After three months of unrelenting falls global sharemarkets staged a strong recovery last week after dovish commentary from the US Federal Reserve accompanying its latest monetary policy decision, along with weakening labour markets, left traders convinced interest rate hikes may finally be coming to an end.

The key phrase that caught the market’s attention was Fed chief Jay Powell saying the central bank would “proceed carefully” with any future rate rises.

As a result, the closely watched US Treasury 10-year yield fell more than 40 basis points to 4.57 percent after last week hitting 5 percent, while the yield on the two-year note, which moves inversely to price and tracks rate expectations, dropped to a two-month low of 4.81 percent sparking a strong rebound in stocks.

The NZ sharemarket joined in the global rally climbing 3.3 percent, to record its best week of the year – after staging its biggest weekly fall just a fortnight ago – though the NZX50 did ease somewhat after confirmation on Friday that NZ First would be required to be part of the new coalition for National to be able to govern with a majority.

In the US, the benchmark S&P500 index surged 5.9 percent for the week, its biggest weekly gain since exactly a year ago ushering in the potential for a ‘Santa Claus’ rally in the coming weeks. Across the Tasman, Australia’s ASX200 index climbed 2.2 percent for the week.

American employers created 150,000 new jobs last month – fewer than forecast and barely half of September’s revised figure of 297,000. Economists surveyed by Bloomberg had expected a total of 180,000 new posts for October. 

Locally, the September quarter jobs report also showed a further loosening of the Kiwi labour market. The unemployment rate rose to a two-year high of 3.9 percent from 3.6 percent previously. 

The numbers provided further power to a rally in stocks as well as US Treasuries, as investors bet that the slowdown in the labour market made it more likely that the Federal Reserve – and by implication other central banks – will not raise rates further in the coming months.

The report also appeared to reinforce the Fed’s message that the US was on course for a soft economic landing, as the central bank seeks to bring inflation back to its 2 percent target. Inflation, which surpassed 9 percent at its peak last year, is now 3.7 percent.

But as market watchers know only too well, this scenario has already played out several times previously with stocks rebounding after positive data affirmed investors’ belief interest rates had peaked only for markets to resume their downward slide once bond yields turned higher after the emergence of contradictory data.

There were also some aspects of the latest labour report that hint at a potentially harder landing to come, including fewer industries in which employment is growing suggesting the US economy may already be weakening more quickly than the data suggests.

Apple’s latest quarterly result released last week being a case in point. The world’s most valuable company failed to dispel Wall Street’s concerns about a lacklustre outlook for its hardware businesses and potential pressure on its position in China after announcing quarterly earnings that came in below forecasts.

The slip came despite an unexpectedly strong acceleration in Apple’s services business and a return to growth for the iPhone, helping the US consumer tech group withstand the worst effects of weaker consumer demand. The latest fall left Apple’s shares 13 percent below the record they hit just before its last earnings report three months ago as investors have grown more cautious after a stock-price bounce of more than 50 percent earlier in the year.

The average 30-year fixed-rate mortgage in America now carries an interest rate of 8 percent for the first time since 2000. As a result the monthly payment required to buy the median American home with a mortgage worth 90 percent of the property’s value is now nearly 60 percent of average earnings, up from 33 percent in July 2021.

According to the Bank for International Settlements (BIS), real house prices in 12 advanced economies, including New Zealand, fell by 10 percent between the start of 2022 and the second quarter of 2023. Should rates follow the path implied by markets, real house prices should fall by another 14 percent by the end of 2025 according to the BIS. In a scenario in which interest rates stabilise slightly above their current level, the peak-to-trough fall in real house prices would reach 35 percent. For comparison, the fall prompted by the global financial crisis was just 13 percent.

One lingering question that attracts a range of divergent views is the likelihood of a recession next year. Despite more subdued economic data recently, Pie Funds founder and managing director Mike Taylor believes a recession isn’t necessarily a fait accompli.

“Most economies have held up much better than expected to higher rates. Sure, if we were to see the US 10-year go to 7 percent I think it would be curtains, but I don’t see a scenario in which that would happen. Even an oil-induced inflation spike would probably cause a slowing in demand and therefore see rates fall rather than rise.

“I see a scenario next year where inflation continues to fall towards target, the economy slows and central banks can say, ‘job done’ and ease rates and hence financial conditions.”

So where to from here then for the NZ economy?

“The NZX is in a 1000+ day bear market, rates have risen very rapidly and investor sentiment is depressed. I am expecting a slowing economy, but not a recession. I also expect inflation to fall back towards the RBNZ’s 1-3 percent target band which will ultimately lead to lower rates in 2024.

“Therefore, I see a more bullish outlook for equities in this environment. Certainly more positive than the last two years! A number of high quality companies have seen their share prices deteriorate by almost 50 percent in some cases and whilst things can always fall further, at some point you need to close your eyes and buy. At this point I believe the odds are starting to shift in favour of buyers over sellers.”

Briscoes reports small uptick in revenues

Proving its continued resilience to a weakening domestic economy, homewares and sporting goods retailer Briscoe Group reported an increase in third quarter sales, with profit margins also lifting.

Third quarter sales for the 13 weeks ended October 29 were $179.7 million, or 2.4 percent higher than $175.5m for the same quarter last year.

“To post positive sales growth across both the homewares and sporting goods segments in an extremely tough trading environment, as highlighted in recent retail announcements, is an excellent achievement,” managing director Rod Duke said.

Homeware sales rose 1.3 percent and sporting goods were up 4 percent in the quarter, and total year-to-date sales for the 39-week period ended October rose 1 percent to $548.9m.

Though Duke said he remained “cautiously optimistic” he doesn’t expect to replicate last year’s record net profit after tax of $88.4m, though he was confident the group would deliver a full year net profit after tax in excess of $80m.

Former crypto king set to face lengthy prison sentence

In the end it took a jury less than four hours to find FTX crypto exchange founder and CEO Sam Bankman-Fried guilty of multiple charges of financial fraud.

FTX collapsed in November last year owing depositors more than US$8 billion.

The high-profile 31-year-old former crypto billionaire now faces the likelihood of spending decades behind bars after being convicted of wire fraud and conspiracy to commit wire fraud against FTX customers and against lenders, conspiracy to commit securities fraud and conspiracy to commit commodities fraud against FTX investors, as well as conspiracy to commit money laundering.

The fact the jury was able to reach a unanimous verdict in just a few hours suggests they were truly convinced of his guilt and that there were no holdouts that needed to be coaxed, Yesha Yadav, law professor and Associate Dean at Vanderbilt University, told CNBC: “This overwhelming consensus should give the judge confidence to follow the jury’s decisiveness by imposing a more severe sentence than a lighter one.”

“I wouldn’t be surprised if [he] spends the next 20 or 25 years of his life in prison,” Renato Mariotti, a former prosecutor in the US Justice Department’s Securities and Commodities Fraud Section, told CNBC.

“The sheer scale of his fraud was immense, he was defiant and clearly lied on the witness stand. The judge will have more sympathy for the victims than he has for Bankman-Fried,” added Mariotti.

Bankman-Fried’s case is already being compared to that of Elizabeth Holmes, founder of medical device company Theranos, which ceased operations in 2018.

Holmes, 39, was convicted in early 2022 on four counts of defrauding investors after also testifying in her own defence. She was sentenced to more than 11 years in prison and began serving her punishment in May.

Comparisons are also being made to Bernie Madoff who masterminded a multi-decade ponzi scheme that was only exposed in 2008 as a result of the global financial crisis. It’s estimated investors lost as much as US$20 billion when Madoff’s investment company collapsed. He was sentenced to 150 years in prison and died in 2021 at the age of 82.

Tourism industry faces grave new threat

Having only just recently recovered from the impact of Covid, the tourism sector globally faces a grave new threat after the head of the FBI warned a congressional hearing last week that the Hamas attack on Israel had given terrorists inspiration “the likes of which we haven’t seen” since the rise of Isis a decade ago.

Christopher Wray told the US Senate committee on homeland security and governmental affairs that though the terrorism threat had been high throughout 2023, “the ongoing war in the Middle East has raised the threat of an attack against Americans in the United States to a whole other level”.

“We assess that the actions of Hamas and its allies will serve as an inspiration the likes of which we haven’t seen since Isis launched its so-called caliphate years ago,” Wray said.

The director’s comments come amid fierce fighting in the north of the Gaza Strip, as Israel escalates its response to the attack by Hamas militants on October 7, which killed more than 1,400 Israelis. It’s believed more than 9000 Palestinians have since been killed in Israel’s bombardment of the strip, according to the Palestinian health ministry in Gaza.

Wray said the increased security threat stemmed from “multiple foreign terrorist organisations [that] have called for attacks against Americans and the west”. He cited threats from al-Qaeda, Isis and Iran-backed Hezbollah, and highlighted a jump in attacks on US bases overseas.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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