Juxtaposition

Just two months on from our last post, “What’s been happening in markets”, and the change in our world is remarkable.

The last quarter of 2025 was relatively strong economically for our small island nation. The GDP worm seemed to be turning nicely but now, that recovery feels fragile.  

In February, we wrote of US aggression and were aghast with the idea that somehow “US Might” is right – we’d just witnessed the kidnapping of Venezuelan President Maduro.

We pondered with control over more oil (the real reason behind the abduction?) could this add to economic growth? Trump promised lower oil prices... Would that also benefit NZ? The article of course was written before the United States and Israel declared war on Iran. The world watches. 

Today interest rates have pushed higher, as the enormity of the crisis has spooked some investors into swapping equity risk for the safer short-term haven of bonds. Intriguingly, it’s not that very long ago that NZ ten-year bonds were yielding lower than US ten-year bonds… That’s no-longer the case, though our short-term cash rates are now very similar, and it’s short-term rates that will tend to drive mortgage rates up or down; though in the US, a mortgage can be fixed for 30 years, so short term rates have little impact. Not so for NZ - here just over 50% of fixed mortgage terms are for only one year and around 15% are floating, so a shift in short term rates impacts many Kiwi’s.

Inflation is most definitely on the rise and maybe that will find it’s way into higher interest costs as the powers that be attempt to keep inflation low (with higher interest rates). But in NZ, growth is fragile. Higher rates could drag us into a deeper hole. So, the Reserve Bank may look through higher fuel prices as a temporary inflationary force. They may tolerate breeching their mandate. It’s hard to say - things are moving fast. 

Conversely, the US economy is remarkably resilient. As investors we need to be mindful of the many businesses that have their home in the US but have a much bigger global reach. The war will conclude, hopefully soon. There will be another war, or something equally as disruptive. Global powers will shape our futures as will our environment. Through all of it, good investments will survive and find new heights.

The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.