Market Update - October 2019

01 November 2019

Markets briefly reached fresh highs, though with the constant flow of news there have been lots of ups and downs

 

Key Market Statistics

  1 Month 12 Month
NZX50 (0.19%) 21.2%
S&P 500 2.2% 14.3%
Rest of World (MSCI EAFE index)
3.6% 11.6%
Emerging Markets (MSCI Emerging markets index)
4.2% 12.3%

 

Global markets continue to hover near record highs, with confidence growing around a partial resolution of the US / China trade war and a cut to the US Federal Funds Rate.  On 29th July, the S&P 500 reached an all-time high, surpassing the previous highs reached back in July.   Global share markets have had one of the best 12 month periods since the rebound from the Global Financial Crisis with the New Zealand and US markets outperforming.  The New Zealand market has been particularly strong up 21% over the 12 months driven by an increasing search for high-quality yield stocks and New Zealand's ongoing reputation as a safe haven country.

The US / China trade war appears to have reached an important step with the US and China agreeing to agree on phasing their trade deal.  The first phase of the deal is expected to result in planned US tariff increases not going ahead, the quid pro quo from China is that they would resume purchases of US agricultural goods and other products and would look to protect American intellectual property rights in China.  Though at time of writing, cracks are starting to appear with news outlets reporting that China will struggle to make any further concessions or agreements with the US raising doubts over whether the comprehensive trade agreement that President Trump is after will be possible.

The impeachment proceedings in the US do not seem to be having an impact on markets, with markets up 4% since the impeachment proceedings were announced on 24th September.

Brexit continues to drag on, and unfortunately, Boris Johnson has not been able to engineer his exit from the European Union by 31st October. We will now have a British election on the 12th December which will hopefully resolve the current political impasse (I would be surprised if it did!).   the pound strengthened over the month as the currency markets increased their confidence that a no-deal Brexit was increasingly unlikely. 

Global economic growth continues to be a core focus for markets and investors, it is clear that parts of the world are slowing though it is not yet clear how far economic growth will fall and how close we are to a recession.   An increasing fear among economists is what central banks will be able to do if there is a recession given the lack of remaining capacity for fiscal easing.  The Federal Reserve in the US dropped rates by another 25 basis points on 31 October taking the US Fed rate down to 1.5 - 1.75%, reversing the interest rate rises implemented in 2018.

The New Zealand market has been one of the worst performers during the month  This is largely due to the shock announcements earlier in the week from Rio Tinto calling into question the viability of the Bluff aluminium smelter.  It uses 13% of New Zealand’s energy production so if it does close it will have a materially negative impact on the Energy companies who make up a significant part of the NZX50.  The fire at the SkyCity Convention Center caused more angst for commuters than for investors, Sky City shares dropped 2% following the fire and Fletcher Building dropping marginally following the fire.

The coming month is likely to be more of the same.  Unfortunately, none of the factors driving markets is likely to be resolved at any time soon, so we are going to continue through this period of uncertainty!  However markets do not seem to be concerned, low-interest rates are pushing more people to search for higher returns in equities which continues to push equities higher.


 

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