Market Watch: Trends for 2017 - higher rates, inflation

Market Watch 06 December 2016 Liam Dann, New Zealand Herald Business Editor At Large (right) and Pie Funds CEO Mike Taylor picture supplied still from NZ Herald video

Political instability, higher interest rates and inflation are some of the big global trends for investors in 2017, says Pie Funds chief executive Mike Taylor.

"We seem to be moving to an environment now where there is political instability. We've moved from central banks controlling things to governments and fiscal policy influencing economic growth," Taylor said.

"Typically that means higher interest rates, more inflation as a bit of spending goes on by governments. So we should expect to see higher interest rates in New Zealand. And maybe those rates borrowers have seen in New Zealand, sub-five per cent on your mortgage, maybe those days have passed."

The election of Donald Trump had increased the certainty of rate hikes in the US .

"The policies of Trump are tax cuts and infrastructure spending, so that is what are really boosting US stocks and causing the change in interest outlook in the US," Taylor said.

The US Federal Reserve is widely expected to lift the official cash rate next week for the for the first time in a year from just 0.5 per cent to 0.75 per cent.

"That's 90 to 95 per cent priced in. You would expect the market to take that in its stride if rates go up next week but a lot of it comes down to the Fed's commentary. It's not about what they do next week, it's their outlook for the future."

Asked about picking the year ahead, Taylor said it didn't make a lot of sense for investors to pay too much attention to the calendar year end - looking at the trends was more important.

"We don't get hung up on New Year's resolutions," he said.

"If you look back at 2016, what was happening in January and February didn't really set the tone for the rest of the year. The tone at the moment is political instability, interest rates rising and a bit of inflation.

"That's going to roll into the new year, whether that is going to continue for the rest of the year remains to be seen."