For the three months ending June 2019
After a turbulent May, equity markets rebounded in June, with major indices closing the second quarter of 2019 higher. The late-quarter recovery was helped in-part by central bankers changing their approach from gradually increasing interest rates toward a more patient approach, which means interest rates are likely to remain lower over the medium term.
Another strong quarter for bond markets
The fall in interest rates made it another good quarter for bond investors who benefit in a falling interest rate environment. We expect short term rates to fall and longer term interest rates to reflect future expectations for economic growth and inflation.
Trade tenstions still lingering
The trade dispute between the US and China made some small progress at the end of the quarter. The leaders of the world’s two largest economies met in Osaka, Japan for the G20 Summit where President Donald Trump agreed to halt proposed tariffs and backed down on the Huawei ban.
New Zealand market
New Zealand shares continued to move higher, with the NZX 50 recording quarterly gains of 6.7%. The index traded above 10,000 early in the quarter, before hitting another all-time high near 10,500.
Economic data good but not great
On the economic calendar, GDP for the first three months of the year grew by 0.6%, inflation for the first quarter dipped to 1.5% from 1.9% and retail sales rose 0.7% for the three months ending March 31.
RBNZ cuts OCR to record low
The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) to a record low 1.5% in May, citing slowing growth and an easing of demand for New Zealand’s goods and services. The central bank met again in June where it left the OCR unchanged but hinted further rate cuts are on the cards. “Given the downside risks around the employment and inflation outlook, a lower OCR may be needed,” the RBNZ said.
The move saw the 10-year yield hit a fresh all-time low near 1.5%.
NZ dollar eases against most major trading partners
The New Zealand dollar ended the quarter lower against most of its major trading partners. The kiwi dollar hit a 7-month low versus the greenback in May, trading below 65 cents before ending the quarter around 67 cents.