The Month Ahead

US equity markets rose to fresh record highs in October, buoyed by ongoing optimism around artificial intelligence (AI), while a solid start to corporate earnings season also boosted sentiment. As of mid-October, the S&P 500 Index and Nasdaq 100 Index were positive for the month, and on track for their sixth straight monthly gain.

Meanwhile, several share markets in Europe also traded to record highs, while Asian markets were some of the strongest performing with the Nikkei 225 Index, surging nearly 10% as investors welcomed the election of Sanae Takaichi as Japan’s new prime minister. She is widely expected to expand fiscal policy to promote growth.   

New Zealand equities also rose early in October, which saw the NZX 50 Index reach a record high close, supported by a 50 basis point cut by the Reserve Bank of New Zealand (RBNZ). However, much of these gains were given up, and as of mid-October, the index was about flat for the month. 

The Reserve Bank of New Zealand (RBNZ) is scheduled to meet in late November for its final policy decision of the year. Markets widely expect another rate cut, as economic headwinds persist and inflationary pressures appear to be abating.

Following a larger-than-expected 50 basis point cut in October, interest rate markets are now pricing in a more modest 25 basis point reduction. This would bring the Official Cash Rate (OCR) closer to the level most forecasters anticipate as its trough – between 2.00% and 2.25%.

Alongside the rate decision, the RBNZ will release its quarterly Monetary Policy Statement (MPS), which includes updated forecasts for key economic indicators. At its August meeting, the central bank projected the OCR would bottom out at 2.50% in Q1 2026. However, given the recent cut and the likelihood of another in November, this trajectory is expected to be revised lower. The extent and timing of that revision will be closely watched and could have an impact on bond yields.

The MPS will also provide updated projections for inflation, unemployment, and GDP growth, offering further insight into the RBNZ’s outlook and policy stance.

The domestic economic calendar for November includes the release of third-quarter employment data, with the unemployment rate expected to remain above 5% (in August, the RBNZ projected it to be at 5.3%), while later in the month, Q3 retail sales figures will offer insight into consumer spending, which has shown persistent weakness in recent years.

Trade remains a key theme for markets, with several developments likely to shape sentiment in November. Tensions between the US and China have escalated recently, driven by China’s expanded export restrictions on rare earth elements. The measures have added to uncertainty around global supply chains and prompted renewed tariff threats from Washington. In contrast, the US and Australia signed a new agreement focused on critical minerals. The deal aims to reduce reliance on Chinese exports.

Elsewhere, the US and South Korea appear close to finalising a trade agreement that could involve tariff adjustments and investment pledges. If confirmed, the deal may provide a boost to sentiment in both countries.

Investors will be watching for further developments across these fronts, given the implications for global trade flows and sectors that are exposed to these supply chain dynamics.

In early October, we moved overweight to the New Zealand dollar versus the US dollar. Long-term fundamentals favour a higher NZD/USD, and with the economy showing signs of recovery, albeit slowly, we feel this should offer further upside to the currency.

On global equities, we remain cautious. Valuations are stretched, and there are signs the labour market is cooling. Furthermore, the government shutdown is adding to uncertainty.

Meanwhile, we are neutral US bonds. With the 10-year yield around 4%, it’s at the bottom of its recent range, but with a growing consensus of interest rate cuts by the Fed, and its independence being questioned – the Trump administration has been vocal about large interest rate cuts – we feel it prudent to remain neutral until we see more clarity.