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Chapter 1: What is the main topic discussed in this episode?
On Point with Craig's Investment Partners.
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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. G'day team, hope everyone is well. Let's take a look back at last week, then let's turn our attention to the week ahead.
Well, it was a challenging week last week on Wall Street, particularly late in the week. On Friday, the NASDAQ index, and that is an index that is full of technology stocks and growth stocks, it was down 4.2%. Now that's a big fall for just one day. In fact, that is the biggest daily decline since since April last year.
Now, back in April last year, we were watching the tariff situation develop, and that was what was driving markets lower. Today, it has just been concerns about the tech sector having run a little bit too hot, and some of those stocks that have made very strong gains of late have given some of that back. So the S&P 500 index in the US, which is a more broad index than the NASDAQ,
It was down less, but it still fell 2.6% for the week, which is actually the first weekly decline in 10 weeks. Before this, we had a nine-week winning streak. Shares in Europe, the UK, and Japan were also down, although much more modestly, between 0.2% down and 0.5% down. South Korea, big moves in South Korea. The KOSPI index was down 5.5% on Friday, so a bigger fall than the NASDAQ.
Now, the South Korea market has had an absolutely cracking run. They've got some really big exposures to memory chips and other AI-related companies. That index before Friday had tripled. in the previous 12 months. It had tripled, which is a stunning run.
So even though it's seen a really big fall, 5.5%, all that's happened is the market has really gone back to where it was trading at 10 days ago. So we'll watch with interest to see where things go next. Emerging market equities were down 2% over the week. South Korea is a decent chunk of emerging market equities. Closer to home, the Aussie market down 1.2% and the local NZX 50 down 0.6%.
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Chapter 2: What were the major market movements last week?
So your KiwiSaver fund, your global share portfolio might have actually gone up last week.
even though you're seeing those headline declines in some of those indices. Interesting times, isn't it?
Right, let's talk about some of the key releases last week, and it was quite a big week in terms of US economic indicators. Good news and bad news here. The good news is that all of these indicators looked pretty strong. We had the ISM indices, so that stands for Institute of Supply Management. You get a manufacturing index and you get a services index. These were for May.
both stronger than expected, both above forecasts and both the strongest that we've seen in a little while. So that was positive. Inflation indicators still elevated, but they didn't get any worse. So what that is all telling us is that inflation is still a problem, but the US economy is also in pretty good shape. Then we got the jobs report.
This came through on Friday, so we got this on Saturday morning New Zealand time. Jobs growth much stronger than expected in May. Non-farm payrolls were up 172,000. So that's the number of new jobs that were created, similar to what we saw in April and well above forecast for about 80,000. So better than expected there. The unemployment rate as well, unchanged at 4.3%. So that's good news.
healthy breadth across the various sectors of the US economy, many of them seeing solid gains. So it wasn't just one sector or one industry that drove those headline numbers up. There was good strength across the board. So the good news there is that you've got a resilient US economy. It's in good shape. It's proving people wrong.
Even though you've got higher fuel prices, you've got inflation concerns, the economy still looks pretty decent. The bad news is is that there's no economic weakness or signs of early weakness that will keep the Federal Reserve on hold or see them reduce interest rates.
If anything, there's a higher chance that they might hike again should inflation become a problem or a bigger problem than it already is. Here in New Zealand, we got some global dairy prices.
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Chapter 3: How did the tech sector perform recently?
They slipped back in the first auction of the new season. So new season started on the 1st of June. We saw prices slip back 0.6%. So not the end of the world. Prices are still up 20% this calendar year. They're down about 7% from a year ago. But we've obviously got that Fonterra opening forecast for the new season, which has just begun.
and while it has a wide range of $8 to $11, midpoint of $9.75, which is pretty healthy. Right, looking to the week ahead, and US inflation will be in the spotlight. We've got the Consumer Price Index, the CPI, on Wednesday, and we've got the Producer Price Index, which is due on Friday, I think. Let me just double-check those. Where is my calendar?
wednesday and thursday sorry not wednesday and friday so the uscpi this will cover the month of may uh the annual headline inflation rate expected to jump to 4.2 in may it was 3.8 in april expected to go up to 4.2 so that would be the highest we've seen since early 2023 in more than three years core inflation
and that excludes food and energy costs you strip those out because they're very volatile so core inflation is more of that sort of underlying structural inflation not related to those sort of volatile seasonal sort of factors core inflation also expected to rise but to a more modest degree it's expected to hit three percent that would still be the highest in seven months so
This leaves the Fed in a slightly uncomfortable position because you've got core inflation above 2% for more than five years now. So they haven't really been doing their job, if you were to take their mandate and their goals in a very black and white sense. Now, the Fed meets next week. And that will be the first meeting with new chair, Kevin Walsh.
Now, he is coming in against a backdrop of higher inflation, which is still going up. Maybe it's close to a peak, depends on who you ask, but it's certainly higher than we've seen in the last two or three years. and a resilient economy.
So markets at the moment see a pretty good chance of a Fed rate hike, not in the immediate future, but when you look out to the end of the year or certainly into early 2027, that is absolutely on the cards. So you won't get any change next week, but we'll be watching that CPI report this week and then all eyes will be on Kevin Walsh and his team. That's why he's seeing the US dollar rise.
It's in part due to that risk-off tone that is pushing people into the safer currencies that they know and trust, but it's also because of that stronger U.S. economy, which points to more chance of higher interest rates in the future. So that is what's driving those moves across currency markets. Also on the central banking front, we'll have a monetary policy meeting in Europe this week.
The ECB, the European Central Bank, will meet on Thursday, I think, yeah, overnight on Thursday. Its policy rate is sitting at 2%. That's where it's been since June last year. It was reduced from a record high of 4% in 2023 and 24. Then they came down to 2% middle of last year. They are expected to increase it for the first time this cycle. Markets are very confident
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