Selected Market Indicators for Periods to 31 August 2022

After a rebound in July, which continued into early August, global share markets saw a broad-based sell-off following US Federal Reserve (‘Fed’) Chair Jerome Powell’s remarks at the Jackson Hole Economic Symposium. Hawkish (i.e. an inclination towards contractionary monetary policy – the raising of interest rates) rhetoric from Powell had been anticipated, though some market participants had hoped for words of a more ‘neutral’ tone. Recessionary fears continued to circulate as the market weighed-up whether central banks can successfully curb decade-high inflation without causing too much economic pain.

The MSCI World Index (in unhedged NZD) finished August down -2.0%. With inflation in the Eurozone running riot and concerns over the energy crisis escalating, the MSCI Europe Index (in unhedged NZD), which tracks stocks from European nations, slumped a hefty -4.1%. China’s zero-COVID policy and long-running property crisis were not enough to dampen emerging markets more broadly, as the MSCI Emerging Markets Index gained 2.7%. Australia and New Zealand held up strong against the overarching negative market sentiment with both share markets making modest gains.

Significant developments for August included:

• All eyes were on Jackson Hole this month as central bankers from around the world gathered for the Fed’s annual economic symposium. Powell seemingly quashed the dovish pivot (lowering of interest rates) narrative, which had fueled the July rebound, by delivering his most hawkish message to date on the Fed’s monetary policy stance – declaring that they “must keep going until the job is done”, despite slowing economic growth.
• Europe’s energy crisis continued to mount, only worsening the already crippling inflation in the Eurozone. UK energy industry regulator, Ofgem, raised the energy price cap by 80% effective 1 October 2022, in preparation for higher prices. Citi bank have forecasted inflation in the UK to hit 18.6% in early 2023 as reverberations from the war in Ukraine continue to ‘distort’ the market for natural gas, forcing energy prices up as the region heads into their winter heating season.
• The Reserve Bank of New Zealand (RBNZ) continued its ‘least regrets’ monetary policy tightening regime with another 0.50% increase in August, lifting the Official Cash Rate (OCR) to 3%. The bank noted that future changes to the OCR beyond those forecasted will be data dependent.