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.
