Latest / Best of Business / Shane Solly: Harbour Asset Management expert on what a drop in business confidence could mean for the OCR

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Shane Solly: Harbour Asset Management expert on what a drop in business confidence could mean for the OCR · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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• 0:16
  Speaker 2: Shane Solley, Harbour Asset Management's with us. Hello, Shane.
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  Speaker 3: Hi, Eva.
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  Speaker 2: All right, so what did the markets make of Kevin
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  Speaker 2: Walsh's comments at Jackson Hole then?
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  Speaker 3: Well, he was pretty hawkish. So that means he was
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  Speaker 3: talking about potential for rate increases in the US. That's
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  Speaker 3: a big change in regime. The market's been thinking about
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  Speaker 3: no Fed increases in the near term. He came out
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  Speaker 3: and said, guess what? The US economy is really strong.
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  Speaker 3: Inflation is not going down as fast as it'd like.
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  Speaker 3: And certainly that has set the markets thinking about Fed
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  Speaker 3: rate hikes. There's a 60% chance of a 0.25% Fed
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  Speaker 3: increase in September 16. That's next time the Feed Open
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  Speaker 3: Market Committee meets. And there's even talk of a December hike.
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  Speaker 3: That saw the U.S. dollar go up, the gold price
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  Speaker 3: go down as people reduced their U.S. dollar debasement trade.
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  Speaker 3: Had a bit of an increase in the two-year U.S.
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  Speaker 3: government bond years. They went up 0.11% to 4.34%. And
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  Speaker 3: the U.S. share market pulled back. It was down a
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  Speaker 3: bit on semiconductors and small caps. This week, Heather, we've
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  Speaker 3: got a bunch of U.S. labor data that's going to
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  Speaker 3: put a bit more pressure potentially on that. potential for
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  Speaker 3: a hike. Yeah, okay.
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  Speaker 2: And how did the markets across Asia react to it?
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  Speaker 3: Yeah, a bit weaker across the board. The combination of
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  Speaker 3: Walsh's hawkish comments that he was going to potentially think
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  Speaker 3: about hiking rates and this renewed escalation in the Middle
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  Speaker 3: East with a bit of a few more attacks going
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  Speaker 3: on today. It's mainly semiconductors or the microchip stocks under pressure.
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  Speaker 3: Certainly those higher oil prices and rising feed hikes didn't help.
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  Speaker 3: Aussie market was a little bit weaker as well. then
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  Speaker 3: mining stocks mainly with a key drag. New Zealand was
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  Speaker 3: the standout today. We're at 1% of the New Zealand
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  Speaker 3: share market. That's a reflection of a solid company reporting season.
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  Speaker 3: And there's been a bunch of global market index weight
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  Speaker 3: changes today that benefit New Zealand stocks. So our market
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  Speaker 3: was actually up 1.6% for the month and about 5.1%
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  Speaker 3: up for the last three months. So a bit of
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  Speaker 3: a surprise. Yeah, good stuff.
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  Speaker 2: Now, we've had today a bit of a knock in
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  Speaker 2: the business confidence. Is that going to influence the Reserve
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  Speaker 2: Bank's decision on Wednesday, do you think?
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  Speaker 3: Look, I think it will help influence their decision, but
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  Speaker 3: no is the short answer. The confidence was down two
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  Speaker 3: points to 54 from 56 last month. The interesting thing
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  Speaker 3: there is the past activity was up slightly. So there
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  Speaker 3: is a bit of activity recovery, but it's the forward
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  Speaker 3: activity slipped. So what we did was better. What we're
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  Speaker 3: seeing going forward is possibly a little bit behind. Inflation
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  Speaker 3: indicators were mixed. That's the one that RB will focus on.
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  Speaker 3: So expectations are up to 3.26% from 3.1%. Firms are
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  Speaker 3: saying they can actually increase costs and raise their own prices.
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  Speaker 3: So they're expecting it. The market is priced in a 95%
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  Speaker 3: probability the Reserve Bank increases official cash rate by a
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  Speaker 3: quarter of a percent to 275 on Wednesday. And actually
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  Speaker 3: another four rate, well, sorry, four in aggregate increases in
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  Speaker 3: rates over the next year to August next year, taking
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  Speaker 3: official cash rates to 3.5%. It's all going to be
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  Speaker 3: about the tone here, though. If the tone is a
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  Speaker 3: bit dovish, i.e. the pace can be slower than the
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  Speaker 3: market will like that bond, it was a full currency
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  Speaker 3: May weekend. And the flip is if it's a bit
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  Speaker 3: more hawkish, that if the governor comes out and says, actually,
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  Speaker 3: we need to get on top of inflation, it's not
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  Speaker 3: going away, then we will see those expectations accelerate. So
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  Speaker 3: it's all going to be about the way the governor talks.
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  Speaker 1: As always.
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  Speaker 2: Hey, thank you very much. Really appreciate it, Shane. That's
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  Speaker 2: Shane Solley of Harbour Asset Management.
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