You could probably hear a collective Hallelujah (not the song by Leonard Cohen, but rather a cheer) as finally mortgage interest rates showed signs of starting to decline in July. The New Zealand CPI (inflation) data released on 17 July was encouraging, having come down to an annual rate of 3.3%. This indicates that the "austerity program" of keeping interest rates higher for longer has been paying off. Although a positive sign, the journey to get here has obviously come at the cost of many Kiwi families finding it harder to put food on the table, let alone grow their wealth.

Bank marketing machines will be fizzing and you may have seen many launching new campaigns to entice borrowers to switch and lock in the current discounted rates. The banks will have to work hard to get anyone to lock in long term rates at current levels though, especially with the prospects of further rate cuts now on the horizon. The banks appear to be pre-empting the Reserve Bank (RBNZ), which can be a dangerous game to play. July economic forecasts suggested a rate cut in November will be the start of a controlled cutting cycle, with the medium-term goal of seeing the Official Cash Rate (OCR) down to somewhere around 3.5% to 4%. But time will tell, and things are already changing as we progress through August!

Looking to the central banks of our international counterparts, the US Federal Reserve (aka The Fed) declined the opportunity to cut their official cash rate in July, as their economic data didn't give the committee the necessary confidence needed to start taking their foot off the economic brakes. The Bank of Japan decided on a landmark increase in interest rates in late July, with a 0.15% hike to 0.25%. This was a significant move, given it's only the second hike for Japan in almost two decades. It's also proving a key factor in the global share market volatility we have started to see in early August - but more on that next month, as we see how it all plays out!

On the note of share markets, July saw a substantial turnaround for NZ shares with the NZX 50 index up over 5% for the month. A very welcome increase, after a disappointing first half of the calendar year. Bond returns also continued their recent upward trend and gained another 2% as interest rates slowly declined. US shares were more subdued with the  S&P 500 index only up 1.1% for the month. While positive, this growth is in strong contrast to the 14% increase seen in June. The Dow Jones Industrial Average (an alternative index which measures 30 prominent US companies) was stronger at +4.4% for the month. There was also some strong growth among US small and mid-cap indices (+10.7% and +5.7% respectively) as some investors started to rotate (switch) out of potentially overpriced large-cap stocks, into the smaller end of the market.

Four of the ‘magnificent seven’ US tech companies who have been performance superstars over the past year reported their financial results in July, and investors were broadly underwhelmed. The tech sector was highly volatile during the month with some large intra-day roller coaster type swings in share prices. We expect to see this volatility continue over the short-term, with a number of contributing market factors at play.

While we're seeing some very interesting times in markets, as always, our own focus remains long-term and we prefer not to speculate. So if you're tempted to panic, remember to just ride that roller coaster, and focus on your own time horizon and goals when it comes to your long-term savings and investments. As our MD Sam Stubbs says, short-term, markets are a voting machine - and long-term, they're a weighing machine (the truth will prevail)!

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