Fund watch

What happened in Q2?

Here are some key themes from the second quarter of 2023:

US averts debt ceiling breach: For the best part of the quarter, investors were worried the US government could breach its debt ceiling (the total amount it’s able to borrow), meaning there was a chance it could default on its debt. In the event these concerns dissipated as the Democrats and the Republicans reached an agreement to raise the level of its ceiling. This proved to be a turning point, especially for equities, which had been treading water while this uncertainty hung over markets.

The Fed pauses on rate hikes, despite high inflation: After more than a year of consecutive interest rate increases, the US Federal Reserve (the Fed) kept its key policy rate unchanged in June, seeking time to assess how the economy was holding up. However, it’s expected to resume rate rises in the coming months due to sticky inflation; while headline annual inflation in the US fell to 4.0% in May (its lowest level since March 2021), core inflation – which excludes volatile energy and food prices – remains elevated.

US economic data remained relatively strong: There has been much talk about a possible recession in the US, and while that may still be the case, economic data over the quarter suggests there is still some underlying strength in several parts of its economy. Retail sales rose in April and May, housing data showed a surge in the number of new homes being built, and the employment market remained resilient.

RBNZ lifts interest rates further, but says its work is done: Having delivered a further 0.75% of rate hikes, at its meeting in May, the RBNZ signalled that its policy tightening was over. In making this decision, the central bank said it was pleasing to see that the cumulative effect of rates hikes over the last 18 months was starting to be seen in economic data.

This article has been prepared by ANZ New Zealand Investments Limited (‘ANZ Investments’) for information purposes only and it should not be treated as financial advice.

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