In this article we look at Market Volatility in NZ it’s causes and ongoing effects.
Some recent articles have noted that NZ investors are bracing themselves for some turbulence in the 2019 year ahead as global equity markets continue to exhibit volatility after a fairly strong run in recent years. NZ is somewhat fortunate in the fact that in recent times we have been shielded from the fairly turbulent activity seen in the US stock market and in other global markets however we are not entirely immune from the effects of what impacts our major trading partners and other markets in general.
While the US stock market has bounced back from a very large fall in circa December, the Dow is still down from its record highs, and the Fed is still sending mixed signals about interest rates which could impact us. US China relations remain strained which puts the global market on tender hooks. This combined with volatility in European markets, and an uncertain Brexit add to global anxiety.
As an export driven nation we rely heavily on the stability of global markets and in particular the economic performance and outlook of our major trading partners – particularly China and Australia but also other key markets.
There has been concern over a slowing in China, and of course a spill-over effect from recent negative trends in the Australian housing market. However, housing continues to be a strong economic driver for NZ with demand continuing to significantly outweigh supply – albeit we struggle with labour/capacity constraints to rectify this in the short term and there is some reluctance now showing from the larger players in the construction industry following the recent failures of some of these players.
Notwithstanding, we are still seeing strong residential and commercial construction activity both in Auckland but also in the regions. The most recent Global Dairy Trade saw product prices rise foor the 8th consecutive time providing a positive lift for farmers. With a steady NZD other exports are also trending positively.
The RBNZ most recently held the OCR at its current low of 1.75% and there is generally no perceived movement until 2021. Hopefully a continued low interest rate environment with strong employment levels will support retail spending and business investment.
Overall a positive outlook is generally predicted although a cautionary watch needs to be kept on externalities (globally) and the possibility that Banks may tighten credit in response to proposed higher capital requirements.