May was a busy month in terms of the financial markets. After a strong start for share markets around the world during the first quarter, May saw local markets in particular come under pressure - with the NZX 50 index down 1.7% for the month and the ASX 200 down by almost 3%. However, both markets are still up for the year – despite the continued uncertainty around interest rates and the future of inflation.

Here at home, the Reserve Bank of New Zealand (RBNZ) hiked the Official Cash Rate by another 25 basis points to 5.5%, although this was largely expected, and many forecasted for an even bigger hike to be announced. The good news here, was that it was hinted in the announcement that this may have been the last of the interest rate hikes for a while – off the back of falling consumer spending, slowly easing inflation and high immigration addressing our labour shortages.

Across the Pacific, the US market was very slightly up (with the S&P 500 index gaining 0.25% month-on-month), despite the much debated and publicised US debt ceiling “crisis”. To give a little context to this situation, the current debt ceiling has just been raised to a little over $31 trillion – and has been significantly growing over the last decade (since the last major debate on the subject in 2013).

This situation (and the furore surrounding it) was significant, because in the event that the US government was unable to increase its debt limit, the US Treasury would be forced to default and/or cease payments to investors – which would in turn likely trigger a global economic meltdown. With an agreement being reached in late May over an increase in the debt ceiling, the 2023 “crisis” was brought to an end – for now.

June will be an interesting one to watch, with the global impacts of pre-announced European interest rate hikes yet to be seen, ongoing “sticky” inflation continuing to be felt both here and abroad – and the ever-present fear of a global recession a continuing popular topic.

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