New Zealand interest rates and inflation
Adrian, our lending specialist, provides his insights about the current market environment in regards to interest rates and inflation.
Read further for further information on his points.
50 basis point cut in the OCR. The Reserve Bank of New Zealand (RBNZ) surprised markets with a larger-than-expected 50 basis point cut to the Official Cash Rate (OCR) in its October meeting. This significant move brought the OCR down to 4.75%, its lowest level since February 2023. The RBNZ's decision was driven by a combination of factors, including slowing inflation and a softening economy. Though headline inflation is sitting at 2.2%, domestic inflation remains at around 4.9%, due to increases in areas such as rent, local authority rates, insurance costs, and the price of pharmaceuticals.
Mortgage rates are available from 5.59%. This is dependent on loan duration and bank.
November 27th is the date for the final OCR meeting of the year. Based on the assessment of the RBNZ, they will decide whether to raise, lower, or maintain the OCR to influence interest rates and overall economic activity.
Economists are anticipating a 50 to 75 basis point cut at this meeting. Floating and fixed rates are likely to fall following this announcement.
Donald Trump has been elected President of the United States
Donald Trump has secured victory in the 2024 U.S. presidential election by surpassing the crucial threshold of 270 electoral votes, defeating his Democratic opponent, Vice President Kamala Harris.
This marks a remarkable political comeback for Trump, who will return to the White House nearly four years after leaving office.
Key points of Trump's victory include:
Battleground states: Trump won critical swing states such as Pennsylvania, Georgia, and North Carolina, which were instrumental in his path to victory.
Senate control: Republicans have also gained control of the Senate, further strengthening Trump's position.
Historical significance: Trump's victory makes him the first former president to reclaim the White House in over 130 years (since Grover Cleveland).
There have already been reactions in the financial markets as a result of this election.
Major US and European stock markets surged immediately following the election result. Wall Street's key indexes opened at record highs, with the S&P 500, Dow Jones, and Nasdaq reaching new peaks. The small-cap Russell 2000 index climbed approximately 4.8%, marking its highest level in nearly three years.
The election results had varying impacts on different sectors. Banking stocks, including major institutions like JPMorgan Chase, Bank of America, and Goldman Sachs, saw significant gains of 6-10%. Oil stocks experienced a 3.5% increase, while renewable energy companies like NextEra Energy and First Solar faced declines. Tesla's stock price surged by 12.5% following Trump's announcement of appointing Elon Musk to lead a government efficiency commission. Cryptocurrency-related stocks also saw substantial gains, ranging from 11% to 21%.
The US dollar strengthened against other currencies, while gold prices retreated slightly. Bitcoin reached a new all-time high of $75,281 USD, boosted by Trump's pro-cryptocurrency stance. Internationally, Chinese stocks faced pressure due to escalating US-China tensions, while Russian assets saw gains, with the Moscow Stock Exchange index up by 3.3%.
But what does this mean for us here in New Zealand? Here are the key takeaways:
Trump's proposed tariffs, particularly on imports from China and other countries, could impact New Zealand's exports to the US. Higher tariffs may make New Zealand goods, such as dairy and beef, more expensive for American consumers, potentially reducing demand. Changes in US trade policies could force New Zealand to carefully navigate its trade relations to maintain economic stability, given its significant reliance on foreign trade.
A stronger US dollar due to higher US interest rates could lead to a weaker New Zealand dollar. This has mixed implications for New Zealand: it could benefit exporters by improving their returns but could also increase costs for importers who source goods priced in US dollars.
Diversification is crucial in investment portfolios to mitigate the impact of sector-specific risks. Some active investment managers may see the current market situation as potential opportunities.
The global bond market is expected to experience significant shifts, potentially impacting New Zealand investors. Rising inflation pressures and increasing Treasury yields in the U.S. may influence New Zealand's bond market, affecting both government and corporate bonds. While NZ inflation-indexed bonds currently offer attractive real yields, investors should consider the potential for yield curve steepening and the need for careful duration management in their portfolios. The strengthening U.S. dollar could impact currency exchange rates, affecting returns on international bond holdings. New Zealand investors may need to reassess their fixed income strategies, balancing the opportunities presented by potentially higher yields against the risks of increased inflation and economic policy shifts.
Global Market Update
Recent economic data from major economies shows a mixed picture of recovery and ongoing challenges. As the Reserve Bank of New Zealand reduced its Official Cash Rate to 4.75% as inflation returned to its target range, Australia's inflation remained above target despite a strong labour market. In the United States, the economy grew by 2.8% year-on-year in the third quarter, with inflation moderating close to the Federal Reserve's target. Meanwhile, China's property market showed signs of recovery, supported by significant stimulus measures.
As the U.S. presidential election approached, market volatility has increased, with global interest rates rising due to concerns about U.S. public debt and stronger-than-expected economic data. Central banks worldwide have been cutting interest rates in response to easing inflation and slowing economic growth, with the U.S. Federal Reserve expected to follow suit at a more measured pace. China has implemented various measures, including interest rate cuts and a stimulus package, to stabilise its economy and property market, highlighting the ongoing efforts of major economies to navigate the current economic landscape.
Cyber Smart Week
New Zealand recently celebrated Cyber Smart Week. It’s a week dedicated to raising awareness about being safe online. The theme for this year was “Don't give to The Scamathon,“ as Kiwis have been unknowingly giving scammers $3.8 million weekly (according to www.cert.govt.nz).
In today's digital age, safeguarding your personal finances is crucial. Cyber threats like phishing scams, malware, and data breaches can compromise your sensitive information, leading to identity theft and financial loss.
Here are some tips to protect yourself:
Be cautious of suspicious emails.
Avoid clicking on unfamiliar links.
Use long, strong, and unique passwords for all online accounts.
Turn on two-factor authentication (2FA) for your bank, email, and social media accounts.
Set your devices and apps to update automatically.
Remember, a proactive approach to cybersecurity can save you from significant financial and emotional distress.
PIR Letters
Some of you might have received a letter regarding a change in your Prescribed Investor Rate (PIR). We’d like to remind you that this is a normal process and is part of what the Inland Revenue Department (IRD) does to ensure you’re paying the correct amount of tax.
A PIR letter is a notification from the IRD informing you of your prescribed investor rate (PIR). Your PIR determines the amount of tax you'll pay on your investments held within a Portfolio Investment Entity (PIE). You'll receive a PIR letter if you've invested in a PIE or if your income has changed significantly, as your PIR is calculated based on your annual income. It's crucial to provide your correct PIR to your PIE provider to ensure accurate tax calculations.
Did you know?
As part of Trilogy’s financial advice process, we offer clients the opportunity to complete a FinaMetrica risk questionnaire. This comprehensive questionnaire is a tool used to assess an individual's investment risk tolerance. The system profiles investors based on their risk tolerance (emotional capacity), risk required (to achieve goals), and risk capacity (level of risk that can be afforded).
If you prefer a more flexible investment option than KiwiSaver, you can explore unlocked investments. These investments allow you to withdraw funds at any time and contribute ad hoc amounts, providing greater control over your money. Talk to us if you’d like to learn more.
If market volatility is a concern for you, dollar-cost averaging is a strategy you may want to consider. Dollar-cost averaging (DCA) is an investment strategy where you invest a fixed amount of money in a specific investment at regular intervals, regardless of the market price. This strategy can help to reduce the impact of market volatility, as you buy more shares when prices are low and fewer when prices are high.
As an investor, you will periodically receive custodian reports. These are detailed statements provided independently by the custodian directly to their clients to report their holdings at least twice a year.
If you have any queries or concerns about your financial, investment, and retirement planning matters, please feel free to give our office a call on 09 553 8928 or email us at info@trilogyfs.co.nz. If you are looking at getting mortgage advice, including refixing your mortgage, Adrian is happy to provide you with great mortgage advice. Get in touch with him via email (adrian@trilogyfs.co.nz) or phone (021 765 550).
Kind regards,Trilogy Team
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