Global equities delivered a strong return for the fourth straight month over August, with a number of regional or national equity markets hitting new all-time highs. An increased likelihood of the US Federal Reserve re-starting their rate cutting cycle boosted market sentiment, and corporate earnings reports for the second quarter were generally stronger than expectations. The MSCI ACWI (NZD Hedged) was up 2.0% and is up nearly 15% on a rolling 1-year basis. The NZ dollar was mostly unchanged versus the US but weaker against other majors, meaning the MSCI ACWI Index (NZD unhedged) was up 2.5% (+22.8% rolling 1-yr). The global bond index (hedged to NZD) delivered a solid gain of 0.4%, whereas NZ bond index outperformed this with a 1.2% return, and are now up over 5% year-to-date.
The level of uncertainty regarding where global tariffs would settle remained high in August, but there was little in the way of big announcements or changes to previously announced agreements. Economic data from the US was on the softer side, particularly labour market data. The unemployment rate ticked higher to 4.3%, still relatively low versus long-term history, but above the 3.5% level reached in recent years. US PMI surveys in Manufacturing and Services remained around 50, levels that suggest soft economic growth, but not recessionary just yet. Markets are now expecting the US Federal Reserve to lower interest rates when they meet in mid-September. Most other major central banks remained dovish (with the expectation of Japan), while long end bond rates were largely unchanged - meaning there was a steepening of the yield curve which was positive for bond returns.
Equity markets outside the US did better in August, led by China and Japan, both markets have delivered more than 10% return over the last 3 months. Value stocks outperformed growthier names, and small caps did well against the large and mega-cap names - a trend that has been in place since the ‘Liberation Day’ sell off in April.