INSIGHTS

MARKET SUMMARY: 5 TO 8 JUNE

Research Team, 8 June 2018

Next week will be a very busy one for central bank meetings around the world, which could have an impact on interest rates, currencies and sharemarkets. The Federal Reserve in the US meets on Tuesday and Wednesday, with the outcome of that meeting set to be released at 6:00am on Thursday in New Zealand. The European Central Bank will release a statement on Thursday evening, then Bank of Japan follows on Friday.

The focus will be firmly on the Federal Reserve, and markets are expecting the US policy rate to be raised another quarter of a percent. This would take the US version of our Official Cash Rate (OCR) to a range of 1.75-2.00%, and would see it above the New Zealand OCR for the first time in eighteen years. The US dollar might see some support if this occurs, which might see our currency slip against the greenback. While this would mean we face higher costs for some imports, it would provide added support to our export sector.

At the same time as an interest rate decision, the Federal Reserve will provide an updated summary of economic forecasts that will give investors some clues as to how it sees the US economy progressing, and how aggressively it intends to keep increasing interest rates.

The results from the latest Global Dairy Trade auction were announced on Wednesday and the index fell 1.3% from its previous auction three weeks ago. New Zealand’s key product group, whole milk powder, slipped 1.1% while skim milk powder rose a modest 0.3%. Butter milk powder marked the biggest gain, up 17.7%, followed by lactose, which rose 3.9%. Butter and cheddar both slipped, down 3.5% and 3.6% respectively.

The Nasdaq closed at multi record highs this week led by tech shares, with Apple, Amazon, Facebook and Microsoft all helping boost the index. Following Apple’s Worldwide Developer Conference, the tech giant rallied to a record high, pushing its market capitalisation to US$942.9 billion. The company requires a further 6.1% gain of its share price for Apple to become the first US$1 trillion company. Microsoft also helped lift the tech-heavy index, also posting a record high, after announcing it was acquiring GitHub, a software developer platform, for US$7.5 billion.

The Labour Department said non-farm payroll employment surged up by 223,000 jobs in May. With the stronger than expected job growth, the unemployment rate edged down to 3.8% in May from 3.9% in April, but had been expected to be unchanged.

On Monday, the White House said its policy of tough sanctions on North Korea had not changed, days after US President Donald Trump said he no longer wanted to use the phrase ‘maximum pressure’ to describe the campaign to press North Korea to give up its nuclear weapons. After a meeting with a senior official from Pyongyang at the White House, Trump said North Korea was being more cooperative and that although sanctions would remain in place, he would hold off imposing new ones, because the two sides were ‘getting along’. The summit between the two leaders is scheduled in Singapore on June 12.

Meanwhile, Canadian Prime Minister Justin Trudeau hosted the G-7 summit this week as leaders from seven of the largest economies discussed a slew of recent protectionist moves by President Donald Trump. In addition to this, Mexico have said they will impose a 20% tariff on US pork imports, which account for about 90% of the country’s US$1.07 billion annual imports of the meat. The tariff was in response to the Trump administration’s decision to impose steel and aluminium tariffs on Mexican exporters. However President Trump may seek separate talks with Mexico and Canada in a bid to get individual trade deals with the two countries.

Italy’s new Prime Minister, Giuseppe Conte has promised ‘radical change’ and said the anti-establishment government would introduce universal basic income and crack down on immigration. The big spending plans of the two anti-establishment parties that make up the government have raised concerns.