Tariff policy uncertainty remains high and is damaging both consumer and business sentiment. Fed Chair Jerome Powell has said that despite elevated levels of uncertainty, the US economy continues to be in a good place. That’s true for now, but if the uncertainty persists, it could be just as damaging as the tariffs themselves. But it is the inflation consequences of the whole of Trump’s policy agenda that matters most to the Fed and the outlook for interest rates.

Latest PMI data out of the US showed the extent to US businesses are concerned about tariffs and rising costs.  The challenge for the Fed is they can’t respond to lower growth if inflation is rising.  Turning to this week, Q4 retail sales data for NZ is expected to show a modest increase, supporting our view the recession bottomed out in the final quarter of last year.

US inflation data out this week is largely irrelevant as the Fed contemplates what lies ahead in the form of tariffs and their inflationary consequences.  That being the case, recent signs of a surge in inflation expectations will have not gone unnoticed.  Here at home forecasters will be firming up their expectations for next week’s RBNZ Monetary Policy Statement where a 50bp seems in the can.  What they signal comes after that will be of most interest.

This week’s NZ GDP data incorporated significant upward revisions to history that means the recession has come later and been deeper than previously reported but has left the level of GDP in broadly the same place. 

Another super-sized interest rate cut from the RBNZ this week with the Bank reducing the OCR by 50bp to 4.25%.  They flagged a further 50bp cut in February, so that seems a sensible starting assumption.  However, if the economy pans out the way we think it will, there may not be much more to come after that.

Markets are keenly awaiting both the results of the US Elections this week, and another Federal Reserve Rate cut.
Caution was evident in October and may persist this month, as risks of disappointment abound.

Latest NZ inflation data supports the case for another 50bp cut in the Official Cash Rate next month.  Further cuts are likely into 2025 but at a more measured pace.

It’s the proverbial line ball call whether the RBNZ cuts by 25 or 50 basis points at its Monetary Policy Review next week.  Path of least disappointment is to assume 25, but don’t be surprised if they do 50.  There is, in our view, a potentially stronger case for a 50bp cut at the November Monetary Policy Statement.

The data runway leading into the Federal Reserve’s meeting next week has now been cleared with nothing that should have upset their plans to start cutting interest rates.  The bigger question for markets has been whether the 

The Reserve Bank of New Zealand made the right move in cutting interest rates this week.  Their forecasts are now much aligned with ours, including a steady stream of cuts to the OCR in the period ahead.

There are three key central bank meetings this week.  Between them, we expect the full range of possible outcomes: a cut, a hike, and a hold.

June saw equity gains in the US, led by technology, whilst Europe was buffeted by French election risk. NZ shares remained soft over the second quarter.

The New Zealand economy managed to eek out a small amount of growth in the March quarter.  However, that doesn’t change our view of the economy essentially flatlining, a situation we don’t expect to change until next year.

As was widely expected this week the European Central Bank took a first cautious step towards less restrictive monetary conditions.  Market attention now shifts to the US Federal Reserve meeting next week.

We are starting to see some of the big quarterly data that will feed into Q4 GDP data which is scheduled for release later this month.  On balance we expect the quarter to manage a small positive growth number, marking the September quarter of last year as the bottom of the recession.  But with the unemployment rate still set to rise a bit further, it’s not until the second half of this year that we expect to see more solid growth numbers.

Both the RBNZ and the RBA meet this week and are expected to deliver interest rate cuts.  Expect the RBA to cut 25bp but with the statement likely to be hawkish.  The RBNZ is expected to cut the OCR by 50bp and is likely to flag further, more cautious cuts in the period ahead.

President Trump has fired the first salvo in what seems destined to become a long and costly trade war.  No one will win from tariffs, as history has repeatedly shown.  Here at home December quarter labour market data is scheduled for release.  Wage data will be critical to the inflation and interest rate outlook.

Asset markets were strong in November post-US election, and now await monetary policy clues from this week's US November inflation report, heading into the pre-Christmas Fed. meeting.

The most likely outcome of next week’s monetary policy decision from the RBNZ is a 50bp reduction in the Official Cash Rate to 4.25%.  If that ends up being wrong, the next most likely outcome is a 25bp reduction.

It’s a big 10 days ahead for the US.  The Federal Reserve meets next week and there is a plethora of critical data out before then to add fuel to the monetary policy debate.  And let’s not forget the election is the day before the Fed meeting starts, which will likely have them deliberating the implications of a new President – or perhaps a result that is still uncertain.

September delivered positive returns from both equities and bonds, as investors responded positively to central bank easings.
Global Infrastructure and Real Estate were notably strong in the September Quarter. US Third Quarter earnings season could test the optimists.
The RBNZ cut the Official Cash Rate -0.5% this week, to 4.75%.

Equities which benefit from declining interest rates continue their recent positive performance. Additional gains will depend on the scope and scale of central bank interest rate cuts.

Clear signals of imminent interest rate cuts in the US and an actual cut in NZ helped rate-sensitive assets to perform well in August. Real Estate and Infrastructure were particularly strong.

August has begun with signs of an overdue correction in the major stock markets, particularly in Technology-themed shares. However, this has followed strong returns until the end of July, and Quality is finally being rewarded.

Further progress was made in returning inflation to target in the June quarter.  We are still comfortable with our view of a first cut in the OCR in November.  An earlier move is possible but we will wait to see June quarter labour market data before we make that call.

Things are increasingly falling into place for the RBNZ in its war against inflation. This supports market expectations the RBNZ will be able to start cutting interest rates well before the timing signalled in its latest set of projections.

The US Federal Reserve kept interest rates unchanged, and signalled a rate cut by year-end and four more in 2025.

Global equities anticipated a US soft landing success and rallied in May, as did the NZ dollar, whilst US May inflation improved.