7th August 2018
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, looking back over July, global news continued to be dominated by threats of trade wars, and rising tensions between the US and its trading partners in Europe and China. However, this did not take away from the strength of global equity markets during the month, for a number of reasons. First, there was some resolution of US and European trading relations, with the initial tough line from the US seen more as a negotiating tactic. Second, the Chinese authorities reacted to the threat by providing significant local monetary stimulus, which should help offsite any drag on growth from lower trade. Finally, the US company reporting season was strong, highlighting to markets that while there may be winners and losers from trade policies, overall, we aren’t seeing a material slowdown in economic data.