Aug 10 2023

Lifetime Market Commentary - July 2023

According to advance estimates, US economic growth clocked in at 2.4% in the June quarter as job security supported consumer spending and businesses ramped up capital investment. This caught out economists who had forecast growth of 1.8% and validated the US Federal Reserve’s (the Fed’s) decision to resume interest rate hikes in July after pausing in June.
Markets took more heart from reports that US consumer prices rose by just 3% in June from a year ago, bringing inflation within spitting distance of the Fed’s 2% target. This, combined with cooling wage growth, inspired hopes that the next move in interest rates might be down.
At home, the outlook for rates is a little clearer after the Reserve Bank of New Zealand held steady at 5.5% in July – the first month with no rate hike in almost two years - and said they’d stay there “for some time”. How long is up for debate, of course, with many expecting another 0.25% hike in October if the recent surge in migration puts further pressure on demand. Encouragingly, inflation eased to 6% in June from a year earlier; however, fruit and vegetable prices were up an eye-watering 22%. Consumer sentiment took a further hit as the cooling economy sparked concerns that job security might soon come under pressure.
Australia’s Reserve Bank held interest rates at 4.1% for two consecutive meetings as annual inflation eased to a lower-than-expected 6% in June and household spending weakened. The jobs market remained resilient though, with June’s unemployment rate slipping to 3.5%. Meanwhile, China’s economic woes continued to weigh on investor sentiment as it grappled with stagnant consumer prices and a persistent contraction in manufacturing activity.
The UK finally made headway in its fight against rampant price growth after headline inflation fell below 8% for the first time in more than a year in June and unemployment ticked higher. However, money markets are under no illusion that the Bank of England’s rate-hiking cycle still has further to run.
The S&P500 finished July up 3.1%, while the tech-focused NASDAQ gained 4.1%. Closer to home, the NZX50 closed up 1.2% and the ASX200 returned 2.9% over the month. Meanwhile, the FTSE100 finished 2.2% higher.