INSIGHTS

MARKET SUMMARY: 12 TO 16 MARCH

Research Team, 16 March 2018

Volatility remains a key theme for the investing landscape at the moment with trade woes remaining front and centre while geo political issues have escalated as well. With a quiet week in terms of data releases, these issues have been driving sentiment for global markets.

Late last week, the US jobs report was released which saw a moderation of wage growth. Wage growth of 0.1% for February was below expectations and well below the surprise figure from January’s jobs report that had ignited inflation fears. The threat of inflation has seen expectations for rate hikes rise significantly. However, softer wage growth saw these fears ease significantly and worries diminished further after the release of the US Consumer Price Index. The CPI reading of 1.8% was in line with January’s figures and appeared to reaffirm the path for rate hikes this year from the US Federal Reserve. Market expectations are for three rate hikes to occur this year, back in line with the Fed’s expectations.

A key driver of market movements for the last couple of weeks has been the threat of trade wars stemming from the introduction of tariffs on imported steel and aluminium in the US. US President Donald Trump signed the order implementing trade tariffs, although there were some exemptions for nations with close trade ties, like Canada and Mexico, as well as those with close defense ties, like Australia. China appears to be in the firing line after Trump said he wanted to reduce the trade deficit between the US and China, causing markets to worry that a tit-for-tat retaliation could emerge.

Also causing concerns for the market has been the recent string of high profile changes in the White House. The latest casualty was Rex Tillerson, the secretary for state, who opposed the protectionist policies the Trump administration was implementing. Mike Pompeo, who was the director of the CIA, has replaced Tillerson and many see this as a move against China. This came less than a week after Gary Cohn, Chief Economic Adviser to the White house, also opposed the protectionist policies, although he has been replaced by Lawrence Kudlow who is also thought to be against the tariffs.

In New Zealand, the market has been awaiting the release of fourth quarter Gross Domestic Product (GDP) data. Economic growth for the quarter was 0.6%, slightly below the Reserve Bank of New Zealand’s expectations for 0.7% growth. On an annualised basis, growth for 2017 was 2.9%, slightly below the 3% growth seen in the year ended 30 September. The NZ dollar fell in the lead up to the release, however recovered quickly. Growth was driven by increases in the service sector however, falls in the primary sector impacted the figures negatively. The drought conditions in the second half of the quarter were the key driver of the declines, impacting milk production in the dairy sector. Household spending was the biggest contributor to GDP growth in the quarter as spending increased for food and fuel.

The REINZ data for February showed house prices increased for the year, with the median price rising 6.9% for New Zealand. Excluding Auckland, the median house price increased 8.4% with the Auckland region seeing just 3.7% growth. The number of days to sell a house also increased to 44 days from 40 days a year earlier. The Hawkes Bay saw the biggest year on year increase, rising 18.4% and achieving a record high for the second month in a row.

Across the Tasman, it has been a volatile week. Banks in particular have been in the firing line as the Royal commission into the industry’s alleged misconduct has gotten underway. Headlines have been less than favourable for the banks and this has translated into sector weakness.

At the half way point for March, the NZX 50 is in positive territory, and is only one of the few around the globe that is. The local bourse is up 0.7% for the month at the time of writing and set a fresh record high in the first half of the month. The Aussie index is down more than 1% as is the Nikkei in Japan and the FTSE 100 in the UK. In the US, the Dow Jones is down for the month while both the S&P 500 and the Nasdaq are holding on to solid gains. The Nasdaq also set a record high for the month, while the CBOE volatility index remains elevated.