International macroeconomics dominate markets
By Chris Smith (General Manager, CMC Markets New Zealand)
Friday 26 November 2010:
Investor appetite for risk this week has been dominated by developments on the international macroeconomic stage. Specifically, threats of multi-notch credit downgrades for Ireland (in need of financial assistance), and concerns over likely monetary tightening measures by China, have frayed investor nerves.
New Zealand too has been given a slap on the wrist by Standard and Poor’s. It’s clear savings ratios need to lift. A budget blow-out and a lower credit rating would certainly result in higher rates, providing a further drag on the economy.
Higher yielding currencies like the Kiwi have also taken a hit given the recent increase in risk aversion. Investors are concerned about the near term global growth outlook. There are just too many question marks at present. Now many of these fears may be eased in the coming weeks, but for now they are hanging over the market like dark clouds.
On the corporate front, the commentary this week from Air New Zealand and the Warehouse Group was encouraging but it’s clear management are concerned about the challenges ahead.
The US is currently celebrating Thanksgiving so markets are expected to be quiet until the early part of next week. It’s fair to expect lower volumes on equities and currency markets over the next couple of sessions. Depending on the news flow from offshore there is also the possibility on increased volatility.