Tricky turbulent transition

Key points

• The MSCI All Country World (global shares) Index fell -7.0% in NZD-hedged terms in April and, with the New Zealand dollar weakening in the past month, the same Index fell -1.4% in unhedged terms.
• The New Zealand equity market (S&P/NZX 50 Gross with imputation) finished the month down -1.9%, whilst the Australian equity market (S&P ASX 200) fell -0.9% in AUD terms (+0.5% in NZD terms).
• Bond markets continued to come under pressure over the month, with yields continuing to rise as investors priced in more rate hikes from central banks as they battle to tame inflation. As a result, the Bloomberg NZ Bond Composite 0+Yr Index fell -1.95% over the month.

Global equity markets were weak over the month. We saw volatile daily swings in returns as high inflation data points triggered expectations of an acceleration in central bank interest rate hikes and further increases in long term bond yields, while earnings results for stocks in the US were mixed. The combination of severe lockdowns in Chinese cities to control COVID, the prospect of a prolonged war in Ukraine and rising costs, including higher interest rates, fuelled fears of a slowdown in economic growth.

Equity and bond markets remained volatile as investors continued to be pushed around by the narrative of higher long-term interest rates. Inflation prints, whilst largely in line with market expectations, are well above where central banks are comfortable.  Central banks delivered on interest rate increases with the Reserve Bank of New Zealand (RBNZ) providing a 0.50% increase in the official cash rate (OCR) in the month; however, this was accompanied by dovish (less aggressive) commentary paring back the market’s enthusiasm for extrapolating rate rises.  The RBNZ wasn’t alone with the US Federal Reserve (the Fed) and other central banks also increasing official interest rates over the month.