Are interest rates really heading higher?

By | Insights
While most investors are pre-occupied with when interest rates are going to be adjusted higher, particularly in the wake of much stronger-than-expected US consumer price inflation (CPI) data and rising...
While most investors are pre-occupied with when interest rates are going to be adjusted higher, particularly in the wake of much stronger-than-expected US consumer price inflation (CPI) data and rising inflation expectations domestically, this is largely yesterday’s story. A far more important question is how likely is it that investors might witness first steps towards more support rather than a tightening of economic conditions sometime over the next twelve months? First, if you look at the latest US CPI data (4.2% annualised) it is not indicative of broad-based inflationary pressures. As highlighted by the Macquarie US economist, price rises were... Read more

Government clutching at straws on housing

By | Insights
In a rather predictable statement last week, the Reserve Bank reiterated their commitment to keeping interest rates low for an extended period, and that any short-term inflationary pressures are just...
In a rather predictable statement last week, the Reserve Bank reiterated their commitment to keeping interest rates low for an extended period, and that any short-term inflationary pressures are just that, short term and temporary. This messaging has clearly rattled some in central government. Housing affordability continues to be the thorn in this governments side. The latest REINZ house price index had prices up 19.2% year on year which clearly feels like an unsustainable level of house price growth. Whilst this is expected to moderate as the impact of lower interest rates reduce and the reintroduction of LVR restrictions take... Read more

Is reflation just a matter of time?

By | Insights
Over the last six months, investors have become more amenable to inflationary arguments or what is being referred to as the reflation trade. This in essence is the growing belief...
Over the last six months, investors have become more amenable to inflationary arguments or what is being referred to as the reflation trade. This in essence is the growing belief that short term interest rates are unlikely to go lower from current settings; and these enormous fiscal measures being implemented across the globe will finally result in wage cost pressures as one measure; and catapult us out of an environment of persistently low inflation that we have been in mired in for the past decade. Now we could have a whole other argument on how inflation is being measured; and... Read more

Bond and Currency Markets not the signal they once were?

By | Insights
In the past, there was a near universal consensus that bond and currency markets are much better at reading the macro-economic picture impacting financial markets, and thus can be a...
In the past, there was a near universal consensus that bond and currency markets are much better at reading the macro-economic picture impacting financial markets, and thus can be a useful guide for equity investors when assessing risks and the direction of share markets. Currently, if we were to look at equity markets you wouldn’t guess that many industries will be either permanently impaired or face prolonged recoveries or that political and social risks are rapidly rising. High yielding debt instruments (riskier bonds) are now back to some of their lowest levels in yield and currency markets have been stable... Read more

How should investors strategies change?

By | Insights
On what seems like a daily basis, investors are being bombarded by sanctions, restrictions, and blockages that would have been unthinkable even six months ago. In this environment it is...
On what seems like a daily basis, investors are being bombarded by sanctions, restrictions, and blockages that would have been unthinkable even six months ago. In this environment it is tempting to follow news without forming a coherent backdrop. However, from an investing point of view this will likely prove to be short-sighted. The attempted separation between China and the rest of the developed world is getting deeper and it is unlikely to be fully bridged in the near term. This will apply to all aspects of life, from politics & military affairs to trade, technology, immigration to capital. While... Read more

Markets remain volatile in the run up to September

By | Insights
Markets are nervously trading around steady news flow of infection rates, Trump tweets and political posturing. The perceived disconnect between terrible economic and healthcare outcomes, and market valuations, continue to...
Markets are nervously trading around steady news flow of infection rates, Trump tweets and political posturing. The perceived disconnect between terrible economic and healthcare outcomes, and market valuations, continue to dominate the headlines. As the US elections draw nearer, the inevitable paralysis is setting in, with a possibility that the next financial stimulus could be delayed. This is not even to mention Hong Kong or the absolute certainty that China will feature prominently in the US elections, from both sides of the political spectrum. With all that is going on, how can markets ignore rising infection rates and likelihood of... Read more

Covid-19 – What happens when oil futures go negative?

By | Insights
Volatility across the different asset classes in financial markets has been remarkably stable in the last couple of weeks when we consider the amount of ‘unknowns’ and economic risks in...
Volatility across the different asset classes in financial markets has been remarkably stable in the last couple of weeks when we consider the amount of ‘unknowns’ and economic risks in global markets from COVID-19. However, this low volatility environment has masked a significant move lower in commodity prices, and notably oil, with Brent crude back below US $26.00 a barrel, a ~62% drop in price year to date. Many sources of Oversupply Furthermore, there has been an almost unbelievable fall in the US West Texas (WTI) oil price overnight, with the soon-to-mature futures contract trading to as low as -$40... Read more

Ten Year Government bonds, Investment or Insurance?

By | Insights
The last couple of weeks has been something of a rollercoaster ride for investors, with volatility spiking as the world and financial markets try to come to grips with COVID-19,...
The last couple of weeks has been something of a rollercoaster ride for investors, with volatility spiking as the world and financial markets try to come to grips with COVID-19, and both the human and economic implications. Unsurprisingly, we have seen a co-ordinated global central bank response. In simple terms, the US, Canada and Australia have all come out and lowered interest rates, with it widely expected that the United Kingdom and New Zealand will follow suit. What has been somewhat lost in the ensuing chaos, is the yield or return of a New Zealand ten- year government bond is... Read more

Nature is no match for liquidity

By | Insights
While it is too early to predict how deadly the Coronavirus might become, the explosion of new cases and its relatively high death rates (~2%-3% vs usual influenza of less...
While it is too early to predict how deadly the Coronavirus might become, the explosion of new cases and its relatively high death rates (~2%-3% vs usual influenza of less than 0.1%) are unnerving the markets. Also, unlike SARS, China is today far more important at both the forefront of global supply chains and consumption, and has a far greater impact on the global economy. The rush for safety in financial markets and erosion in growth expectations is already flattening interest rate curves, reinforcing US dollar strength (as a safe-haven currency) and sapping global sentiment. Indeed, if it becomes evident... Read more

Can someone please explain variable rate home loans in NZ

By | Insights
In the wake of the Royal Commission into the banks in Australia and the ongoing saga with the ANZ David Hisco dismissal in New Zealand, it has been nothing short...
In the wake of the Royal Commission into the banks in Australia and the ongoing saga with the ANZ David Hisco dismissal in New Zealand, it has been nothing short of ‘open season’ on the domestic banks. Recent commentary has now turned its focus to topics such as the level of interest rates charged on credit cards. Kiwibank has front footed this recent issue to some degree, dropping its zero cash interest rate on their credit cards to 13.95% per annum from 22.95% and its gold purchase interest rate dropping to 13.95% per annum from 17.90%. We could argue whether... Read more