Watching ‘Footsie’ a minority sport
The Dow Jones, the Nasdaq, the ‘‘Footsie’’, the Nikkei… it might as well be a weather report from Mars.
Given that only about 10 per cent of New Zealanders ever invest in the sharemarket, the media air time devoted to tiny share price fluctuations must make this the nation’s most keenly covered minority sport.
Should the public know (and care) more about the workings of the sharemarket? Certainly, a lot of media excitement was generated by the US share volatility last week. Yet the state of the US sharemarket – huge exceptions aside, like the 1929 crash and the 2008 Global Financial Crisis – has next to nothing to do with the state of the US economy, let alone the local economy. To put it mildly, the sharemarket’s pulse rate is simply not a reliable index of economic outcomes, the fate of US presidents, or of our personal wellbeing.
Reportedly, the recent, brief US plunge – such as it was – had been triggered by fears that the long period of low inflation and low interest rates might be ending. This conclusion was based on strong US employment figures, which carried a potential for skills and labour shortages, wage demands and rising inflation as a result. That’s almost the exact opposite of what’s happening in New Zealand.
Yes, our unemployment rate fell close to historic lows during the December 2017 quarter. Even so, wage growth remains sluggish, inflation is below market predictions and, according to the Statistics Department, some 340,000 New Zealanders want to be working longer hours than they’re currently doing. If anything, our economy is undercooked, not over-heating. There is simply no sign of wage-generated inflation washing up here any time soon.
That’s what made last week’s official statement by acting Reserve Bank governor Grant Spencer somewhat puzzling. On one hand, Spencer conceded the lack of domestically driven inflationary pressures. Moreover, if inflation did rise longer term, Spencer explained, this would be imported inflation, as other countries raised their interest rates, our dollar lost ground, and the cost of imports (eg petrol) rose accordingly. Even so, this would still put inflation only in the midpoint of the Bank’s acceptable target range.
Logically then, into 2019, could mortgage owners feel assured that interest rates would remain much the same? Maybe, but hold on. Because Spencer also suggested the next interest rate movement would be upwards, while not ruling out that it could also be downwards. ‘‘We have seen [inflation] surprise to the downside and if that continued, then it is possible that we can see interest rate reductions.’’
The Reserve Bank governor is supposed to shed clarity and provide guidance on such matters. Yet it was as if this highly paid economic steward was saying the traffic lights down the road could be red or green. A hike in interest rates would be the next likely step, despite there being no domestically generated reason for taking it, and despite the impact such a step would have on local firms, mortgage holders and everyday consumers. If this is what passes for wisdom, it is easy to see why the ordinary public try not to pay much attention to the business news.