| Welcome to the June Issue of the Dashboard Newsletter. There's been a lot going on in the market over the past 30 days, so I'll rip straight into it.
The budget came and went without much fan-fare. There were no big surprises, and nothing of note to mention. The best description I heard was a columnist referring to it as the "broccoli budget". You have to eat your greens this year before you get desert next year (election year). This was a prudent, basic budget focusing on continuing to reduce debt. No changes to KiwiSaver this year either – which is a good thing. The Reserve Bank of New Zealand met on the 9th of June and left the Official Cash Rate (OCR) unchanged at 2.25%. This was despite our neighbours over the ditch cutting their rates only weeks before, and against some commentator's expectations. However, the tone of the Reserve Bank was still very "dovish", with suggestions that further rates cuts are still on the table in the short to medium term. This remains good news for mortgage holders, but bad news for deposit holders. The US Federal Reserve meet today to review their interest rate (currently sitting at 0.25%). Their objective at the start of 2016 was to "normalise" their interest rate, and they hoped to get 4 rate hikes in by the end of 2016. They have had 1 (from 0% to 0.25%), and until recently the expectation was that this meeting would see the 2nd one. If you look at the USA in isolation, I feel they would probably have raised again today. However I think the looming Brexit vote is going to force them to sit on their hands for one more meeting – to see how the vote goes and what the repercussions of this are. So I'm guessing no change today. And now to the biggest issue of them all – Brexit. I have felt for a long time that this referendum is in fact a far bigger event than the markets have given it credit for. Markets displayed little volatility in the months leading into this vote – perhaps because the underlying sense was that Britain would remain in the EU and it would be business as usual. But momentum has definitely shifted and the Brexit campaign is now showing a reasonable lead in many of the polls. It's still too close to call, but the possibility of Britain leaving the EU is now becoming far more real to many people than it was a month ago. This has reflected in the markets – both share markets and currency markets. If there is one thing markets hate, it's uncertainty. Will Britain remain part of the EU or not? If not, how will the EU respond? Will they make an example of Britain to prevent other EU members considering the same route, or will they be lenient and try work with them to still be active trading partners. Nobody knows the answers to these questions, and as a result European markets have suffered as the polls have started to favour Brexit. The London, German, French and Swiss share markets are all down about 4% over the past 30 days. The British Pound is the biggest loser, moving from 45.5p to 50p against the NZ$ in the space of a couple of weeks. That's a 10% move over a very short period. Should Brexit occur, the expectation is that the pound could fall further – by some margin. If they stay, then the converse applies and the pound should strengthen. This makes investment decisions very difficult. Whilst this vote really is too close to call, my gut instinct is still that they will remain in the EU. A material change like this requires huge conviction from the public – there has to be deep dissatisfaction with the status quo to overcome the inertia of change (think of the Scottish referendum or even our own flag referendum). I'm not convinced that Britain is quite there yet. Interestingly, whilst the polls indicate there is nothing in it, the bookies have a very different position. Nearly 70% of all bets taken by betting agencies so far are in favour of Britain remaining in the EU. That's a very clear position with people that are voting with their wallet – they clearly believe that Britain will stay. Either way, we will know the outcome by the 24th of June (NZ time), but expect more market volatility between now and then. Here are the numbers: |
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In terms of your Select Wealth Management investment, we met with researchers JMIS a couple of weeks ago for the quarterly review. There were no material changes to investment options that are available – no investments were removed from the menu, and a couple new ones were added (the Salt Long/Short Fund, and the NZ Property Fund ETF). The continued theme of moving to active managers with a capital preservation bias was also evident. Finally, a quick update about our Save Lily campaign. We are into the last couple of weeks of this campaign now, and will be tallying up our final contribution soon. It doesn't look like we are going to get over the $5,000 mark which we had hoped for, but we won't be too far off this. Check our progress at mifinancialplanning.co.nz/giving-back It's been a great experience for the Isaacs Financial Planning team, and a genuine motivator in our office. It feels good to be helping in our small way with such an amazing cause, so thank you once again to all of you for your support. We have a new campaign starting in July, so I'll tell you all about it next month. Until then, warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.