Chapter 1: What is the main topic discussed in this episode?
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I'm Mark Lister, Investment Director at Craig's Investment Partners, and I'll be talking about a range of topics including economics, portfolio strategy, investor education, and anything else that's happening out there in financial markets.
Hey team, hope you're all well. Feels like I haven't talked to you lot for ages. I know I just skipped one week, but that feels like a lifetime. So good to be back and lots of things to talk about. Let's start with last week, then we'll move on to what we need to keep an eye on in the days ahead. So global share markets last week. Another good week.
The S&P 500 index in the US was up almost 1%, 0.9% to be precise. That was the eighth consecutive weekly gain in a row. So that is the longest weekly winning streak since December 2023. All of the other major markets were up too. It was the UK and Europe that posted the biggest gains. They were up 2.7% and 3% for the week. Closer to home, things were a bit more subdued.
Across the Tasman, the ASX 200 was up 0.3% and the local NZX 50 was up 0.2%. Interest rates here in New Zealand, they slipped back slightly. The New Zealand five-year swap rate finished the week eight basis points lower, just below 4%. Despite a volatile period for interest rate markets and bond yields, local fixed income is still up this year.
It's up 0.4% in 2026, which isn't much, but that's still a lot higher than local shares. Local share market is down 4.1% this year. And that's also ahead of U.S. Treasury bonds, which are also down this year. Not down as much as that. They're down just 0.8%. But local fixed interest hasn't been too bad. Internationally, interest rates, a bit of movement there as well. The U.S.
10-year Treasury yield finished slightly lower. at 4.56%. It did hit a 16-month high of 4.68%. I think that was on Wednesday. One thing I will say about bond yields at the moment is that it's the speed of the rise that we've seen lately that has been just as disconcerting for investors than the levels that they've got to themselves.
So the 10-year in the US is up about 40 basis points over the past month, which is quite a big move in the world of bonds. Right, turning to some of the releases we saw last week, and there was a couple of things that I was watching closely. The main one was Flash PMIs, Purchasing Managers Indices. These are essentially activity indicators.
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Chapter 2: What economic indicators were observed in global share markets last week?
So a bit of a mixed bag, certainly some good and bad. even in the US supply delivery times and input cost inflation increasing to the highest we've seen in about four years. So flash PMIs, long story short, sluggish growth and supply chain pressures and inflationary pressures. None of that is unexpected, is it?
Here in New Zealand we had the results of another dairy auction, it was actually the last one for this season, the season about to end at the end of this month. Prices were steady, the headline index increased 0.6%, whole and skim milk powders continued to rise, that's been the trend in recent months, so that leaves the headline price index up 21%.
This year, and Fonterra obviously has forecast a payout in a range of $9.40 to $10, so there's a midpoint of $9.70, and with a bit of luck, it will end up slightly higher than that, and that would be the second highest payout of all time, second only to last season. Looking ahead, we should actually get some news this week about what the upcoming season will look like, 2026, 2027.
Fonterra is scheduled to provide a third quarter business update on Thursday, I think, and we should get an initial forecast for next season as part of that. Right, turning to the week ahead, and it will be a holiday-shortened week in many places. You've got the US closed on Monday for Memorial Day, and you've got the UK closed for a bank holiday on Monday too.
So the US and the UK both closed on Monday. It'll be a little quieter out there. The key global release on the economic calendar at least will be the PCE inflation report, personal consumption expenditures in the US. Now, the headline inflation rate, the PCE inflation rate, is expected to rise at an annual rate of 3.8%.
That would be the highest that we've seen in about three years, the highest since May 2023 alone. Across the Tasman, inflation will also be in focus. We've got the April CPI report due. Now, unemployment in Australia unexpectedly jumped last week. It was expected to remain steady at 4.3% in April. It jumped to 4.5%.
Now, that's the highest unemployment rate since 2021, and people didn't expect that. So what you saw in response was odds for another RBA rate hike 4%. fall sharply. So that was interesting. And we'll be watching these CPI figures across the Tasman for any further reaction in terms of rate hike expectations from the RBA.
Here in New Zealand, an absolutely massive weak looms in terms of monetary policy, fiscal policy, economics, corporate earnings, there is so much going on. So we will start with the RBNZ. That will be the highlight, I think, for many of us. We will get the official cash rate decision and the latest monetary policy statement from the Reserve Bank. These are both due at 2 o'clock on Wednesday.
So that's when they'll be released on the Reserve Bank's website and they will be followed by a press conference at 3 o'clock. And that's live streamed, remember, and it's actually worth watching. So I would encourage you, if you're a market follower, if you're interested in economics and so forth, it is actually worth logging on and watching that at 3 o'clock. Now, where are we at?
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Chapter 3: How are interest rates and inflation affecting New Zealand's economy?
What we do think is more likely is that the Reserve Bank will use this meeting to lay the groundwork for a 25 basis point increase at the next meeting in July. Look out to July and a move is much more likely. Odds are sitting at about 80%. So most economists are picking a move in July. Now again, that's not guaranteed either. We don't know where the Reserve Bank's head is at.
We'll find out this week. And there's also a lot of data to come out between now and July. So anything could happen. But that's where markets are at at the moment. They think that the Reserve Bank will use this monetary policy statement to give us some new forecasts and lay the foundations for a hike or two or three later in the year. But not many people picking a move this week.
So what we will be more interested in are those forecasts in the monetary policy statement. Now, the bank did provide an initial estimate for the annual increase in the CPI in the June 2026 quarter, and that was at 4.2%. So that's what they thought back in April. But we'll want to see how that has changed and evolved. Are they still picking 4.2% or are they picking something higher than that?
Then where do they think inflation goes beyond this quarter? Where do they think it goes over the balance of this year and how sticky will it be? They don't know either. There's a lot of uncertainty out there, and I don't think the Reserve Bank's crystal ball is any better than yours and mine in terms of predicting what will Iran's next move be, how will Trump react, where will oil prices go.
It's a pretty tough ask to expect anyone, no matter how much resources and intelligence you've got, to try and predict those unpredictable things. But it'll be really interesting to see what they're worried about, where they're at, and how they balance off some of those risks to the economy.
You've got risks of inflation going higher, but you've also got some clear indicators, both in terms of the data that we've seen and what we're all hearing anecdotally. I don't know about you, but the businesses that I talk to are definitely seeing a drop-off. in demand and in confidence. So all of that's important too. It's not just about inflation.
So we don't expect there'll be a hike this week, but we'll be really interested in the forecasts and what they think their next move will be and when. At the moment, Markets think that we'll see three rate hikes over the balance of this year. That's what market pricing implies, 78 basis points of tightening. So that's basically three rate hikes of 25 basis points each.
And over the next 12 months, so looking out a little bit further, the market sees about 120 basis points of tightening and that would essentially put the ocr at three and a half percent this time next year okay so that's uh one two three four five rate hikes from where we're at today so we'll wait and see how those expectations shift once we've heard from the reserve bank
uh that's just the start of it to be honest that's wednesday afternoon and less than 24 hours after that we will get the budget the government's 2026 budget will be delivered on thursday afternoon i think it usually comes out about two o'clock in the afternoon now
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Chapter 4: What insights can we gain from the latest Flash PMI reports?
Ryman Healthcare, Not one of the biggest stocks these days, but still a widely owned and widely followed one. Those three are all on Tuesday. That's a big day. Also Goodman that day, Property Trust. Thursday, you've got Fonterra with their quarterly update and you've got Main Freight. Main Freight, always a really interesting one.
Great business, very well regarded, very widely owned by investors. Does a lot of business here in New Zealand and across the Tasman, but also got very extensive operations in Asia, in Europe. and in the United States. So you will arguably learn the most from the main freight result in terms of what's happening out there in the global economy. A few international companies reporting too.
The reporting season internationally is largely done at this point, but HP, Salesforce are both on Wednesday and on Thursday. A couple of the retailers, Costco, Dollar Tree and Best Buy. So there we go team. Hope that is useful. Thanks for listening as always and we'll talk again soon. Enjoy your week.