Fund watch

What happened in Q2?

Here are some key themes from the second quarter of 2024:

Tech outperforms: Technology companies continued their outperformance during the quarter, largely driven by the ‘Magnificent 7’, with several ending the quarter with double-digit gains. The strong showing of this sector was twofold: Firstly, optimism around artificial intelligence (AI) continued as many of the mega-caps raced to stay ahead of their competitors, while secondly, many delivered better than expected first quarter earnings, proving that they have been able to navigate higher borrowing costs.

US inflation moderates, but the US Federal Reserve (the Fed) tempers rate cut expectations: After a challenging start to the year, the US saw progress on inflation, with the annual rate dipping to 3.3% in May, down from 3.4% in April, and 3.5% in March. However, despite the drop in inflation, the Fed decreased its expectation of interest rate cuts for 2024 from the three it signalled in March, to just one when it met in June.

Europe and Canada cut interest rates: The European Central Bank (ECB) and the Bank of Canada (BoC) both cut interest rates by 25 basis points, with the BoC offering the most dovish tone, saying if inflation continues to moderate “it is reasonable to expect further cuts to our policy interest rate”.

The BoC and ECB joined the Swiss National Bank (SNB) and Sweden's Riksbank in being among the first major central banks to cut interest rates to ease pressure on households and businesses.

Snap elections in France and the UK: Facing mounting pressure, French President Emanuel Macron, and UK Prime Minister Rishi Sunak, called snap elections. Macron was trying to fend off the growing support for right-wing parties, while Sunak, whose approval rating continued to decline, was hoping to capitalise on the country’s recent drop in inflation and economic rebound.

Market outlook

We saw some divergence in financial markets during the second quarter, with US equities continuing to outperform, while several other global share markets ended the quarter lower. The divergence highlights the ongoing strength of the US economy, which continues to run at a faster pace than its peers. As we assess the outlook for the global economy, the key themes we are following include:

US monetary policy and inflation: Rhetoric from the Fed shifted during the quarter, as its rate-setting Committee scaled back its forecast of three interest rate cuts in 2024, to just one. Policymakers highlighted that getting inflation back to target is taking longer than they had hoped, largely driven by the stubbornly high shelter component of the inflation basket.

Labour markets: After a prolonged period of record-low unemployment in many countries, labour markets have loosened to some degree over the past few months, which has helped bring down inflation. In the US, we have seen a rise in the number of people filing for unemployment benefits, and while headline job growth in the nonfarm payrolls remains robust, there is some divergence with the household labour force survey, which could point to some potential weakness.

New Zealand: The New Zealand economy continues to underperform many of its peers with retail spending, confidence numbers and per capita growth all uncomfortably low. Nevertheless, the RBNZ has remained steadfast in its focus on bringing inflation back to its target range. Despite this hawkish bias, we still see a relatively high chance the RBNZ will be forced to cut interest rates later this year as the economy continues to deteriorate.

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.

Superannuation Investments Limited is the issuer and manager of the SIL Mutual Scheme. ANZ Investments is not an authorised deposit taking institution (ADI) under Australian law and investments in the scheme aren't deposits in or liabilities of ANZ Bank New Zealand Limited, Australia and New Zealand Banking Group Limited, or their subsidiaries (together 'ANZ Group'). ANZ Group doesn’t stand behind or guarantee ANZ Investments. Investments in the scheme are subject to investment risk, including possible delays in repayment, and loss of income and principal invested. ANZ Group won’t be liable to you for the capital value or performance of your investment.

Past performance does not indicate future performance, and performance can be negative as well as positive. This material is for information purposes only. We recommend seeking financial advice about your situation and goals before getting a financial product.

Investment and administration manager: ANZ New Zealand Investments Limited.