[This video is a question and answer session with Ray Jack, Senior Investment Analyst, ANZ New Zealand, summarising the main points of the article]
[Text on screen: The Month Ahead - December 2023]
Voiceover and text on screen: What is the current state of inflation?
Ray: We've come from a period where inflation's been in the highest single digits. We look at the US, which is the biggest economy in the world, inflation's tracked down to 3%, and it's remained sticky around that level for five months. Locally in New Zealand, inflation has been quite strong, but it's starting to deteriorate, and that's because the employment market's starting to weaken.
Voiceover and text on screen: What do central banks mean when they say “higher for longer”?
Ray: Higher for longer, for central banks, that means that inflation is not coming down fast enough to a level that they're comfortable with, which tends to be 1% to 2%.
Voiceover and text on screen: Why “higher for longer”?
Ray: It's been stronger because of high savings rates, a strong employment market and strong fiscal spend. But monetary policy works with a lag, and what we're seeing here locally, it's taking longer for people to refix their mortgage rates at the headline interest rates.
Voiceover and text on screen: What does all this mean for bond prices?
Ray: We've just been through the worst bond bear market in 40 years. And as the economy slows, we move into the phase called recession, which is the period where bonds do really well. And so what is a recession? Essentially, it's where unemployment shoots up and interest rates drop. In that circumstance, if you own bonds prior to that event, they tend to perform really well.
Voiceover and text on screen: How are we positioned for the current environment?
Ray: We've got an overweight position in bonds. We've got high quality government bonds and corporate bonds. If we move into recession, we've got a strong focus on quality in our portfolios.
[Text on screen: Important information: Information can change, is general, and not advice. In good faith, we've used reliable sources to get this information, but we don't promise it's accurate, complete, or suits you. To the extent the law allows, we don't accept responsibility for loss or damage if you rely on or use this information. Past performance is not indicative of future performance. We don't guarantee performance, which depends on many things, and could be positive or nagative. ANZ Bank New Zealand Limited]