When the Reserve Bank of New Zealand front-loaded its 50bp cut in October, it signalled that more easing was likely. Taking that guidance at face value, a further 25bp cut next week looks the path of least resistance, accompanied by a dovish signal that the door remains open to additional easing if required.  However, the hurdle for further easing beyond that is high. Additional cuts become likely only if the tentative signs of recovery falter.

After the disappointment of the June quarter GDP result, the good news is green shoots are starting to emerge as data for the second half of the year starts to come in.  Amongst all the data noise, the job for Government is to become far more focused on improving our perennially moribund productivity performance.

As we head into next week’s Reserve Bank of New Zealand (RBNZ) August Monetary Policy Statement, the key question is how much lower interest rates will need to go to stimulate demand.  At the same time however, it’s worth remembering that low interest rates aren’t a panacea for all that ails us, as they simply mask and potentially delay attention to our deeper economic challenges.

We have been expecting a recovery to emerge in the second half of the year, primarily driven by lower interest rates feeding through into household disposable income.  Recent developments in the global trade environment challenge that assumption.  For now, we have trimmed our GDP forecasts on the basis of lower global growth.  The outlook is highly uncertain.

The uncertainty of US tariff policy is morphing into a hard, cold reality.  Weakness in the “soft” sentiment data will soon become weakness in the “hard” activity data.  On inflation, the Fed needs to be alert to the risk of renewed persistent inflation if consumers loss of purchasing power leads to higher wage demands in a tight labour market.

The Reserve Bank of New Zealand and the Reserve Bank of Australia are both expected to cut interest rates next week.  Both are at different stages of their easing journey, but both have reason for caution.

Events currently unfolding in France show how difficult it is for politicians to shift unsustainable fiscal settings back onto a sustainable trajectory.  At the same time, the ECB is warning of the possibility of another Euro zone debt crisis, akin to that in the early 2010’s.  They warn that complacency is not an option.  Bond investors should remain vigilant.

Annual CPI inflation is back in the Reserve Bank’s 1-3% target band.  At 2.2% for the year to September 2024, this is the first time inflation has been in the band since March 2021. 

The New Zealand economy continues to struggle. While the economy managed to eke out a modest GDP increase in the March quarter, more recent partial data has been weaker. We expect to see contractions in activity in both the June and September quarters before stabilising.

Recent months’ furious rally in a small group of Artificial Intelligence (AI)-themed companies raises questions about how to preserve prudent diversification. Equity market index performance is ever-more influenced by a few Mega-Capitalization Technology enterprises. We consider what that means for portfolio construction choices.

This week we expect to see the first of the major central banks start to cut interest rates.  The European Central Bank gave a strong hint in April that a cut was imminent, and we expect they will follow through on Thursday.  

After surprising to the upside in the March 2025 quarter, NZ GDP growth surprised to the downside in the June quarter, both by an order of magnitude that likely overstated the strength and weakness of the respective periods.

Yield curves across the developed world are steepening, with long-term rates rising relative to the front end. This is not merely cyclical noise: it reflects a structural re-pricing of risk in global capital markets.  New Zealand's fiscal credibility provides resilience but for a small open economy, resilience is not immunity from global forces.

March quarter GDP data was stronger than expected but the growth was narrowly focussed.  More recent activity data has been considerably weaker.

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Donald Trump’s inauguration on January 20th  unleashed dramatic global shifts. So far, the US economy and markets have borne the brunt of disruptions. The international response has been broadly hostile, and investors are reconsidering US holdings

New Zealand Term Deposit Rate cuts are in full swing for 2025. Diversified Income Funds can continue to beat bank deposits.

The New Zealand economy is likely in or close to a turning point.  We expect a modest recovery to build through 2025.

As we expanded our product offering in 2021, there were several structural themes we identified that our new funds would have to navigate over the next 20-30 years.

A first interest rate cut in this cycle by the US Federal Reserve on September 18th appears a done deal.  That leaves markets now contemplating how far and how fast the Fed will cut. 

There will be contrasting conversations at the August meetings of the RBNZ and the RBA.  One will be considering a cut, while the other will be considering a hike.

For many developed economies persistent fiscal deficits have become a structural problem and the pathway to fiscal sustainability is becoming increasingly challenging.  There are no easy choices, but a head in the sand approach will just make the problem bigger and more disruptive to solve when action becomes urgent.