The Federal Reserve is widely expected to cut its benchmark rate by 25 basis points, as the world’s most important central bank becomes increasingly concerned about a weakening labour market.
The Federal Open Markets Committee will meet on Thursday, with markets pricing in a 25 basis point cut, which would take the Federal Funds Rate to a range between 3.75% and 4%.
“Central bankers have moved from worrying about inflation,” Harbour Asset Management portfolio manager Shane Solly told NBR, adding that this dynamic has been playing out in New Zealand where the RBNZ is likely to deliver further rate cuts despite a recent uptick in inflation.
Earlier this month, Fed chair Jerome Powell said a sharp slowdown in hiring posed a growing risk to the US economy.
He made the comments in a speech to the National Association of Business Economics in Philadelphia, in which he also said the shutdown of the federal government meant official economic data had not been available.
It means the Fed does not have all the data it usually would have at its disposal before the upcoming decision, although, as Solly pointed out, the Fed does do its own work.
He thinks that, if the impact of tariffs continued to be less than expected in upcoming data releases, Powell may signal a slowdown in quantitative tapering, which, in other words, means the Fed would purchase bonds on the secondary market to help put downward pressure on interest rates.
One part of the US economy that was not firing was the housing market, where buyers are dealing with affordability issues. “It’s a big multiplier, if you get housing activity going, creating a lot of jobs, a lot of activity, so a rate cut … is quite important for that part of the economy,” Solly said.
Federal Reserve chair Jerome Powell.
Local AGMs
The local annual meeting season for publicly listed companies continues this week. These meetings not only provide shareholders with an opportunity to question the board and management over its decisions and strategy, but also see firms update the market on their trading through the first few months of FY26.
Investors and analysts will be looking for any signs of recovery in economic conditions.
Harbour Asset Management’s Shane Solly.
Ebos Group’s meeting on Wednesday will be closely followed. The dual-listed healthcare and animal care company has seen its stock trade at multi-year lows after it was punished for reporting higher operating costs and lower earnings than expected in its FY25 result.
“The company needs to win back support [and] the new management team need to show they are on top of some of the cost structure changes and the new growth is coming through,” Solly said.
Dairy cooperative Fonterra is also meeting this week, where shareholders will vote on whether to approve the $4.2 billion sale of its consumer business to French-owned Lactalis.
Few are expecting shareholders to oppose the deal, which sees them receive a capital return of $2 per share. However, New Zealand First leader Winston Peters has been stoking fears about the deal, saying the company is “giving” away the consumer business.
Another key company meeting this week is Port of Tauranga, the country’s largest port. As one of New Zealand’s main gateways to the rest of the world, the company’s fortunes are important for ‘NZ Inc’.
The port has been warning for some time that it is running out of capacity, but its journey to get a wharf extension plan approved, so it can process more ships, has been dragging on since 2019.
Investors will be looking and hoping for an update both on the project and trading.
PoT’s largest shareholder is the Bay of Plenty Regional Council, which announced in late 2023 that it was considering reducing its stake in the port company to diversify its investment portfolio.
Consultation has opened on the plan, and Solly expects the company will face questions from shareholders about what’s next.
Port of Tauranga.
Economic data
Rounding out the week will be the release of a handful of economic data, most notably ANZ’s latest reads on both consumer and business sentiment.
While sentiment improved across both surveys last week, households and businesses still remain pessimistic.
Solly said while everyone was hoping for an improvement in activity, the recovery in some sectors has been uneven. Construction, for example, has been particularly weak, he said.
“We are hearing this from companies – that businesses are starting to get the confidence … to start to think about rehiring.”
Also this week will be the latest inflation figures out of Australia. The country’s central bank moved away from cutting rates at its last meeting but, since then, the labour market has deteriorated.
Current forecasts are for quarterly inflation to increase to 1% from 0.7%, and annual inflation to rise to 2.9% from 2.1%.
