Market update - period ending 31 May 2024 

March saw international equities extend their recent gains, with the MSCI World Index up 3.4% (in local currency) for the month, despite an increase in US inflation for the second month in a row. US equities were supported by the US Federal Reserve, which reaffirmed its projection of three rate cuts in 2024. The prospect of rate cuts from global central banks was also positive for international fixed interest markets, helping the Bloomberg Global Aggregate Index to return 0.9% for the month. New Zealand equities bounced back after a slow start to the year, with the S&P/NZX50 Index up 3.3% in March despite news of a technical recession. The New Zealand fixed interest market performed strongly over March, returning 1.1%, with bond yields easing after the Reserve Bank kept the Official Cash Rate on hold at the end of February.

April brought an end to the rally in risk assets as persistent inflation and a sharp slowdown in US GDP growth weighed heavily on equities. Both headline and core US inflation came in above expectations for the third consecutive month. Consequently, markets lowered their expectations for rate cuts even further. Within equities, emerging markets outperformed both US and international developed markets as a result of encouraging economic data and investor interest in low valued Chinese equities. Fixed interest investments posted negative returns as yields increased across the curve.

Strong corporate earnings and a flurry of positive economic data helped propel equities and fixed interest investments higher in May. Inflation continued to ease in developed markets, reducing fears of a “higher for longer” scenario. Notably, inflation in the US declined in line with market expectations after it surprised on the upside for three consecutive readings during the first quarter. Forward looking purchasing manager indicators (PMIs) continue to be in expansionary territory in developed markets, with the US composite PMI climbing to its highest level since April 2022. Europe and Japan also saw PMIs increase, although to a lesser extent than in the US.