For the three months ending September 2019
It was a volatile third quarter for international share markets as global growth concerns and rising geopolitical unrest showed no signs of slowing. After a sharp selloff in August, share markets recovered in September, with most indices managing to end the quarter higher than they started. Against this backdrop, the MSCI All Country World Index finished the third quarter up 0.6%, in local currency terms.
Trade war still not resolved
Once again, the standoff between the US and China dominated the headlines. The quarter began with further tariffs being levied on both countries, leading to a decline in equity markets. Tensions eased in September when each party delayed parts of the tariffs and agreed to meet in early October.
Central banks begin cutting rates
During the quarter, central banks shifted towards a more accommodative monetary policy stance as concerns around the global economy grew.
In the US, the Federal Reserve cut rates for the first time since the financial crisis, then followed up with a further 25 basis point cut in September. In Europe, the European Central Bank (ECB) cut rates amid falling eurozone growth.
This shift in policy stance meant it was a good quarter for bond holders. Over the quarter, the yield on the US 10-year government bond fell 34 basis points to 1.66%.
A political storm brewing in the US
After a whistleblower raised concerns around President Trump’s conduct on a phone call with Ukrainian President Voldymyr Zelensky, House Democrats began an impeachment inquiry into the president. The Democrats alleged Trump withheld foreign aid in an effort to pressure Zelensky to investigate the son of former Vice President Joe Biden, a potential political rival for the 2020 election.
New Zealand markets
New Zealand equities took their lead from offshore markets, with sharp declines in August followed by a recovery in September. Ultimately, the turnaround in New Zealand shares was stronger than its global counterparts, with the NZX 50 ending the quarter up 4%.
Economy slows and confidence falls
The New Zealand economy grew 0.5% over the quarter with the annual rate falling to 2.1%, its slowest pace since 2013. The slowing economy came just as business confidence fell to multi-year lows. In August, the ANZ Business Confidence Index plummeted to -52%, its lowest level since 2008, then in September the index hit a new low of -54%. Of particular concern were declining employment intentions and profit expectations.
RBNZ cut sees strong gains in the bond market
The quarter was highlighted by the Reserve Bank of New Zealand (RBNZ) cutting the Official Cash Rate (OCR) by 50 basis points – more than most had expected. In his speech, RBNZ Governor Adrian Orr cited international trade concerns and a slowing demand for local goods and services for the 50 basis point cut.
It was a favourable quarter for New Zealand bondholders, as the yield on the 10-year government bond fell 48 basis points, closing at 1.09%.
New Zealand dollar falls
Overall, the quarter was best summed up by the performance of the New Zealand dollar. The Kiwi dollar fell to its lowest level against the US dollar since 2015 and lost ground against most major trading partners. Of significance, it fell 6.6% against the Japanese yen.