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As we navigate a complex global economic landscape, a convergence of significant events is shaping the financial landscape. The recent Reserve Bank of New Zealand (RBNZ) decision to cut the Official Cash Rate (OCR) has provided some relief to borrowers, while the milestone of KiwiSaver surpassing 100 billion New Zealand dollars in Funds Under Management (FUM) underscores the growing importance of retirement savings. Meanwhile, the looming US elections and their potential impact on trade policies and global markets, coupled with the ongoing conflict in the Middle East, Ukraine, and the possible impact on oil prices, can add further layers of uncertainty to the economic outlook. Amidst all this uncertainty, global equities, global infrastructure, and global property asset classes have performed well over the last few months, providing sound returns to investors.


New Zealand interest rates


The 0.50% cut to the New Zealand official cash rate (OCR) this Wednesday is welcome news for many. This brings the cash rate down to 4.75% from 5.25%, the first time the cash rate has been less than 5.00% since March 2023.


The central bank believes that inflation is now within its target range and that the economy has excess capacity. This decision follows a 25-basis point cut in August and comes despite economists' expectations for a smaller cut. Financial markets reacted positively to the announcement, with the stock index rising and the Kiwi dollar falling. While inflation is expected to be on target, economic activity and the labour market have continued to weaken, raising concerns about unemployment and deflation. Economists have differing views on whether interest rates are still too restrictive. The RBNZ remains confident that its current policy stance is appropriate and will continue to monitor the economy to determine future rate changes.


It’s important to note that lower interest rates resulting from the OCR cut can significantly impact savers. Savers may experience reduced returns on their savings accounts, term deposits, and other fixed-income investments. This can lead to diminished purchasing power, due to inflation outpacing lower interest rates, and potentially increased financial risk as investors seek higher yields. These factors can make it more difficult to grow wealth and achieve financial goals in a low-interest-rate environment.


KiwiSaver surpasses $100 billion in funds under management


This milestone underscores the scheme's role in securing New Zealanders' financial futures and promoting long-term savings habits. The $100 billion mark represents a substantial increase from previous years (up 19.3% from last year), reflecting the increasing number of KiwiSaver members and the consistent growth in contributions. This milestone is a positive indicator of the scheme's success in encouraging individuals to save for their retirement and to make prudent investment decisions.


Despite this, KiwiSaver still lags behind Australian Super, both in terms of fund size and average account balance. Where the average KiwiSaver balance is around $33.5k, the average Australian Super balance is about $250k*. This is largely due to Australia's longer history with superannuation, its compulsory nature, and higher contribution rates (employer’s contribution currently 11.5% per annum, increasing to 12.0% per annum in 2025).


While KiwiSaver has made significant strides, catching up to Australian Super's maturity and size will require deliberate action. Increasing mandatory contributions progressively—perhaps from 3% to 4% and then to 6%—can significantly boost savings. Encouraging employers to match contributions and simplifying the KiwiSaver system can also enhance its appeal. By prioritising financial education and offering a wider range of investment options, KiwiSaver can better cater to diverse savings goals and potentially achieve growth comparable to Australia's established superannuation system. However, this will necessitate sustained commitment and a focus on continuous improvement.


*(Deloitte Average Balances to 30 June 2023, rounded to the nearest $100. People with zero superannuation are not included in average data.)


Positive NZ Business Outlook


The latest ANZ Business Survey results for September 2024 indicate a positive outlook for the New Zealand economy. Business confidence surged by 10 points to +61, while expected own activity rose by 8 points to +45. These positive indicators suggest that businesses are more optimistic about the future and anticipate stronger performance in the coming months.


However, challenges remain. While experienced own activity rose slightly, it remained negative at -19, indicating that businesses are still facing short-term difficulties. Employment intentions fell by 5 points to -20, suggesting a cautious approach to hiring. Additionally, pricing intentions rose for the second consecutive month, indicating persistent inflationary pressures. Despite these challenges, the overall survey results suggest that the worst is over and we can be cautiously optimistic about the New Zealand economy.



US elections


The US presidential elections are as tight as ever, and at this point in time, there are only a handful of of key ‘swing’ states that could decide the next US President. These states are: Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. It will be interesting to see what policies each candidate can bring to the table to win these states over.


It’s important to acknowledge that economic policies implemented by different administrations can have varying short-term and long-term impacts. For example, some economists argue that certain economic policies, such as tax cuts or government spending, can stimulate growth, while others may raise concerns about debt and inequality.


Ultimately, the performance of the U.S. economy is a result of a complex interplay of factors, and attributing it solely to the party in power can be misleading. On the whole, the US stock markets have performed okay during either administration in recent history.


US markets


The US stock markets have been experiencing a period of volatility, reflecting a complex interplay of economic, geopolitical, and corporate factors. While there have been some positive developments, overall sentiment remains cautious. However, the US markets have been very strong over the last 12 months. Major indices, like the S&P 500, have experienced a significant upward trend over the past year. Many US corporations have reported strong earnings in recent quarters, often exceeding analysts' expectations. Additionally, many companies have maintained healthy balance sheets with strong cash reserves and manageable debt levels. This financial stability has positioned them well to weather potential economic challenges.


The Fed Reserve cut its benchmark rate by 0.5% last month and is expected to cut interest rates further. Falling interest rates are usually good news for borrowers, banks, and governments as the cost of borrowing comes down. The Fed has indicated it might reduce interest rates by another 25–50 basis points in the next Federal Open Market Committee (FOMC) meetings (November, December).



Oil prices


The ongoing geopolitical tensions in the Middle East, particularly the escalating conflict between Israel and Iran, pose a significant threat to global oil stability. The region is a major oil producer, and any disruption to production or transportation routes could lead to supply shortages and price spikes. The ongoing conflict has the potential to escalate, further exacerbating these risks.


Additionally, the lingering geopolitical implications of the Russia-Ukraine war continue to influence oil prices. While the direct military conflict may have subsided, the ongoing tensions between the two countries, as well as their broader geopolitical rivalries, can impact oil supplies and prices. Russia is a major oil producer, and any actions by the Russian government that could disrupt its oil production or exports could have a significant impact on global markets. Moreover, the ongoing conflict has led to increased geopolitical uncertainty, which can deter investment in the energy sector and contribute to price volatility.


As a net importer of oil, New Zealand is heavily reliant on international markets for its fuel supply. Higher oil prices would lead to increased costs for fuel, impacting transportation, energy generation, and manufacturing sectors. This could result in higher prices for goods and services, including food, as transportation costs are passed on to consumers. Additionally, the increased cost of living could put pressure on household budgets and potentially impact economic growth.


Key Takeaways


  • Markets often operate in cyclical patterns, characterised by periods of growth and decline. Understanding these cycles can help investors make informed decisions and avoid impulsive reactions to market fluctuations.

  • We believe anyone who is over the age of 18 and below 65 should be in KiwiSaver to harness the benefits of the scheme (e.g., annual government contributions, employer contributions, tax efficiencies, etc.). If you are not already in KiwiSaver, just give us a call and we can help you get it setup.

  • Even if the cash rate is falling, there are still attractive investment options available. Talk to us for more information about the best options to take advantage of the current economic environment.

  • If you're investing for the long term using a dollar-cost averaging strategy, volatility can actually work in your favour. Volatility can create opportunities to purchase assets at discounted prices, which can enhance your long-term returns.

  • A goals-based investment approach, which involves breaking down your investment goals into short-, medium-, and long-term horizons, can help reduce risk and improve your chances of achieving financial success.

  • With declining interest rates, if you are thinking about taking on or refixing your mortgage, now is a good time to talk to our Mortgage Specialist, Adrian Dale (adrian@trilogyfs.co.nz). Adrian works with all the major banks, and non-banks, and can provide good advice to meet your future requirements.


If you have any queries or concerns about your financial, investment, and retirement planning matters, please feel free to give our office a call on 09 553 8928 or email us at info@trilogyfs.co.nz.


Kind regards,

Trilogy Team

The global economy continues to navigate a complex landscape, grappling with a mix of resilience and uncertainty. While some regions demonstrate signs of strength, others face headwinds from geopolitical tensions, inflationary pressures, and lingering economic challenges. The United States, a key economic driver, exhibits a resilient labour market but remains cautious about inflation and the Federal Reserve's monetary policy. Europe, Asia, New Zealand, and Australia each present distinct economic narratives, influenced by factors such as trade disputes, energy crises, and domestic policies.




Market update


Global News


The US economy continues to show signs of resilience, despite some recent data indicating a slight slowdown. The labour market remains robust, with nonfarm payrolls increasing by 142,000 in August, although this was below consensus estimates.


The unemployment rate decreased to 4.2% from 4.3% in July, demonstrating a continued tightening of the labour market. Average hourly earnings rose by 0.4% to 3.8%, suggesting that wage growth is still on an upward trajectory. However, inflation, although easing, remains a concern, and the Federal Reserve is closely monitoring economic indicators to determine the appropriate course of action for interest rate policy.


The ongoing geopolitical tensions and trade disputes also pose risks to the global economy and could impact the US economy in the short term.


Financial markets experienced some volatility in the past two weeks, largely driven by weaker-than-expected US labour market data. The release of the August nonfarm payrolls report, which showed a smaller-than-anticipated increase in jobs, sparked concerns about the strength of the US economy and the Federal Reserve's future monetary policy decisions.


Global equities, including the S&P 500, suffered substantial declines, reflecting investor sentiment that a weaker labour market could indicate a potential economic slowdown. The S&P 500 fell by 4.3% for the week on September 9 and recouped 0.5% on Tuesday, September 10. Concerns about slowing economic growth and bank earnings tempered gains. Energy and bank stocks declined significantly, with energy stocks falling 1.9% and bank stocks dropping 1.0%. Technology stocks, however, rose, with the Nasdaq Composite gaining 0.84% (as of Sep 10). Treasury yields also experienced fluctuations, with the front end of the curve showing a notable decline as investors anticipated a potential easing of monetary policy.


In Europe, the eurozone's inflation rate has shown signs of moderation, easing pressure on central banks to maintain aggressive interest rate hikes. However, concerns persist about the region's economic growth, particularly in the face of geopolitical tensions and energy challenges.


Several European countries have reported mixed economic data, with some experiencing slight growth while others face headwinds.


The ongoing war in Ukraine and its impact on energy supplies, as well as the global economic slowdown, remain significant factors influencing Europe's economic outlook.


Asia's economic landscape has been a mixed bag. Several major economies in the region have reported growth, driven by factors such as domestic consumption and infrastructure investments.


China, the world's second-largest economy, has shown signs of recovery, with its manufacturing Purchasing Managers' Index (PMI), which measures the prevailing direction of economic trends in manufacturing), expanding for the first time in six months in August. However, concerns persist about its property sector, which continues to be a drag on the economy.


India, on the other hand, has maintained its strong economic growth trajectory, with its GDP expanding at a healthy rate.


South Korea's economy has also shown resilience, despite facing challenges such as global trade tensions and semiconductor industry fluctuations. However, the region's economic outlook remains subject to global factors and domestic challenges, including geopolitical risks and potential inflationary pressures.


New Zealand News


In New Zealand, concerns about global economic conditions, particularly in China, have contributed to a cautious outlook for the domestic economy. Inflationary pressures have remained elevated, impacting consumer spending and business confidence. The housing market has continued to exhibit signs of cooling, with lower house prices and reduced sales activity.


The Reserve Bank of New Zealand (RBNZ) has maintained a cautious stance on interest rates. While the RBNZ has indicated that further hikes may be necessary to combat inflation, it has also acknowledged the risks of overtightening. The government has been closely monitoring economic developments and implementing policies to support growth and address key challenges, such as the cost of living.


Australia News


Australia's economy has experienced sluggish growth due to a combination of factors. Cash-strapped households are cutting back on non-essential spending to afford basic necessities, while the government continues to maintain high spending levels. Despite expectations of a rate cut, the Reserve Bank of Australia may need to further raise interest rates to combat persistent inflation. The economy's per capita recession has deepened, and there are concerns about the potential impact of further monetary tightening.


In closing


With the fast-paced nature of the financial markets, it's easy to lose sight of your long-term financial objectives and get caught up in short-term fluctuations. Here are some important points to consider regarding your investments and retirement planning.


  • Fine-Tuning Your Goals and Objectives: Your financial goals and circumstances can evolve over time. It’s important to have a plan to achieve your goals and objectives.

  • Risk Assessment: Your risk tolerance – how comfortable you are with potential losses – can change. If you would like your risk to be reviewed, please let us know and we can send you a link to complete an online risk profiling questionnaire.

  • Time is Your Ally: It’s important to review your short, medium and long-term investment goals so they can be managed according to your timeframes.

  • Financial Advice: A survey of 2000 Kiwis, conducted by the Financial Services Council, found that those who get financial advice tend to save more, invest more, travel more, and have an overall improved financial well-being. On average, financial returns for Kiwis who get professional financial advice are 4% better than those who don’t.


If you have any queries or concerns about your financial, investment, and retirement planning matters, please feel free to give our office a call on 09 553 8928 or email us at info@trilogyfs.co.nz.


Financial markets experienced volatility in recent weeks, as investors grappled with persistent inflation concerns, tightening monetary policies, and geopolitical tensions. While the recent decline has been quicker than usual, the size of the pullback is actually within the “normal” bounds of market behaviour. This is something that tends to be forgotten in the media.


Throughout 2023 and 2024, investors have experienced relatively smooth returns. Over the past 18 months, the US share market index (the S&P 500) only had one daily decline greater than 2%. Despite the relatively stable global economic environment, performance this smooth is not “normal.”


History suggests that, on average, share markets should have at least 5 daily declines above 2% per year, and a 10% decline every two years. Not only is the recent fall well within this “normal” range, but it comes after strong gains in the first half of the year, with the S&P 500 index still up around 10% (in local currency terms) so far this year.


On Wednesday, the Reserve Bank cut the Official Cash Rate (OCR) by 0.25% to 5.25% per annum and further rate changes are expected. They have cut rates because they expect inflation rates to come down further and stay between 1% and 3% over the medium term, with a focus on the 2% midpoint. The New Zealand stock market also reacted as a result of this cut: New Zealand’s stock market shot up by almost 2%, and the NZ dollar fell more than 1% against the United States and Australian dollars.


US inflation fell to 2.9% in July, which is a significant step for the Federal Reserve to cut interest rates at its next meeting in September. Both the DOW and S&P 500 close higher for the fifth straight day as easing inflation bolsters rate-cut hopes.


Navigating global equities: Insights from Stephen Arnold of Aoris Investment Management



We interviewed Stephen Arnold, the Managing Director and CIO of Aoris Investment Management (Aoris). Stephen’s views and insights are summarised below:

  • Market rotation: Investment focus has shifted away from large, dominant tech companies towards other businesses, making these companies more attractively priced. However, it remains uncertain whether this trend will continue.

  • Ideal stock characteristics: Aoris holds 15 businesses they believe will become more valuable over time. Their ideal stock characteristics include growing profitably, market leadership, growing faster than their peers, longevity time, and a conservative balance sheet. An example of businesses that meet these characteristics include L’Oreal, Accenture, and Microsoft.

  • Minimising portfolio risk: Aoris focuses on several key factors when evaluating businesses: long-term management strategy, customer acquisition and retention, competitive advantage and market share growth, and conservative financial management.

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