There’s no way of sugar coating it: last week was brutal for sharemarket investors.
As central banks aggressively hiked interest rates in response to surging inflation sending equity markets officially into bear market territory, share prices plunged leaving few stocks unscathed.
The NZX50 recorded its worst week of the year falling 5 percent to a two-year low of 10,589, a level it last traded at in May 2020.
In under three months, the local market has erased almost 70 percent of its gains since the March 2020 low and is now down 22 percent from its January 2021 high of 13,558 marking its move from a correction to bear market status.
It was much the same in the US and Australia, which also recorded their worst weeks of the year with the S&P500 index falling 5.8 percent for the week, while the ASX200 slumped 6.6 percent for the week.
The FTSE All-World index, a measure of emerging and developed markets, also dropped by the most since March 2020 and there is little sign that the selloff is abating as attempted rallies are quickly snuffed out.
Bloomberg Economics released their latest models over the weekend which indicate the odds of a recession by 2024 have now jumped to at least 72 percent.
The dramatic decline in shares prices reflect an increasingly gloomy global market outlook, as the Bank of England and the Swiss National Bank followed the Federal Reserve in raising interest rates this week in attempts to tackle soaring inflation.
For the Swiss National Bank it was its first rate rise since the lead-up to the global financial crisis in 2007, lifting borrowing costs by half a percentage point after inflation in the country hit a 14-year high last month.
The Bank of England announced a more muted 0.25 percentage point increase but warned that UK inflation would climb above an eyewatering 11 percent this year.
But it was really the US Federal Reserve that was responsible for much of the market carnage after lifting rates by three quarters of a percentage point (75bp) for the first time since 1994 and telling Congress that its “commitment to restoring price stability — which is necessary for sustaining a strong labour market — is unconditional”.
As a result, markets are now pricing in another 0.75 percentage point hike next month and additional 0.5 percentage point increases to follow taking the US Fed Funds rate to 3.8 percent by the end of the year.
All of which raises the question: will the Reserve Bank of NZ be forced to follow suit when it meets in three weeks?
In US Government debt markets, the yield on the benchmark 10-year US Treasury note fell 0.4 percentage points to 3.23 percent, after sharp swings in recent days as investors adjusted to expectations of higher interest rates and an end to the Fed’s bond-buying programme that pumped billions of dollars into the US economy.
In Europe, Italian bonds continued to rally (bond yields fall as their prices rise) after European Central Bank president Christine Lagarde told the bloc’s finance ministers that doubting the central bank’s commitment to fighting financial “fragmentation” of the region “would be a serious mistake”.
Oil prices fell sharply on Friday over concerns that central bank actions could slow economic growth and squeeze crude demand. The price of Brent, the international oil benchmark, settled at US$113 a barrel, down 7 percent for the week. It was the lowest close for Brent since May 2020.
The move lower followed a strong increase in prices over the past six weeks, driven by persistent worries that economic sanctions on Russia over its war in Ukraine will tighten supplies in energy markets.
The NZ dollar finished the week down 0.6 percent at 63.13 US cents after touching a new two-year low of 61.96 last Tuesday.
Property market slide accelerates
The property market hasn’t been immune from the slide in consumer confidence with May figures revealing another ugly month, according to the latest REINZ market data.
Apart from the deep south, house prices again fell across the country recording their sixth consecutive monthly decline.
Since peaking in November, the seasonally adjusted House Price Index has now fallen 6 percent, while annual house price growth slowed to below 4 percent.
Confirming the Fomo days are well and truly over, sales too, seasonally adjusted, also fell sharply and were down almost 30 percent on a year ago.
The median number of days to sell a property at 40 days also managed to tick above the long-run average of 39 days.
Kiwibank economist Jarrod Kerr maintains his forecast that house prices will fall 10-11 percent by the end of this year before staging a muted recovery later next year once central banks are forced to begin cutting rates in response to a slowing economy.
“In addition, NZ is still contending with a housing shortage, though not made easier by the supply issues in the construction sector,” he said.
Back in November 2021 when Bitcoin hit US$69,000 and there were predictions it would eclipse US$100,000, few would have believed that six months later the world’s most well known cryptocurrency would be trading at US$18,500.
So far this month, Bitcoin has lost 42 percent of its value with many crypto analysts saying that after breaking the key US$20,000 support level, it may only be a matter of weeks before it’s back at US$10,000 where it last traded in September 2020.
At it current rate of decline, Bitcoin is on track to have halved in value in under 20 days.
It’s even worse for Ethereum investors after the world’s second most popular crypto currency plunged 33 percent for the week bringing total losses for the month to 50 percent.
Investors and traders have been anxiously watching Ether’s price in recent days, fearing a decisive break down below $1,000 would trigger the forced liquidations of massively leveraged bets, in turn putting more downside pressure on the cryptocurrency.
The fears appear due to Babel Finance and Celsius Network, a pair of crypto lending platforms that halted withdrawals after citing market volatility. The selloff further intensified after Three Arrow Capital, a crypto hedge fund managing $10 billion of assets as of May, failed to shore up its collateral.
This came under a month after Terra, a $40 billion “algorithmic stablecoin” project, collapsed.
These events have also coincided with a massive capital withdrawal from Ethereum’s blockchain ecosystem.
Meanwhile, cryptocurrency exchange Coinbase announced plans to lay off almost a fifth of its workforce amid a collapse in its stock and crypto prices. The company will cut 18 percent of full-time jobs, according to an email sent to employees last week.
Chief executive Brian Armstrong pointed to a possible recession, and a need to manage Coinbase’s cash burn rate and increase efficiency. He also said the company grew too quickly during a bull market.
“We appear to be entering a recession after a 10-plus year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” he told employees in a widely circulated email, adding that past crypto winters have resulted in a significant decline in trading activity.
Coinbase shares fell 12 percent last week to US$51 after peaking at almost US$370 in November.