welcomed the agreement to postpone further tariffs (the postponement didn’t last long) and keep the lines of communication open. This, coupled with a better than expected earnings season, kept sentiment relatively upbeat. The market impact of Trump’s new tariffs and China’s retaliation were captured after the end of the month.

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