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Market Commentary: What happened in May 2024

Published on 11/06/2024


Anyone looking for something exciting or unexpected with the announcement of the government’s Budget 2024 would have been left disappointed. It was as bland as former Australian cricket commentator Ritchie Benaud’s famous beige blazer.


The new government’s much-promised tax relief was delivered as expected, with many of the headline grabbing details around the cuts already well signaled by media ahead of time. Personal income tax brackets (aka the amount you need to earn in order to tip into the next highest income tax level) were raised with the aim to deliver some tax relief for the average New Zealander – aka the “squeezed middle”. One sector of the community which didn’t see much of a gain were senior citizens, with the average pensioner getting an extra $9 per week in Superannuation payments under the new budget. Enough for a pot of tea and cheese scone, perhaps? 


Treasury’s economic forecasts (where the government predicts the outlook over the short and medium term for the country) have softened over the last month - with interest rates, stubbornly high domestic inflation and falls in productivity all dragging on the Kiwi economy. On a slightly more positive note, Treasury is forecasting overall inflation rates to drop back below 3% by the end of the year. This magical 3% is the level that the Reserve Bank (RBNZ) need annual inflation to go below before they can think about Official Cash Rate (OCR) cuts. And it’s these OCR cuts which should eventually deliver some relief to residential mortgage interest rates, something that many of us are keenly feeling (whether it be via lumpier mortgage payments or ever-increasing rent).


Previously estimated odds of multiple OCR cuts happening over the next six months have been pared back, with the RBNZ giving a glimmer of hope for the first 25 basis point (0.25%) rate cut to happen in November 2024 – although this will depend on several ducks all lining up. It is widely expected other central banks around the world will have started their ‘rate cutting cycle’ before this time, potentially leaving NZ one the last cabs off the rank on that front.


Moving on to share markets, the US S&P 500 index recouped the losses seen in April, gaining 4.8% (in local currency) during May. In turn, the US market also posted the 23rd new closing high for the year to date – something that is becoming common thanks to the power houses that make up the “Magnificent Seven” stocks. The local stock market continues to be soggy and underperform global market returns After a dismal start to the year, the NZX 50 again finished the month with a loss, albeit just 0.75% down in May.


On the positive side, NZ bond returns in May served to offset the underperformance of the NZ share market. The NZ government bond index saw a small uplift of 0.90% for the month, which may come as a welcome relief for those in more conservative funds and investments. But as always, we encourage investors across both KiwiSaver and Investment Funds to focus on the long-term performance of their funds, worrying less about the month-to-month fluctuations which inevitably occur.



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