Regret Analysis

This evening, the Central bank of New Zealand surprised the market with a cut of .50% to 1.00%.  The market was thinking that the bank would cut .25%.

The statement from the Bank highlights:

*Employment is at a maximum sustainable level.

*Inflation in target range but below the 2% midpoint.

*Recent data showing improved employment and wage growth.

I can understand that the market was surprised by a .50% cut…

It was suggested that I listen to the news conference (hat tip JR) and having done so, was struck by the focus on the global situation and it is my conclusion that the central bank of this small open economy is extremely worried about the slowing global economy and the outlook going forward.

(Heads up Norges bank)

One of the many things that struck me in the press conference was the mention at least a couple of times of: Regret Analysis

The Governor of the Reserve Bank of New Zealand, Adrian Orr, was very open about not wanting to standing in front of the media and having to say that they should have done more. You could tell he was very much hoping he would need to raise rates based on higher inflation expectations.  It seems to be we will be hearing more about regret analysis going forward…..

Australia and New Zealand both have short term rates at 1%, the amount of global debt that trades at negative yields is over $15 Trillion for the first time ever.  According to Deutsche Bank A.G. that represents over 25% of ALL outstanding worldwide bonds!

In terms of the markets, as we were looking for the equity market bounced yesterday, with gold hitting new highs and oil continuing its slide.

We want to restate:

*We like gold and mining stocks as a long term trade in the environment we are in now.

*We think the global equity markets will continue to struggle and think taking exposure off is wise.

*We think that currencies will become more and more in focus, with the Chinese and the U.S. conflict stoking volatility.

*We think that oil trades $55 to $65, but if the trade wars ratchet up more and global growth continues to slow the $55 will be challenged.

Gold having broken the key level of $1465, seems to be telling us that all is not well!  We think we see $1500, but it is overbought at moment.

The USD index has fallen back into its range of trading between 95.50 to 98.00. We see good support at the 97.00 level.

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– Mark W

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