Equities Produce Positive Returns (Again)

Global Markets

The prospect of less aggressive interest rate hikes by central banks improved sentiment among investors with major market indices gaining in the month, producing consecutive monthly gains for the first time this year. This was primarily driven by a lower-than-expected US inflation reading, with year-on-year prices increasing 7.7%, which came in 0.3% below market expectations. Despite hawkish comments from several US Federal Reserve members afterwards, markets remained optimistic throughout the remainder of the month. A speech by Federal Reserve chair Jerome Powell reaffirmed the market’s belief that interest rates would slow down which helped markets rally at the end of the month – with a 50 basis point hike now expected in December.   

Australasian Markets

The RBNZ increased the OCR by 75 basis points, while additional statements made suggested that another can be expected at the RBNZ’s next meeting. The bank expects their contractionary policy, a policy that restricts monetary expansion, to push New Zealand into a 12-month recession. Markets now expected the OCR to reach 5.5% next year. Fisher & Paykel Healthcare (+22%), A2 Milk (+14%), and EBOS Group Ltd (+11%) performed well this month while Ryman Healthcare (-20%), Serko (-14%), and Genesis Energy (-9%) underperformed within the NZX 50. The NZX 50 and the ASX 200 increased +1.9% and +4.5%, respectively, in NZD terms. Fisher & Paykel Healthcare accounting for 108% of the NZX’s performance over the course of the month. Resources continued to help the ASX 200 outperform broader markets with the ASX’s Resource Index increasing +14.6% in the month.  

The ANZ Business Confidence Report for November showed that New Zealand’s profit expectations are at their lowest levels for the year. Furthermore, as shown in the table above, the NZD strengthened, which reduced the returns of overseas investments.

European Equities

Elsewhere in markets, Europe benefitted from better-than-expected economic releases. Germany’s business confidence was more positive than it had been in recent months with Europe’s largest economy now expecting a milder economic slowdown going forward. The Energy sector continues to outperform as they were boosted this month after Saudi Arabia said that oil output will not be boosted – BP (+3.7%), Repsol (+7.6%), and Totalenergies (+9.5%) rose in response to the statement. The DAX, Euro Stoxx 50, and FTSE 100 rose +8.6%, +9.7%, and +7.1%, respectively. Despite the constant noise surrounding inflation, consumer discretionary stocks, such as Adidas (+23.6%) and Kering (+22.4%), helped boost the Euro Stoxx 50. Burberry (+19.8%) and JD (+30.1%) performed well within the FTSE 100.

Fixed Income

A tilt towards less aggressive interest rate hikes by the US Federal Reserve saw the US 10yr yield fall back to 3.6%. European bonds fell as ECB President Christine Lagarde said she would be surprised if eurozone inflation has peaked, despite October’s reading of 10.6%, while also suggesting that the recent interest rates hikes seen in Europe are not close to being over. Lagarde also said that persistent price pressures may result in borrowing costs rising to levels that could restrict economic growth in order to bring inflation back to the ECB’s target of 2%.