Investment Market Commentary
22 June, 2022
We have invited the ANZ New Zealand Investment Limited, one of our Fund Managers to provide some market commentary for June 2022.
ANZ Investments makes brief comment on recent events in investment markets
It been a tough period for financial markets with inflation, and the response to it, very much the focus for investors around the world. Both equity and bond markets have been under pressure.
Inflation, at its highest level since 1981, has forced the US Federal Reserve (Fed) into what will likely be the fastest series of interest rates hikes in three decades (i.e., this week saw a rise of 0.75% in the Fed’s main policy rate) By raising borrowing costs aggressively, the Fed and other central banks hope to cool spending and growth enough to curb inflation without tipping the economy into recession.
The New Zealand and Australian share markets also fell, but they did not fall by as much as their international counterparts. The Australian share market was adversely affected by the recent surprise interest rate hike from the Reserve Bank of Australia (RBA). While the markets had expected interest rates to rise, they did not forecast the 50-basis point hike that the bank implemented
Meanwhile, in Europe, the European Central Bank confirmed its intention to raise interest rates by 25 basis points at its July meeting, with a further hike to come in September – the size of which will be determined by the inflation outlook nearer the time.
Bond markets have also been weak. The yields on key US government bonds (2-year and 10-year) have risen quite sharply as investors seek higher yields to reflect the rising interest rate environment.
The hope for investors is that the rising interest rate regime implemented by central banks will contain inflation without sending economies into recession. Markets are likely to remain volatile until there is evidence of inflation being controlled and again, the hope is that this can be done without forcing economies into widespread recession.