It's been an interesting few weeks for financial markets around the world, and it feels like we've reached a bit of a turning point in some ways. For the most part, a lot of this is a good thing for local investors and the economy.
Currency markets have seen some big moves this month, with the NZ dollar falling more than 5 per cent against the US dollar to around US70c, almost a three-month low. This is good news for investors and KiwiSaver funds who own American shares, as well as exporters selling their products in US dollars.
That includes the dairy sector, where some currency weakness will add to the 25 per cent rise we've seen in global dairy prices. Maybe the $6.00 payout forecast the more optimistic economists have been predicting isn't so outlandish after all.
Interest rate expectations are behind these big currency moves, with markets getting increasingly confident our Reserve Bank will cut the OCR again next month and more importantly, the US Federal Reserve will increase rates in December.
Borrowers need not get too excited by another OCR cut, because mortgage rates aren't likely to go much lower, and if anything they could begin rising soon. These are driven more by longer-term global interest rates, which have started drifting up, rather than down.
Investors are waking up to the fact we might be seeing early signs of inflation, some central banks have done all they can for now, and the Fed is getting on with it.
US 10-year government bonds were yielding 1.4 per cent in July, and these have jumped to 1.8 per cent. Still small numbers, but it's the quantum of the change that's important, and in that sense we are seeing some big moves.
Our latest inflation figures are due very soon, and these won't be far above zero.
However, with oil prices up 15 per cent over the last few weeks and the NZ dollar starting to make imports a little more expensive, maybe there are signs of life.
All of this seems to have put the local sharemarket on the back foot. The NZX50 has lagged the US market for three of the past four weeks, a reversal of the trend from recent years. Our market added 32 per cent in the last year, more than double the return from US shares.
With interest rate sensitive shares out of favour in recent weeks, our heavy weighting to these companies has dented our market. We've also seen a few international investors head for the door, accentuating the selling pressure.
Offshore money can be fickle, and doesn't necessarily reflect how well our companies and economy are doing. If this continues, it will hopefully open up a bit of value in some of our highly-priced blue chips. Seven of the top 15 shares have fallen more than 10 per cent recently, with these having attracted the bulk of the offshore attention in recent years.
That's not all bad, to be honest. I'd certainly rather buy Auckland Airport shares nearly a dollar cheaper than they were a month ago.