On Point

The Federal Reserve started its easing cycle with a bang last week. It cut the Fed Funds Rate by 0.50 per cent, a bigger move than some had expected. Is that an ominous sign for the outlook, or will it be the catalyst for markets to keep pushing higher? Central banks don’t have a great track record of taming inflation without causing recessions, but for now investors are keeping the faith.

Global growth will be in focus this week, with the release of flash purchasing managers’ indices for September. We’ll also get the latest PCE inflation report in the US, which is the Federal Reserve’s preferred inflation gauge. On the central banking front, a monetary policy decision is due across the Tasman, although no change is expected. The domestic economic calendar is sparse, although there is quite a bit of corporate news to follow. The retail sector will be in focus with results from Kathmandu and The Warehouse, while Fonterra is also scheduled to deliver its latest earnings release.

It’s been a difficult few years for first home buyers. Just when borrowing costs started falling in 2020, prices started rising sharply to offset any extra spending capacity buyers had. When the dust settled and prices started coming back to earth, mortgage rates had started to rise rapidly. The housing market stabilised early last year, and now we’ve seen mortgage rates start heading south. Where does that leave potential buyers, and is now a good time to pounce on that first home?

Looking ahead, this week is shaping up as a very busy one with some extremely important events taking place across markets. The Federal Reserve decision in the US will be the highlight, with the first interest rate cut of this cycle (and the first in more than four years) looming. While a 0.25% cut seems assured, markets are ascribing a 35% chance of a larger, 0.50% cut. Here in New Zealand we’ll get the results of another dairy auction, as well as economic growth figures for the June 2024 quarter. Will these figures still look recessionary, and just how bad will they be?

Talk of a capital gains tax is back in the headlines. It’s hard to see a National-led government making any such changes to our tax system. However, it could be back on the agenda when we inevitably see a change of government. Do we need a capital gains tax in New Zealand, and what are the drawbacks of implementing such a radical change?

Inflation will be in focus in the US this week, with the August consumer price index due on Wednesday. The annual rate of increase fell below 3.0% for the first time in three years last month, and markets will be hoping for another moderation ahead of next week's Federal Reserve meeting. Markets are expecting the first Fed rate cut of this cycle, while they see a 30% likelihood of a larger 0.50% cut. We’ll also be watching the second presidential debate, but the first between Donald Trump and Kamala Harris, which takes place on Tuesday in Philadelphia. Here at home, the June quarter survey of manufacturing is out on Tuesday, which will help economists finalise their estimates for next week's quarterly GDP release. We'll also get monthly migration figures and the latest housing market report from the Real Estate Institute.

Interest rates are headed lower, which will take the pressure off household budgets and give many homeowners a reprieve. Borrowers are right to feel more optimistic about what’s ahead, but don’t get ahead of yourself just in case they don't come down as much as you think. If the "neutral OCR" is higher than it used to be, the “new normal” for mortgage rates will be too.

It'll be a holiday-shortened week in the US with markets closed for the Labor Day holiday on Monday. However, there will still be plenty to monitor, with the latest ISM indices (for both the manufacturing and services sectors) due as well as the monthly jobs report. Closer to home, it'll be a quieter week on the corporate front now that the Australasian reporting season having wrapped up. However, we'll get second quarter GDP in Australia and the results of the latest global dairy trade auction here in New Zealand.

Gold has been one of the best performing assets these last two years, rising more than 40 per cent and even outpacing the S&P 500 index in the US. Long regarded as a safe-haven asset, it is traditionally favoured by those worried about the health of the global economy and financial system. However, gold has also proven to be a useful diversifier, making it a candidate for inclusion in mainstream investment portfolios. Let's discuss some of the things that can make gold prices rise and fall, then consider its investment credentials.

Inflation will be in the spotlight this week with PCE inflation due in the US on Friday, ahead of the Federal Reserve's meeting next month. The latest ANZ Business Outlook survey will be the key release in New Zealand, while the corporate reporting season will continue with Chorus, Summerset, Meridian Energy and Air New Zealand set to releases earnings this week across the NZX. However, the biggest corporate release of the week will come on Wednesday in the US, with NVIDIA due to report.