In August, the market became more volatile as investors dealt with concerning economic data from the US. A weak July jobs report out of the US revealed the smallest increase in payrolls in over three years, while the unemployment rate climbed to 4.3%. Furthermore, an increase in Japan’s policy rate and Governor Ueda’s hawkish stance, which refers to a more cautious and restrictive approach towards monetary policy, led to a sudden unwinding of carry trade positions. These positions relied on borrowing at low costs in Japanese yen to invest in higher-yielding assets such as stocks. Against this backdrop, global share markets initially experienced a brief sell-off, which is a sale of assets, before recovering towards the end of the month. This recovery was influenced by investors considering the possibility of the US Federal Reserve (Fed) implementing more aggressive measures to stimulate the economy.

New Zealand equities were relatively lower when assessed in local terms, with the S&P/NZX 50 delivering a modest return of 0.4%. A similar trend was observed in Australia, where the S&P/ASX 200 (AUD) generated a return of 0.5%.

The Reserve Bank of New Zealand (RBNZ) reduced its benchmark policy rate for the first time in over three years, domestic bonds only experienced modest gains. The New Zealand 10-year yield declined by approximately nine basis points, reaching 4.31% by the end of the month. The Bloomberg NZ Bond Composite 0+ Yr Index delivered a return of 0.9%.

The US dollar (USD) weakened against all major developed currencies, particularly the Japanese yen, Australian dollar, and Swiss Franc. The New Zealand dollar was the strongest among the major currencies, rising 5.3% against the USD in anticipation of the Fed’s rate-cutting cycle, despite the RBNZ significantly advancing their own rate-cutting cycle.

Significant developments for August:

• Gold prices hit a new all-time high in August, driven by a weakening US dollar and suspected monetary easing from the Fed in September. LBM Gold Bullion returned 3.4% in August and has delivered a 29% return over the past year.
• The Bank of Japan (BoJ) implemented a 0.15% rate hike towards the end of last month. Although only a small move, this marked a big shift for currency markets and resulted in a sharp sell-off in global equities as investors unwound positions in high-yielding assets that had been funded by cheap Japanese yen borrowing costs.
  
• The RBNZ implemented its first interest rate cut since March 2020 and has indicated the possibility of further cuts in the upcoming months. The decision to lower interest rates by 0.25% to 5.25% occurred earlier than what the RBNZ had initially projected, catching some market participants off guard and sparking speculation about a potentially aggressive easing trajectory until the end of 2025.