Economic strength brings RBNZ into play

Key points

• The MSCI All Country World (global shares) Index rose 0.6% (in USD) in June. The Australian market gained 1.1% (in AUD) while the New Zealand market fell 0.5% over the month.
• The US Earnings season has been strong with, at the time of writing, 443 companies reporting earnings and 377 companies (85%) delivering earnings above consensus expectations.
• Concerns around the COVID-19 delta variant and associated mobility restrictions has contributed to some forecasters reducing global growth expectations.  
• In contrast, the strength of the New Zealand economy has seen the Reserve Bank of New Zealand (RBNZ) signal imminent rate hikes, seeing rates out to five years increase over the month.

Global markets were mixed as concerns about the delta COVID-19 variant and associated mobility restrictions contributed to forecasters reducing global growth expectations. Global bond yields fell as central banks remained dovish, only marginally moving closer towards tightening monetary policy . A solid profit reporting season supported the US equity market.  Chinese stocks were weak following regulatory changes. Commodity prices eased with iron ore and oil lower, but copper prices increased on supply constraints.

The fall in global bond yields over the month saw investors rotate away from the more cyclical parts of the market towards more structural growth. One barometer of this is the MSCI ACWI Growth index, which outperformed the corresponding value index by 1.7% over the month. The New Zealand equity market lagged over the month and is behind broader global indices over the past 12 months. A key driver of this over the past 12 months is the different sectoral composition of the index, being light on cyclical stocks (such as banks and energy companies) which have performed strongly over the past 12 months.