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Market review

Market review to 30 June 2017

BNZ brings you this summary of how investment markets performed during the three months to 30 June 2017.

International markets

International share markets enjoyed another strong quarter, with both developed and emerging markets generating impressive returns. The drivers for this were positive economic data releases, strong company earnings announcements and an easing of political risk in Europe.

In currency markets, the New Zealand dollar (NZD) had a strong quarter, rising against all of the major currencies, apart from the euro. The US dollar (USD) fell against most major developed market currencies.

Returns from international bond markets were modest during the quarter. Corporate bonds outperformed government bonds, given the positive economic outlook. That said, US government bonds were well supported on a stubbornly subdued inflation outlook, and further doubt as to the ability of the Trump administration to introduce the substantial fiscal boost that he promised during the election campaign. In Europe, government bonds fell in value on concerns that the European Central Bank will start to tighten monetary policy.

The US Federal Reserve delivered an anticipated increase in the US Fed Funds Rate of 0.25% in June. The Fed also announced plans to shrink its balance sheet by gradually selling down investments that it had built up through its quantitative easing programme.

The commodities market was weaker over the quarter. Oil prices fell significantly as members of OPEC (Organisation of Petroleum Exporting Countries) and other oil producers announced production cuts that were smaller than expected. Iron ore prices also fell on worries over weaker Chinese demand.

Local markets

At home, the New Zealand share market enjoyed another strong quarter, as it outperformed most international share markets. Given their strong income-yielding characteristics, New Zealand shares have benefitted from the continuation of low global interest rates and a positive outlook for the New Zealand economy.

New Zealand bond markets also rose slightly, taking their direction from the US. At its meetings in May and June 2017, the Reserve Bank of New Zealand left the Official Cash Rate (OCR) at its record low of 1.75%, and continued to indicate that the OCR is likely to remain low for the foreseeable future.