INSIGHTS

MARKET SUMMARY: 11 TO 15 SEPTEMBER

Research Team, 15 September 2017

It has been another difficult week for markets, although much of the uncertainty from the last few weeks has eased. It was widely expected over the weekend that North Korea would do a further missile test to mark the anniversary of the founding of the country. However, this was not the case and all was quiet on the Korean Peninsula, easing tensions concerning the rogue nation.

In addition to this, there was a relief rally as Hurricane Irma hit Florida in the US with a lot less force than originally thought and the clean-up bill now half of original estimates. Investors breathed a sigh of relief and the US market in particular rallied strongly, with all three of the main indexes in the US hitting fresh all-time highs during the week.

In New Zealand, the story has been a little different as the NZX50 bucked the global trend. Investors are firmly focussed on the election, with early voting now open. The latest polls have added further uncertainty to the election race, as the recent trend that had seen the Labour party rocket to popularity was reversed in the Reid Research poll.  The Poll saw the incumbent National Party on 47% while Labour fell back to 37%. The Greens polled just under 5%, which would mean they were no longer in parliament, while Winston Peter’s NZ First slipped back to 6%.

This was vastly different to other recent polls that have shown Labour to be edging ahead of the incumbent National Party. The mixed polling has certainly added to uncertainty in the market, with investors choosing to sit on the fence rather than make bets either way. While we anticipate uncertainty to continue at least up until the election, we do not see that it will continue as economic data for New Zealand remains strong.

This was demonstrated as consumer confidence hit a three-year high in September with the index rising to 129.9, from 126.2 in August. The future conditions index rose to 131.6, with a net 36% expecting to be better off in a years time, also hitting a three year high. Of those polled, a net 19% felt they were in a better position than they had been a year ago. The strong rise came despite softer data over the housing market and the uncertainty in the lead up to the election.

In Australia, consumer confidence rose in September by 2.5% to 97.9 points from the previous month, however this remains lower than levels seen last year. A reading below 100 indicates that there are more pessimists than optimists. The weak sentiment has been driven by pressures on family finances, interest rate concerns, deteriorating housing affordability and rising energy prices. The NAB Business Confidence survey declined in August, despite strong trading conditions. This is the first time since mid-2016 it has been below its long-term average, and reached a 13-month low.

However, both of these statistics seem to be in contrast to the latest labour force data, which showed 54,200 jobs were added in August, well above expectations. The unemployment rate remain unchanged at 5.6% as the participation rate increased also. The number of full time jobs rose by 40,100 and part time jobs rose by 14,100. Underemployment remains an issue in Australia, however this decreased for the month.

In the UK, inflation rose to 2.9% in August, up from 2.6% in July. The gain was largely driven by rising petrol and clothing prices. The fall in the British pound since the Brexit vote has also been a driver of rising prices in Britain. Later in the week, the latest employment data saw the unemployment rate drop from 4.4% to 4.3% in the three months to July. The solid employment data was cheered by the market, however, wage growth disappointed. Although headline wage growth was 2.1%, real wages have actually fallen 0.4% over the last year, as inflation outpaced wage increases. Both of these data points came prior to the Bank of England meeting, which had not occurred at the time of writing. Expectations are for rates to remain on hold, with the market expecting a rise early next year.