November 2024 Market Snapshot

Inflation has returned to the 1-3% target band in New Zealand, giving the Reserve Bank (RBNZ) something to celebrate. Consumer prices rose just 0.6% in the third quarter, resulting in an annual increase of 2.2%, the lowest rate in more than three years. This decline has been primarily driven by falling prices of imported goods, with these “tradable” prices dropping 1.6% over the past year. Non-tradable inflation remains high, with local authority rates increasing an astonishing 12% over the past year, and likely to do the same in the coming year.

RBNZ Governor Adrian Orr has expressed optimism about these developments. Speaking at the Peterson Institute in Washington DC, Orr emphasised the transition toward “low and stable inflation” and indicated that interest rates would become “less restrictive” to support economic growth. The RBNZ kicked off its easing cycle in August, before stepping things up with a notable 0.50% cut in September that brought the Official Cash Rate (OCR) down to 4.75%. Market attention is now firmly focused on the upcoming November 27 Monetary Policy Statement, with expectations of a further significant rate cut.

The positive shift in monetary policy appears to be having its desired effect on business sentiment. The latest ANZ Business Outlook survey shows business confidence and expected own activity rose to their highest levels since 2014. Green shoots in the survey data indicate that the low point in the economic downturn may now be behind us. The labour market, however, is likely to continue loosening with the unemployment rate not likely to peak until the first quarter of 2025.

In the broader global context, the United States continues to demonstrate remarkable economic resilience. The world’s largest economy expanded at a 2.8% annual rate in the September quarter, driven by robust consumer spending that grew at its fastest pace in over a year. This growth has been achieved while inflation continues to moderate, with the personal consumption expenditures (PCE) price index showing annual inflation at 2.1%, just marginally above the Federal Reserve’s 2% target.

The investment landscape has been dominated by large-cap technology stocks, characterised as the “Magnificent Seven” which have been instrumental in driving equity markets higher through 2023 and into the first half of 2024. However, recent earnings reports have produced mixed share price results, with investors expressing concerns about the substantial investment these companies are making in artificial intelligence and the short-term impact on profitability. This has led to a broader distribution of market returns across different sectors.

With Donald Trump winning the 2024 US Presidential Election, the political and economic landscape of the United States is poised for significant change. More specifically, Trump’s economic policies are likely to prioritise increasing tariffs, domestic deregulation and extending tax cuts. These measures aim to boost business investment and consumer spending, potentially leading to higher economic growth.

For investors, these developments underscore the importance of diversification in their investment strategy. While the large technology companies have delivered impressive returns, market leadership can and does shift over time. A well-diversified portfolio spread across different asset classes, sectors, and geographic regions remains crucial for managing risk and potentially improving long-term returns.

This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser. No representation or warranty is made as to the accuracy, reliability or completeness of any statement made in this article. Any statements as to future matters are inherently uncertain and are not guaranteed to be accurate or reliable. Any opinions expressed in this article are the personal views of Ryan Gillanders and are not necessarily shared by BNZ or anyone else.