AN EVENTFUL FEBRUARY
Mark Lister, 3 March 2023
February was an eventful month for financial markets, both offshore and here in New Zealand.
World shares fell 2.6 per cent, with emerging market, Australian and US shares the weakest performers. In contrast, Europe and the UK picked up where they left off, rising 1.5 per cent and 1.3 per cent respectively.
Pleasingly, a weaker NZ dollar boosted returns from many international markets, with the currency declining against the greenback, British pound and the euro.
The NZX 50 sharemarket index fell 0.6 per cent for the month, while the NZX Corporate Bond index was down 1.1 per cent.
The local listed property sector bucked the trend, rising 1.6 per cent for its best month in seven.
Listed property fell 22.3 per cent in 2022, much harder than the broader market (which declined 12.0 per cent), so it might be attracting a few bargain hunters now.
World sharemarkets started the year on a high note, with the NZX 50 rising 4.3 per cent in January (its best month since August 2021) and world shares up 7.2 per cent (the second-best month since November 2020).
China had reopened and was in recovery mode, Europe had avoided the energy crisis many had been expecting, inflation pressures were easing, and the Federal Reserve seemed more relaxed at its first meeting of the year.
However, markets turned more nervous in February on the back of a strong US jobs report, upward revisions to historic inflation readings, and some hotter than expected inflation figures for January.
Evidence of renewed economic momentum in many parts of the world isn’t a bad thing, although it points to economies that are still running a little beyond their capacity and means a green light for policymakers to raise interest rates further.
That saw bond yields in the US rise sharply, as expectations for more relaxed central banks faded and markets started to prepare for higher for longer interest rates.
As February progressed, we also interest rate hikes in Australia and New Zealand.
While there are more increases to come, we’ve seen a few of these (including the US Fed and our own Reserve Bank) "downshift" to smaller rate hikes.
This slower pace suggests we are approaching the end of the monetary policy tightening cycle.
February also meant the corporate reporting season was in full flight, with most international companies sharing earnings results and most of the New Zealand market doing the same.
On balance, the results weren’t bad, but some didn’t fare as well as others and many outlook statements took on a cautious tone.
If all of that wasn’t enough, New Zealand was battered by bad weather during February, with multiple severe weather events having a devasting effect on many of our communities.
The East Coast of the North Island felt the brunt of this, while parts of Auckland, Coromandel and the Bay of Plenty were also impacted.
Oh, and a new Prime Minister unexpectedly took office at the end of January too, so we had some political developments and policy changes to get our heads around.
It was a busy month, alright, and you’d be forgiven for quietly hoping that March is much more boring.
There’s every chance that’s the case, as this month isn’t shaping up to be nearly as busy.
A few central bank meetings are taking place, with the Reserve Bank of Australia set to meet next week. The European Central Bank will follow later in the month, as will the Fed and Bank of England.
All of these are expected to hike interest rates further, but it will be comments and tone we take most notice of.
On the economic front, next week’s jobs report in the US will be more important than usual, as will the monthly inflation readings later in March.
Investors will be hoping for a slightly softer labour market, and for signs that last month’s reacceleration in inflation was a one-off, rather than the start of a trend.
China’s parliament – the National People’s Congress – will meet this month, for the first time since harsh COVID-19 restrictions of last year were dropped.
In addition to a leadership reshuffle, this will see some new economic and policy goals implemented. China’s is New Zealand and Australia’s biggest trading partner, so this news could have important ramifications for the region.
Here in New Zealand, the latest quarterly economic growth figures are new near the middle of the month.
These are always somewhat dated by the time we see them, but with the most highly anticipated recession in history supposedly on its way later this year, they will get some attention.
We'll also be monitoring more news and information around the aftermath of Cyclone Gabrielle, as we ponder the massive task ahead to clean-up and rebuild, and how we’ll pay for it.