June 22, 2025 • 41 mins
Global conflict also affects trade and consumer spending.
What uncertainties will appear, and how will markets respond to the US bombing Iran?
Harbour Asset Management's Income and Currency Strategist Hamish Pepper talks to Tim Beveridge...
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks.
Speaker 2 (00:34):
And welcome back to the Weekend Collective for well, welcome
in of you if you have just joined us. By
the way, of course, there was an illuminating conversation we
had with Caitlin Presley from Unity Studios just around the
public health. If you missed any of it and you
want to go back, there are lots of interesting calls
and good bits of advice there. Go and check out
our podcast. Look for the Weekend Collective on iHeartRadio and
(00:57):
News talksb Dot covered and said. Also for politics, we
had Jeffrey Miller, who's a geopolitical analyst on the recent
moved moved from the States to bomb those nuclear bunkers
and Iran and Jeffrey's take on it as well, so
he getsquent some quite strong comments on it as well.
And we also chatted to the head of the head
of the President of the Tourism Council and the Cook
(01:18):
Islands around what's going on with Mark Brown and the
Cook Islands and the money that's been suspended from New
Zealand as well. So an illuminating couple of hours. Go
check out our podcast again. And news talks at b Dot,
Codter and Zaid right now though new new topic smart money,
and to join us. He is a fixed income gosh.
(01:40):
I always struggle with that fixed income and currency strategist.
And his name is Hamish Pep Gosh. I'm all over
the place, Hamish Pepper. Hello, God, I'll just shut up
and introduce it.
Speaker 3 (01:50):
Should I take over? Tom?
Speaker 2 (01:56):
I'm good mate. How you been doing?
Speaker 3 (01:58):
Yeah? Good. We've had a big weekend. We were we
were tramping with our two young girls who are five
and seven, and the Low North Island. It was great fun.
Oh lovely.
Speaker 2 (02:07):
I thought you were going to say we had a
big week and it was something to do with the
money markets, but you've simply just had it. Was that too,
You've had a mataiki weekend.
Speaker 3 (02:15):
Yeah. I came out of the bush and read the
headlines that Trump had struck Rhan and thought, gee, okay,
I better get my be to get my sort of
thoughts together for the show in case you know we
go there.
Speaker 2 (02:28):
Well, I suspect now that you've you've mentioned it, we're
going to go there. I think we're going to go there.
It's like that Mighty Pith that was like what was it?
Faulty tiers. Don't mention the more war. I mentioned it once,
but I think I got away with it actually, So
actually we're lucky with the tramping weather though my daughter
has in fact having them caught up with it. Yep,
she's just on the Duke of Edinburgh overnight tramp where
(02:49):
they went to ring a Toto. But they were allowed
to switch their phones on to send photos this morning
at about seven o'clock and oh what weather for tramping
really just fantastic.
Speaker 3 (03:01):
Absolutely, yeah. We had these beautiful views of Mount a
pay who mount not a hooey and when we went
in on the Friday we couldn't see either of them.
And then yeah, fantastic last couple of days. So yeah,
really special.
Speaker 2 (03:16):
Excellent, good stuff. And that's thank you for touching on that.
That's it's nice to take our head out of the
financial weeds for a moment before we dive straight back
and before we get onto talking about because it is
going to be a big deal what's happened in the
in the Middle East, right, and we will I think
we'll have to dig on that, even though it's just
a recently developing story. I'm sure you'd be able to
(03:38):
give us some insights.
Speaker 3 (03:39):
But let's go.
Speaker 2 (03:41):
Let's have a look back on you guys at track.
What's how things have been going where farmers have had
good news on the farm gaate milk prices and dairy
price and things like that. We've just had the we've
just had the Field Days massive event. How what do
we know about the spending confidence of farmers in particularly?
(04:02):
How did the Field Days go? Do you have much
of a handle on that stuff.
Speaker 3 (04:05):
Yeah, it was a fantastic event. We were there for
three days, hosted by ben Z and of course we're
the manager for the Kiwi Saver and the private wealth
money for them, so we got to see it from
their point of view. They were a regular vendor there
and just you know, one hundred thousand people through those
(04:28):
four days, and I've got a real sense of that
part of the economy, which, as you say, has had
a really good last year season for the dairy farmers,
you know, the best ever. But I think there's still
a degree of caution there are spending more than they
were last year, but last year they had a season
which wasn't nearly as good, and I think there's still
(04:51):
a bit of memory of that that the good times
don't last forever, and so I think they'll probably want
to see what Fonterra actually forecasting, which is another season
of good milk prices, and that might be something which
then a bit more more spending.
Speaker 2 (05:07):
So what do we know about what they actually did spend?
You said they spent more, and I think that that
was the headline that just cuts across, isn't it? A
lot farmers are and I assume that they've just been
a big spend up because you know, they're spending more
than last year, but it was the room for improvement perhaps,
and maybe it's not as far as it could be.
Speaker 3 (05:25):
Yeah, exactly. So I mean you don't, as far as
I know, you don't get sort official data from the vendors,
you know, aggregated up for field days. So what we
did was we went around and asked, you know, the
individual vendors. I think I spoke to more than a dozen,
and the common story was sales were up on last year,
but not record levels, so an improvement but not the
(05:48):
best they'd seen. And it does kind of it's corroborating
what we're seeing in the aggregate data, which is, you know,
if you think about for the dairy sector, they probably
had a boost in terms of revenue. That's between four
and five billion dollars. What the lending data is saying
(06:08):
for the sector is a portion of that has gone
to pay down debt. And what the data is telling
us from the deposit side of the banking system is
that cash balances have increased in the agricultural sector, and
so that leaves there is some left which has been spent,
and that kind of you know, fits the field Day's story.
But there's a bit of caution there still within the
(06:31):
within that rural sector.
Speaker 2 (06:33):
So when you say four or five billion dollars, that's
an extra earnings. So what can you give us some
context for that? Of course, if that was the American
dairy industry, you might say that doesn't sound like very much.
But for us, how much is it?
Speaker 3 (06:49):
Yeah? I mean four or five billion is significant. You know,
if you think about one metric could be the amount
the dollar amount of exports each year that dairy represents,
which is around that twenty billion kind of mark, so,
you know, which puts it at about five percent of GDP.
(07:11):
So these numbers are meaningful, and I think what we're
seeing though is that the translation into the economy. You know. So,
I think what many of us are hoping for is
that the external sector can lead our recovery, you know,
which has been hasn't really begun in a vigorous way.
You would say it's been fairly soft in some areas.
(07:34):
But the way that we could perhaps see that accelerators.
You see more comfort from the external sector, not just
dairy right, you know, the beef shedding beef as well.
If they feel a bit more comfortable going out buying tractors,
you know, you don't even have to be as extreme
as saying buying boats and jet skis and things like that,
but more of it can feed into the economy, then
(07:56):
there is the ability for that to then generate a
more robust recovery or a faster recovery than the one
that we're seeing.
Speaker 2 (08:03):
So at the moment, it is just we want that.
Do you think that the rural community of farming communities
that want to see just more good news before they
really start to open their wallets in a meaning in
a way that really impacts the economy.
Speaker 3 (08:18):
Yeah, I think, Look, you know, these these people that
you know, they're aware of what's going on, globally. You know,
they're probably more aware than most of us about what's
happening with tariffs, the risks that there are between you know,
your two largest economies in the world having a trade war,
the US and China, and one of those China being
(08:41):
our largest export destination. So there's a real awareness of
the ability for that to escalate and for global growth
to then weaken and therefore demand for our exports to
come off. So I think that that's in the piece.
And then there's also an awareness of the exchange rate.
Right the Kei we dollar hasn't probably been doing what
(09:03):
maybe it normally would when you have an event like
you know, the the Trump tariffs, where generally risk sentiment deteriorates,
Usually our currency in that environment would appreciate and that
would make the global value of our exports go up
in New Zealand dollar terms. Now that hasn't happened, and
(09:25):
there's an awareness of that. Our exchange rates actually appreciated
against the US dollars. So that's been at the margin,
something which has taken a little bit of the shine
off those high global prices.
Speaker 2 (09:37):
Why is that, Well, this is the thing.
Speaker 3 (09:39):
You probably heard people questioning perhaps the status of the
US dollarting got dropped to a triple A something rather
than quadruple or so, I can't remember yet, have to. Yeah,
they lost their triple A rating recently, and that was
a reflection of some of the policies that I mean,
(10:02):
this goes back, you know, prior to that, you know,
the US was on a trajectory in terms of the
government debt. Yeah, that it was accumulating, which was not
looking particularly sustainable. So it was just increasing somewhat exponentially
in terms of the forecast that people would make for it.
(10:23):
But I think the accelerator to that has been some
of Trump's actions. For example, the way he's behaved with
the chair of the Federal Reserve, the Reserve Bank of
New Zealand equivalent. You know, some of the things that
he's said to Jerome Powell, who is the fair chair,
or about him, started to get people to question the
(10:45):
degree to which the central Bank is going to remain
independent from government, because that's super important.
Speaker 2 (10:51):
Yeah. Actually, gosh, there's I'll tell you what the elephant
in the room is. Of course, what's just happened in
the last twenty four hours, but which we'll get into
I think it's unavoidable. Okay, Yeah, so America is bond
Iran and now there's a whole lot of uncertainty around that.
What does that do to the level of communication the
(11:12):
folks at Harvar Asset Management on what's going on in
the markets? Do you guys all get on the blowerlike,
have you seen the news?
Speaker 3 (11:19):
Yeah, We've got a sort of a team's chat which
those among the investment teams are part of and will
share thoughts on what we think it means and what
could possibly happen. Tomorrow when our market opens will be
the first market globally to open and try and respond
to the news, because it's happened after the US markets
(11:42):
have closed. And I suppose we've got a bit of
a test case in terms of the lead up to this,
which was Israel launching their attack on Iran, and we
saw the biggest response was really oil prices. That's where
the market worries most that one Iran is a contributor
to the global supply of oil, but it also controls
(12:04):
a pathway for which a lot of exports from the
Middle East come to the rest of the world, and
so oil prices prior to this event were already up
about ten percent in response to the Israeli actions, and
so I think, you know, the base case would be absorbed.
Speaker 2 (12:21):
You mean, the drama of this recent development. It's not
out of the blue.
Speaker 3 (12:25):
You mean, well, we have seen how markets respond or
responded to Israel's attacks. Now we've got the US involved,
which is definitely an escalation. I don't think anybody would
argue that it's not. And you know, I think I
think the logic would be those moves we saw in
(12:48):
terms of higher oil prices and risk sentiment, you know,
investor sentiment being heard by those developments. You know that
that's a pretty sensible thing to assume will be a
feature of the week. But the difficulty will be, you know,
our market down here having to sort of, you know,
come up with just how large moves should be. And
(13:11):
you know that's that's where probably it'll be a bit
of a holding pattern until the bigger markets come in.
Speaker 2 (13:16):
If I wanted to indulge the conspiracy part of my brain.
Not conspiracy, I just mean but the I almost wonder
whether the timing of the strikes is done in a
way where the markets have a day to get used
to it rather than doing it in the middle of
the markets trading where everything goes whoop boom, up and down.
(13:39):
I mean, that's that's a pointless sort of observation. But
there's part of me that wonders if there is some
sort of method in the timing of it from the
financial stability point of view? Am I just barking mad?
Speaker 3 (13:54):
Yeah? I mean I think it's hard when you're dealing
with a president like Trump, who you know, you would
have said last week and it was towards the end
of last week that he said that he would take
THENX fortnite to consider, you know, whether to strike around
or not, and then he's done it just you know,
a day or two later, you know whether it's planned
(14:14):
outside of market hours. I mean, at the end of
the day, markets will respond no matter when it happens.
And I think the difficulty I think, like I said,
for our market, and then it will be Australia to
try and make its assessment as well before Asia opens
in London and so on. As like I was saying,
(14:37):
just you know, how much should things move and do
you even get the direction right? For example, when the
Israeli strikes happened, we had interest rates in the US
initially fell, you know, that was the biggest market that
was open at the time, and then people thought, oh,
hold on, oil prices are going up. Actually maybe there's
(14:57):
a bit of inflation that comes with this, So well,
we can't take interest rates too too low, because you know,
that will just add to the inflation problem. So they
went back sickly to where they started. So it's a
complicated thing. But at the end of the day, I
think the oil price channel is the one that will
be focused on, and probably for a lot of central
banks that's not going to be a welcome thing to
(15:17):
have meaningfully higher oil prices when you've just got on
top or you're still getting on top of inflation. You know,
it's not the greatest thing.
Speaker 2 (15:25):
Yeah, we love your calls as well. I went hundred
eighty t and eighty And actually when we framed this
conversation was before the recent developments in the Middle East,
but it was a look at the looking at the
spending up at field days, but how there's still a
bit of room for people to be confident that they're
going to spend again. And actually just be curious from
(15:47):
you if you're listening, how confident are you with spending
money these days? Because people are still feeling the sort
of delayed response to inflation we see while the farmers
eating a good result at the in global exports, of course,
we're paying a lot for milk and dairy and people
feel that. So what would it take for you to
(16:08):
feel confident in spending again, either for yourself or for
your business. Give us a call on that on eight
hundred eighty ten and eighty or if you've got any
questions for Hamish Hamish Pepper from Harbor Asset Management. He's
a fixed income and a currency strategist, so I'm going
to dig into questions around what the currency is going
to do as a result of the recent news as well.
But what are you looking for to decide that it's
(16:30):
okay to spend again? And do you look at these
global developments and these what's happening with America and the
uncertainty around that is a time to keep your purse closed?
I don't know. We're going to explore that more with
Hamish Pepper Harbor Asset Management will be back with us
in just a moment. But you know the number, it's
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Speaker 1 (17:46):
Parentech, Property, Politics plus Money, Health and the week's debates.
It's all on the Weekend Collective with Tim Beverage US
talk Zevvy.
Speaker 2 (17:56):
Yes, and we are with Hamish Peppery's fixed income and
currency strategist with Harbor Asset Management. Hey, Hamish. So for
those of people who are following global events and think, oh,
this is not good, you can't actually now that the
event has happened, is there any reaction people can make
with regards to currency or investments or it just happens
(18:18):
at lightning pace as soon as the market's open bingo
too late for you to to You needed to predict
this to do anything about it, didn't you?
Speaker 3 (18:26):
Yeah, I think I think largely tim I mean, I
think there will still be that dynamic that I described
earlier that you know, we are a small market. But
it's not to say that, you know, those people who
are in other centers won't be awake and trading in
our time zone. You know, they'll wake up in the
middle of the night to try and do exactly as
(18:47):
you describe, maybe get positions on or take positions off. So,
but the difficulty can be I think just the amount
of liquidity that's in markets at that time. You're not
going to have the same as you would more in
the middle of our day into our afternoon and evening.
But yeah, I mean it's entry. What we'll be observing
tomorrow morning will be the market trying to find you know,
(19:11):
the appropriate clearing price. And so, you know, when you
think about the currency markets, usually in these instances, usually
the US dollar would be strengthening because it would be
the safe haven currency, the currency that people would go
to when they aren't sure, along with things like the
Japanese yen and usually our currency and ones like it,
(19:36):
like the Australian dollar, some emerging market currencies as well.
For example, We're seen as more risky, and so people
would want to sort of sell our currencies and buy
buy the US dollar or the Japanese yen.
Speaker 2 (19:50):
I might not play out, you said that were just
before I wanted to throw to dramatize it. You said,
usually usually usually, And I was thinking, there's going to
be a big hairy butt coming here.
Speaker 3 (20:02):
And and the hairy bt is that the US dollar
is being questioned as that safe haven. You know, not outright,
people are not throwing it out all together, but there
is an impact that Trump is having that you know,
their approach to debt and you know, not really doing
(20:26):
much to contain it. Is having on people's you know,
sort of appetite to hold it. So you know that
the US dollar weakness that we touched on earlier is
a reflection of those things. And so it's not always
the case now that you see, you know, the US
dollar strengthening in these environments. And indeed, you know, we
(20:47):
talked about, you know, the reaction to Israel's strikes and
there was a modest amount of US dollar strength but
not not a lot, which I think speaks to some
of those dynamics. Well, I guess it's.
Speaker 2 (20:59):
Look and look, people know that I don't really like
Donald Trump very much, but he's not Everything he does
is going to be the wrong decision. So, but is
there I think it's a fair to say, without too
much partisanship, that he is unpredictable. And I don't think
that's a judgment whether you be a Democrat or a publican.
But the guy is unpredictable. He's arguably persuadable depending on
(21:22):
who's in his ear on things. Does that Does that
have any impact on financial markets when it comes to
the reaction to global potential, global conflict and stuff, and
the US dollars positioning with everything.
Speaker 3 (21:39):
Yeah, the thing, I mean the thing that it has.
So this is two parts I think to support your
first point on that kind of unpredictable nature of you know,
and it's not just Trump, it's the US administration. I
think that you know, that is being reflected in these
indices which go in scourur global media articles for words
(22:02):
that are either uncertainty itself or associated with uncertainty, and
then are coupled with economic policy. And so what we've
seen in those indices is that even at a global level,
we're at all time highs in terms of you know,
that measure of uncertainty. So you've got a sort of
it's being quantified by these measures, which is something we
(22:22):
haven't been able to do as well in the past.
We've been able to go back and back fill the past,
but we didn't know in real time. It's just how
uncertain things were from a quantifiable point of view. And
then in markets, what's happened is there's just generally a
higher level of uncertainty being sort of ascribed across asset classes,
(22:46):
and so there's ways for us to measure that. And
when we measure it, it's in currency space, it's an
equity space, it's an interest rates space. There is that
reflection of the dynamic you're describing. So one way to
put it is, say you're looking for and insurance in
financial markets, which is it's usually options that that's the
(23:10):
bit that financial markets do in that regard, you know
those options that insurance is more expensive now because of
this uncertainty.
Speaker 2 (23:19):
People who are listening, how does that work?
Speaker 3 (23:23):
Think of it as insurance. So if you want to
ensure yourself against a let's use currencies as an example.
A movement in the New Zealand dollar over a particular timeframe.
Speaker 2 (23:35):
That means you're selling your goods for effectively fewer New
Zealand dollars. Perhaps, is that.
Speaker 3 (23:41):
Well you are paying You are paying a higher premium
to gain that protection. So that that's what's going on.
Because we are more unsure as to where these asset
prices and in this case, where the New Zealand dollar
is going to be in the future, you need to
pay more to ensure yourself against moves in the in
(24:05):
the currency.
Speaker 2 (24:05):
Is the word hedging a crude way of referring to
that as well?
Speaker 3 (24:09):
Or yeah that's right. Yeah, So I mean, you know,
bringing this back to exporters. That is something that they
may want to do is to look to hedge themselves
against currency movements. That wouldn't be helpful, And of course
it's the one that we just described. You know, if
the key we dollar keeps appreciating on them, that's something
which is going to be reducing those those global returns.
Speaker 2 (24:31):
I love it when I ask for a prediction because
I always think it's the most unfair thing I can
do with you guys, even though part of your game
is professionally calculating what predictions you can sort of safely
make make within a set of parameters. I guess would
be some sort of confusing way of putting it. But
what do you think is going to happen to the
New Zealand dollar versus the US and other currencies as
a result of the latest news.
Speaker 3 (24:54):
Yeah, I mean this is going to be the hard thing. Yeah,
I mean again, you know, we can go back to
the example of the Israeli strikes and they're was a
modest amount of US dollar strength and that was against
US as well, you know, so New Zealand dollar weakness.
But yeah, the background is one where you know, if
(25:16):
you think about what, why is it that we're being
able to have this period of appreciation versus the US dollar.
It's because on a long long term basis, we are
still below sort of an average level, you know, and
this is this is reflected in the US dollar side
(25:37):
as well, you know, So you know that's the big
backdrop is that because we are below those long term
average levels, that if you get a catalyst that might
push us up, then you know, it can have a
bit more of an impact.
Speaker 2 (25:49):
How much do long term averages affect people's attitude towards
the currency's value. So you know, you might have if
the currencies have never existed, you'd be looking at a
whole bunch of criteria, But when the currency has a history,
if there's a long term average, how much of a
role does that actually play in the way people perceive
its value.
Speaker 3 (26:07):
I mean, the interesting thing about it is it's it's
a really simple approach, obviously, right, But the amazing thing
is that it does have quite a good relationship with
things like you might have heard of purchasing power parity,
or the economists have got a big, big mac index,
and so the idea is that you shouldn't pay a
(26:29):
different price for something in another currency. So the currency
the exchange rate is going to ensure in the in
the in the long run that that doesn't happen. And
so what you get is you get generally a relationship.
If a currency becomes, you know, lower than its long
term average, it's usually also the case that it's screening
(26:52):
that way on a on a McDonald's index, that you know,
that currency needs to appreciate and lift up because it's
paying too much for a for a hamburger in a
big Mac in the U. Yes, you know, if we
stay with this example.
Speaker 2 (27:07):
Of in terms of data trackers, you've probably heard of
the Pentagon Pizza tracker. Yes, yeah, the new one, which
is so the pizza The Pentagon Pizza Tracker, by the way,
people is it's a monitor which predicted they know when
(27:27):
the military maybe going into some sort of heightened activity
because they track the number amount of pizza that gets
ordered within pizza shops within a certain area radius of
the Pentagon. I mean, well, funnily enough, they were right,
weren't they. I guess that there was this in the
last two or three or four days. There is a
(27:48):
bunch the pizza tracker predicted a lot more activity and
then hey, presto, look what we've had. Yeah, hey, you
mentioned in the currency side of things, the Japanese yen.
Does I mean, I just take a few comments and
go one plus one plus one equals three. But is
(28:09):
it a fair enough guess that a currency like the
Japanese yen, which is seen as a stable currency, that
that might see an increase and it's value given that
it's not associated with the US dollar and political decisions
over there, what do you think the story would be there?
Speaker 3 (28:27):
You know, that's been a theme for the year, has
been okay, if we're going to move away from the
US dollar at the margin, you know, again, it hasn't
been wholesale. There's just been this marginal view of perhaps
there's a you know, a couple of reasons to not
hold the same amount of US dollars, and who do
(28:48):
you go to? You know, And the answer ultimately is,
there's not really an alternative if you're thinking about a
wholesale movement to another currency. Because the capital market, so
that's the share market in the US and the bond
market in the US, the fixed income market. You know,
they are the two largest markets in the world by
(29:11):
some margin, by by a long, long way. So the
idea of moving wholesale, Okay, we'll just abandon the US
all together and we'll go somewhere else just just doesn't work.
There's no markets that can that can take that amount
of money. But at the margin, yes, you know, Japan
is looked at as one that's probably next off the rank.
The dynamics are different there though, Like what is it
(29:33):
that causes the strength in the Japanese yen when sort
of resentiment sours. It's not so much people globally looking
to invest there. There is definitely that, but it's more
about the Japanese savers. So Japan is a provider of
capital to the world because they save so well, But
then when they become concerned, they want to bring that
(29:54):
money home, and that's the main channel that causes the
Japanese yen to appreciate. It's sort of a home bias.
It's bringing the money back in different dynamic for the US,
where it's people seeking out that market and wanting to
place capital there. So they'll both do similar things, usually
in those times of fear, which they will appreciate, But
(30:19):
the dynamics are slightly different because the US borrows from
the rest of the world, so they have a debt.
Japan's one of the places which allows them to have
a debt to the rest of the world because they
are the provider of savings essentially.
Speaker 2 (30:33):
I want to dig into the euro where that sits
in the scheme of things. But we'll do that in
just a moment. By the way, and all this I
think that you've been talking about, Hamish, were talking about uncertainty.
We might try and tie that back into whether that's
actually the chief villain when it comes to just our
attitude towards spending here. But we'll dig into that a
bit more with Hamish Pepper. He's a fixed and common
currency strategist at Harbor Asset Management. A fascinating conversation twenty
(30:55):
to six back in a.
Speaker 4 (30:56):
Mow Yes, welcome back to smart Money.
Speaker 2 (31:13):
Welcome in if you've just joined us, you're a little late.
We're with Hamous pepperies of fixed incoming currency strategist at
Harbor Asset Management, and we started by talking about the
just you know, the how s farmers were spending as
a result of field days and everything, but not as
big as we'd think. And we're going to dig into
that a little bit more because I think there's a
(31:34):
theme Hamish we've found in the question of uncertainty. But
before that, we're talking about currencies and what the Japanese
yeen and how we haven't depreciated in ways we might
have in the past under similar circumstances. Where's the Euro
sitting all of this with the yen and the US
dollar and the New Zealand dollar and that, Well, of
course we're in significant compared to the euro, but how
(31:56):
does the Euro behave?
Speaker 3 (31:58):
Yeah, so it's got similar characteristics to Japan in the
sense that it too is also like a provider of
capital to the world. They're a saver and I with
that then that's kind of a first box tacked in
some ways, Like you know, you tend to like countries
like that they don't have a reliance on the rest
of the world to fund themselves. The US is a
(32:20):
real exception, right, just because of some of the things
we were talking about earlier in terms of you know,
the capital markets that they have. So, yeah, Europe's probably
in the MAX as a place and the Euro is
in the MAX as a place where you could see
some of that safe haven dynamic that the issue with
them to know is like, just take Germany for example,
we're talking about equity markets, won't we Well, let's go bigger. Actually,
(32:44):
let's go for the whole of European Union. They're equity
markets will add up to fifteen trillion dollars. But that's
it's only a quarter of the size of the US market.
So they don't they don't. Really, it's again the same thing.
They've got some capacity, you know, to take that kind
of demand and that that kind of flow, but they're
(33:04):
not really going to be able to manage that wholesale
shift away from from the US. But you know, we've
seen already this year then benefit both in terms of
the currency but also the equity market as well.
Speaker 2 (33:20):
Quick question for me people on the day to day
spending thing. Should Should I be filling the car up tonight?
Speaker 3 (33:31):
Yeah? I feel the same thing on the way in right. Yeah,
I mean I'm going to have to because the tank's
empty after driving that from the middle of the North Island.
But yeah, I mean it's interesting, isn't it. I Mean,
already it was the case that driven the increase in
oil prices that we've had, you know, prior to the
weekend that there was going to be a bit of
pressure for those those prices at the pump to increase,
(33:53):
and you know, I think it seems reasonable that you
know that that pressure is at least going to remain.
Speaker 2 (33:59):
Would that have instantly happened already, that the fuel that
companies will be responded to something already or is actually
fell fell up before nine am, you'll be fine.
Speaker 3 (34:08):
Yeah, well we have to have a look at and
see exactly what happens, you know, in the morning in
terms of what it'd be probably more into our afternoon
in terms of how much oil prices move on the
on the global market. And of course the exchange rate
is going to be an important part of you know,
calculating what it means for the New Zealand dollars. But
you know, just just on that point, this is where
(34:29):
just on that farmer piece, you know, it's not all
you know, kind of one way traffic in the sense
that you know that that is a kind of a
cost of production for most farms is you know, diesel
and petrol, and so this will also be something which
is perhaps taking the shine off and may continue to
(34:51):
do so some of those higher export prices.
Speaker 2 (34:54):
Because one of the things we're going to explore this hour,
was you know, when will people know if it's okay
to spend again? When will we see businesses, farmers, et
cetera start to really spend. And I I wonder if
it's if the answer, because at the start of the hour,
I was thinking it was to do with just we
need to see more good news for the farming sector.
I was wondering if because one of the words that
(35:15):
keeps on cropping up in our conversation is just around uncertainty.
We're talking about uncertainty around the US markets and the
decisions are being made with tariffs, and it's actually not
so much prosperity related, it's uncertainty related. Do you think
that's it? I mean, it's a bunch of things, isn't it.
But how big deal is the uncertainty that we just
have globally?
Speaker 3 (35:36):
No, it's huge. And you know we've used the word
a lot in our conversation. But you know, if you
do something like do a word count of the number
of times uncertainty is appearing in say, central bank communication,
it's off the charts. You know, you know, many many,
many multiples is that word appearing versus normal, normal, times.
(35:59):
And I think what it does for an economy is
if you think about you know, households and businesses, is
in both cases it probably causes a delay in spending.
So firms are going to be less confident about committing
to you know, big pieces of investment. For households, they
(36:21):
too will be less confident committing to you know, big
pieces of investment or big pieces of spending, you know,
big ticket items for example. You're not going to feel
as confident going and committing to a new car, for example.
And so that I think is why we are seeing
you know, confidence in those sectors. Business confidence is rolling off,
(36:42):
and consumer confidence is still at levels that you would
associate with times like COVID and the global financial crisis.
Speaker 2 (36:49):
I mean, I don't know what your own personal observations
arecus you know, your job is sort of so intertwined
with the way people view money and markets and things.
But personally, I've been intellectually aware that times are tough,
but I haven't thought of it for myself until probably
just the last two or three weeks when I had
to do myttacks and I had to pay for health
(37:12):
insurance and other insurances, and I'm going and then the
rates and you suddenly go for the first time, I've
gone bloody hell. And so I'm a delayed reaction. I
don't think i'd be alone in having this delayed reaction.
My confidence is only just slumped just recently.
Speaker 3 (37:31):
Yeah, you would not be alone at all. I think
what's happened is we've been celebrating inflation returning to more
normal levels. But what has happened through that period where
we had really high inflation is it's lifted up the
price level of lots and lots of things, and so
in order for those to come back down to where
(37:52):
they were before the big bout of inflation, you actually
need deflation. You need prices to be falling, and that's
very unlikely to happen, you know, at least in aggregate.
So what you're describing to them, for sure is something
that others are too. You know, there's a feeling too,
which is that cost of living you know, dynamic. I
won't call it a crisis, but that cost of living
dynamic is I think weighing.
Speaker 2 (38:14):
Which is why I reckon that there's a good case
too for the cash rate to drop again. Simply that's
what I'll be hoping for Yeah, and.
Speaker 3 (38:23):
I think you're not alone. Financial markets agree they were
probably a little challenged by the recent set of communication
from the Reserve Bank of New Zealand. But we've still
got priced one more rate cut, probably in August rather
than the meeting that we have next month. But I
think you know, the broader point here is perhaps there
(38:44):
was expectation of more impact from the drop and interest rates.
So we've had two point twenty five percent taken off
the cash rate, and yeah, we we probably haven't seen
yet anyway, the normal amount of impact from that amount
(39:04):
of of of loosening. We would describe it as. So yeah,
to your point, you know, we're closely watching whether that
will change, but markets are saying base case, there's more
to come.
Speaker 2 (39:15):
Right, Look, we'll be back in just to mo it's
eight minutes to six news talks. He'd be yes, welcome back.
Time is upon us with. Hamish Pepper is a fixed
income and currency strategist with Harbor Asset Management. Hamish Lucky.
Last question, just quickly, being a fixed income guy, do
you find that these are the times when fixed income
there's a few more people inquiring about just certainty of
(39:36):
getting their money someway where they can just get the
steady stream of income. Is it busy times for you?
Speaker 3 (39:42):
Yeah? I think. I think the driver of the busy
times has been the falling of interest rates. So people
are noticing that term deposit rates have come off and
they're around that four percent level, and you know, if
you think about what the market is implying, you know
that they'll fall further, perhaps another twenty five basis points.
I think that's the main driver of inquiry, as people
who are looking to ensure they can need to have
(40:05):
a particular level of income, and so what are the
other options available to them? Well?
Speaker 2 (40:11):
Hey, time flies me having fun. Thanks so much for
your time in this afternoon. Amish for the chat. When's
the next tramp.
Speaker 3 (40:18):
Or on the valley? A few months time out? There?
Can't wait?
Speaker 2 (40:24):
Good work. He's planning her head. That's where she go
to these guys heart brasset dot cirta and zy thinking
her head even when it comes to the tramp. Hey,
thanks so much for your time. Homi's good work.
Speaker 3 (40:33):
Cheers, cheers made and.
Speaker 2 (40:35):
We'll be back same time again next week. If you
want to check out any of the hours you've missed,
go and check out our podcast for the Weekend Collective
on News Talks are Beat Dot Curtain in zid or iHeartRadio.
We get our hours up pretty quickly. It was a
fascinating show across the board today all three hours, so
go and check them all out. I recommend it highly. Anyway,
we'll be we'll be back next week. We've got Elsa
Wilf joining us for the one with Faddyr show. She's
(40:57):
all about renovating and making the most out of your
property and so we'll be having a chat with Elsa
about that and Sandy Passley, the former principle of barret
Ing Joint Us for the parent Squad. We'll look forward
to your company again Sunday at six next thanks to
my producer Isaiah. Great job, mate, and we'll enjoy the
rest of your evening three to six.
Speaker 1 (41:17):
For more from the Weekend Collective, listen live to News
Talks ed b weekends from three pm or follow the
podcast on iHeartRadio.
You're listening to the Weekend Collective podcast from News Talks.
Speaker 2 (00:34):
And welcome back to the Weekend Collective for well, welcome
in of you if you have just joined us. By
the way, of course, there was an illuminating conversation we
had with Caitlin Presley from Unity Studios just around the
public health. If you missed any of it and you
want to go back, there are lots of interesting calls
and good bits of advice there. Go and check out
our podcast. Look for the Weekend Collective on iHeartRadio and
(00:57):
News talksb Dot covered and said. Also for politics, we
had Jeffrey Miller, who's a geopolitical analyst on the recent
moved moved from the States to bomb those nuclear bunkers
and Iran and Jeffrey's take on it as well, so
he getsquent some quite strong comments on it as well.
And we also chatted to the head of the head
of the President of the Tourism Council and the Cook
(01:18):
Islands around what's going on with Mark Brown and the
Cook Islands and the money that's been suspended from New
Zealand as well. So an illuminating couple of hours. Go
check out our podcast again. And news talks at b Dot,
Codter and Zaid right now though new new topic smart money,
and to join us. He is a fixed income gosh.
(01:40):
I always struggle with that fixed income and currency strategist.
And his name is Hamish Pep Gosh. I'm all over
the place, Hamish Pepper. Hello, God, I'll just shut up
and introduce it.
Speaker 3 (01:50):
Should I take over? Tom?
Speaker 2 (01:56):
I'm good mate. How you been doing?
Speaker 3 (01:58):
Yeah? Good. We've had a big weekend. We were we
were tramping with our two young girls who are five
and seven, and the Low North Island. It was great fun.
Oh lovely.
Speaker 2 (02:07):
I thought you were going to say we had a
big week and it was something to do with the
money markets, but you've simply just had it. Was that too,
You've had a mataiki weekend.
Speaker 3 (02:15):
Yeah. I came out of the bush and read the
headlines that Trump had struck Rhan and thought, gee, okay,
I better get my be to get my sort of
thoughts together for the show in case you know we
go there.
Speaker 2 (02:28):
Well, I suspect now that you've you've mentioned it, we're
going to go there. I think we're going to go there.
It's like that Mighty Pith that was like what was it?
Faulty tiers. Don't mention the more war. I mentioned it once,
but I think I got away with it actually, So
actually we're lucky with the tramping weather though my daughter
has in fact having them caught up with it. Yep,
she's just on the Duke of Edinburgh overnight tramp where
(02:49):
they went to ring a Toto. But they were allowed
to switch their phones on to send photos this morning
at about seven o'clock and oh what weather for tramping
really just fantastic.
Speaker 3 (03:01):
Absolutely, yeah. We had these beautiful views of Mount a
pay who mount not a hooey and when we went
in on the Friday we couldn't see either of them.
And then yeah, fantastic last couple of days. So yeah,
really special.
Speaker 2 (03:16):
Excellent, good stuff. And that's thank you for touching on that.
That's it's nice to take our head out of the
financial weeds for a moment before we dive straight back
and before we get onto talking about because it is
going to be a big deal what's happened in the
in the Middle East, right, and we will I think
we'll have to dig on that, even though it's just
a recently developing story. I'm sure you'd be able to
(03:38):
give us some insights.
Speaker 3 (03:39):
But let's go.
Speaker 2 (03:41):
Let's have a look back on you guys at track.
What's how things have been going where farmers have had
good news on the farm gaate milk prices and dairy
price and things like that. We've just had the we've
just had the Field Days massive event. How what do
we know about the spending confidence of farmers in particularly?
(04:02):
How did the Field Days go? Do you have much
of a handle on that stuff.
Speaker 3 (04:05):
Yeah, it was a fantastic event. We were there for
three days, hosted by ben Z and of course we're
the manager for the Kiwi Saver and the private wealth
money for them, so we got to see it from
their point of view. They were a regular vendor there
and just you know, one hundred thousand people through those
(04:28):
four days, and I've got a real sense of that
part of the economy, which, as you say, has had
a really good last year season for the dairy farmers,
you know, the best ever. But I think there's still
a degree of caution there are spending more than they
were last year, but last year they had a season
which wasn't nearly as good, and I think there's still
(04:51):
a bit of memory of that that the good times
don't last forever, and so I think they'll probably want
to see what Fonterra actually forecasting, which is another season
of good milk prices, and that might be something which
then a bit more more spending.
Speaker 2 (05:07):
So what do we know about what they actually did spend?
You said they spent more, and I think that that
was the headline that just cuts across, isn't it? A
lot farmers are and I assume that they've just been
a big spend up because you know, they're spending more
than last year, but it was the room for improvement perhaps,
and maybe it's not as far as it could be.
Speaker 3 (05:25):
Yeah, exactly. So I mean you don't, as far as
I know, you don't get sort official data from the vendors,
you know, aggregated up for field days. So what we
did was we went around and asked, you know, the
individual vendors. I think I spoke to more than a dozen,
and the common story was sales were up on last year,
but not record levels, so an improvement but not the
(05:48):
best they'd seen. And it does kind of it's corroborating
what we're seeing in the aggregate data, which is, you know,
if you think about for the dairy sector, they probably
had a boost in terms of revenue. That's between four
and five billion dollars. What the lending data is saying
(06:08):
for the sector is a portion of that has gone
to pay down debt. And what the data is telling
us from the deposit side of the banking system is
that cash balances have increased in the agricultural sector, and
so that leaves there is some left which has been spent,
and that kind of you know, fits the field Day's story.
But there's a bit of caution there still within the
(06:31):
within that rural sector.
Speaker 2 (06:33):
So when you say four or five billion dollars, that's
an extra earnings. So what can you give us some
context for that? Of course, if that was the American
dairy industry, you might say that doesn't sound like very much.
But for us, how much is it?
Speaker 3 (06:49):
Yeah? I mean four or five billion is significant. You know,
if you think about one metric could be the amount
the dollar amount of exports each year that dairy represents,
which is around that twenty billion kind of mark, so,
you know, which puts it at about five percent of GDP.
(07:11):
So these numbers are meaningful, and I think what we're
seeing though is that the translation into the economy. You know. So,
I think what many of us are hoping for is
that the external sector can lead our recovery, you know,
which has been hasn't really begun in a vigorous way.
You would say it's been fairly soft in some areas.
(07:34):
But the way that we could perhaps see that accelerators.
You see more comfort from the external sector, not just
dairy right, you know, the beef shedding beef as well.
If they feel a bit more comfortable going out buying tractors,
you know, you don't even have to be as extreme
as saying buying boats and jet skis and things like that,
but more of it can feed into the economy, then
(07:56):
there is the ability for that to then generate a
more robust recovery or a faster recovery than the one
that we're seeing.
Speaker 2 (08:03):
So at the moment, it is just we want that.
Do you think that the rural community of farming communities
that want to see just more good news before they
really start to open their wallets in a meaning in
a way that really impacts the economy.
Speaker 3 (08:18):
Yeah, I think, Look, you know, these these people that
you know, they're aware of what's going on, globally. You know,
they're probably more aware than most of us about what's
happening with tariffs, the risks that there are between you know,
your two largest economies in the world having a trade war,
the US and China, and one of those China being
(08:41):
our largest export destination. So there's a real awareness of
the ability for that to escalate and for global growth
to then weaken and therefore demand for our exports to
come off. So I think that that's in the piece.
And then there's also an awareness of the exchange rate.
Right the Kei we dollar hasn't probably been doing what
(09:03):
maybe it normally would when you have an event like
you know, the the Trump tariffs, where generally risk sentiment deteriorates,
Usually our currency in that environment would appreciate and that
would make the global value of our exports go up
in New Zealand dollar terms. Now that hasn't happened, and
(09:25):
there's an awareness of that. Our exchange rates actually appreciated
against the US dollars. So that's been at the margin,
something which has taken a little bit of the shine
off those high global prices.
Speaker 2 (09:37):
Why is that, Well, this is the thing.
Speaker 3 (09:39):
You probably heard people questioning perhaps the status of the
US dollarting got dropped to a triple A something rather
than quadruple or so, I can't remember yet, have to. Yeah,
they lost their triple A rating recently, and that was
a reflection of some of the policies that I mean,
(10:02):
this goes back, you know, prior to that, you know,
the US was on a trajectory in terms of the
government debt. Yeah, that it was accumulating, which was not
looking particularly sustainable. So it was just increasing somewhat exponentially
in terms of the forecast that people would make for it.
(10:23):
But I think the accelerator to that has been some
of Trump's actions. For example, the way he's behaved with
the chair of the Federal Reserve, the Reserve Bank of
New Zealand equivalent. You know, some of the things that
he's said to Jerome Powell, who is the fair chair,
or about him, started to get people to question the
(10:45):
degree to which the central Bank is going to remain
independent from government, because that's super important.
Speaker 2 (10:51):
Yeah. Actually, gosh, there's I'll tell you what the elephant
in the room is. Of course, what's just happened in
the last twenty four hours, but which we'll get into
I think it's unavoidable. Okay, Yeah, so America is bond
Iran and now there's a whole lot of uncertainty around that.
What does that do to the level of communication the
(11:12):
folks at Harvar Asset Management on what's going on in
the markets? Do you guys all get on the blowerlike,
have you seen the news?
Speaker 3 (11:19):
Yeah, We've got a sort of a team's chat which
those among the investment teams are part of and will
share thoughts on what we think it means and what
could possibly happen. Tomorrow when our market opens will be
the first market globally to open and try and respond
to the news, because it's happened after the US markets
(11:42):
have closed. And I suppose we've got a bit of
a test case in terms of the lead up to this,
which was Israel launching their attack on Iran, and we
saw the biggest response was really oil prices. That's where
the market worries most that one Iran is a contributor
to the global supply of oil, but it also controls
(12:04):
a pathway for which a lot of exports from the
Middle East come to the rest of the world, and
so oil prices prior to this event were already up
about ten percent in response to the Israeli actions, and
so I think, you know, the base case would be absorbed.
Speaker 2 (12:21):
You mean, the drama of this recent development. It's not
out of the blue.
Speaker 3 (12:25):
You mean, well, we have seen how markets respond or
responded to Israel's attacks. Now we've got the US involved,
which is definitely an escalation. I don't think anybody would
argue that it's not. And you know, I think I
think the logic would be those moves we saw in
(12:48):
terms of higher oil prices and risk sentiment, you know,
investor sentiment being heard by those developments. You know that
that's a pretty sensible thing to assume will be a
feature of the week. But the difficulty will be, you know,
our market down here having to sort of, you know,
come up with just how large moves should be. And
(13:11):
you know that's that's where probably it'll be a bit
of a holding pattern until the bigger markets come in.
Speaker 2 (13:16):
If I wanted to indulge the conspiracy part of my brain.
Not conspiracy, I just mean but the I almost wonder
whether the timing of the strikes is done in a
way where the markets have a day to get used
to it rather than doing it in the middle of
the markets trading where everything goes whoop boom, up and down.
(13:39):
I mean, that's that's a pointless sort of observation. But
there's part of me that wonders if there is some
sort of method in the timing of it from the
financial stability point of view? Am I just barking mad?
Speaker 3 (13:54):
Yeah? I mean I think it's hard when you're dealing
with a president like Trump, who you know, you would
have said last week and it was towards the end
of last week that he said that he would take
THENX fortnite to consider, you know, whether to strike around
or not, and then he's done it just you know,
a day or two later, you know whether it's planned
(14:14):
outside of market hours. I mean, at the end of
the day, markets will respond no matter when it happens.
And I think the difficulty I think, like I said,
for our market, and then it will be Australia to
try and make its assessment as well before Asia opens
in London and so on. As like I was saying,
(14:37):
just you know, how much should things move and do
you even get the direction right? For example, when the
Israeli strikes happened, we had interest rates in the US
initially fell, you know, that was the biggest market that
was open at the time, and then people thought, oh,
hold on, oil prices are going up. Actually maybe there's
(14:57):
a bit of inflation that comes with this, So well,
we can't take interest rates too too low, because you know,
that will just add to the inflation problem. So they
went back sickly to where they started. So it's a
complicated thing. But at the end of the day, I
think the oil price channel is the one that will
be focused on, and probably for a lot of central
banks that's not going to be a welcome thing to
(15:17):
have meaningfully higher oil prices when you've just got on
top or you're still getting on top of inflation. You know,
it's not the greatest thing.
Speaker 2 (15:25):
Yeah, we love your calls as well. I went hundred
eighty t and eighty And actually when we framed this
conversation was before the recent developments in the Middle East,
but it was a look at the looking at the
spending up at field days, but how there's still a
bit of room for people to be confident that they're
going to spend again. And actually just be curious from
(15:47):
you if you're listening, how confident are you with spending
money these days? Because people are still feeling the sort
of delayed response to inflation we see while the farmers
eating a good result at the in global exports, of course,
we're paying a lot for milk and dairy and people
feel that. So what would it take for you to
(16:08):
feel confident in spending again, either for yourself or for
your business. Give us a call on that on eight
hundred eighty ten and eighty or if you've got any
questions for Hamish Hamish Pepper from Harbor Asset Management. He's
a fixed income and a currency strategist, so I'm going
to dig into questions around what the currency is going
to do as a result of the recent news as well.
But what are you looking for to decide that it's
(16:30):
okay to spend again? And do you look at these
global developments and these what's happening with America and the
uncertainty around that is a time to keep your purse closed?
I don't know. We're going to explore that more with
Hamish Pepper Harbor Asset Management will be back with us
in just a moment. But you know the number, it's
O eight hundred eighty ten eighty for your reckons as well.
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(17:36):
for Harbor Investment Funds issued by Harbor Asset Management is
available available at Harbor Asset dot co dot Nz.
Speaker 1 (17:46):
Parentech, Property, Politics plus Money, Health and the week's debates.
It's all on the Weekend Collective with Tim Beverage US
talk Zevvy.
Speaker 2 (17:56):
Yes, and we are with Hamish Peppery's fixed income and
currency strategist with Harbor Asset Management. Hey, Hamish. So for
those of people who are following global events and think, oh,
this is not good, you can't actually now that the
event has happened, is there any reaction people can make
with regards to currency or investments or it just happens
(18:18):
at lightning pace as soon as the market's open bingo
too late for you to to You needed to predict
this to do anything about it, didn't you?
Speaker 3 (18:26):
Yeah, I think I think largely tim I mean, I
think there will still be that dynamic that I described
earlier that you know, we are a small market. But
it's not to say that, you know, those people who
are in other centers won't be awake and trading in
our time zone. You know, they'll wake up in the
middle of the night to try and do exactly as
(18:47):
you describe, maybe get positions on or take positions off. So,
but the difficulty can be I think just the amount
of liquidity that's in markets at that time. You're not
going to have the same as you would more in
the middle of our day into our afternoon and evening.
But yeah, I mean it's entry. What we'll be observing
tomorrow morning will be the market trying to find you know,
(19:11):
the appropriate clearing price. And so, you know, when you
think about the currency markets, usually in these instances, usually
the US dollar would be strengthening because it would be
the safe haven currency, the currency that people would go
to when they aren't sure, along with things like the
Japanese yen and usually our currency and ones like it,
(19:36):
like the Australian dollar, some emerging market currencies as well.
For example, We're seen as more risky, and so people
would want to sort of sell our currencies and buy
buy the US dollar or the Japanese yen.
Speaker 2 (19:50):
I might not play out, you said that were just
before I wanted to throw to dramatize it. You said,
usually usually usually, And I was thinking, there's going to
be a big hairy butt coming here.
Speaker 3 (20:02):
And and the hairy bt is that the US dollar
is being questioned as that safe haven. You know, not outright,
people are not throwing it out all together, but there
is an impact that Trump is having that you know,
their approach to debt and you know, not really doing
(20:26):
much to contain it. Is having on people's you know,
sort of appetite to hold it. So you know that
the US dollar weakness that we touched on earlier is
a reflection of those things. And so it's not always
the case now that you see, you know, the US
dollar strengthening in these environments. And indeed, you know, we
(20:47):
talked about, you know, the reaction to Israel's strikes and
there was a modest amount of US dollar strength but
not not a lot, which I think speaks to some
of those dynamics. Well, I guess it's.
Speaker 2 (20:59):
Look and look, people know that I don't really like
Donald Trump very much, but he's not Everything he does
is going to be the wrong decision. So, but is
there I think it's a fair to say, without too
much partisanship, that he is unpredictable. And I don't think
that's a judgment whether you be a Democrat or a publican.
But the guy is unpredictable. He's arguably persuadable depending on
(21:22):
who's in his ear on things. Does that Does that
have any impact on financial markets when it comes to
the reaction to global potential, global conflict and stuff, and
the US dollars positioning with everything.
Speaker 3 (21:39):
Yeah, the thing, I mean the thing that it has.
So this is two parts I think to support your
first point on that kind of unpredictable nature of you know,
and it's not just Trump, it's the US administration. I
think that you know, that is being reflected in these
indices which go in scourur global media articles for words
(22:02):
that are either uncertainty itself or associated with uncertainty, and
then are coupled with economic policy. And so what we've
seen in those indices is that even at a global level,
we're at all time highs in terms of you know,
that measure of uncertainty. So you've got a sort of
it's being quantified by these measures, which is something we
(22:22):
haven't been able to do as well in the past.
We've been able to go back and back fill the past,
but we didn't know in real time. It's just how
uncertain things were from a quantifiable point of view. And
then in markets, what's happened is there's just generally a
higher level of uncertainty being sort of ascribed across asset classes,
(22:46):
and so there's ways for us to measure that. And
when we measure it, it's in currency space, it's an
equity space, it's an interest rates space. There is that
reflection of the dynamic you're describing. So one way to
put it is, say you're looking for and insurance in
financial markets, which is it's usually options that that's the
(23:10):
bit that financial markets do in that regard, you know
those options that insurance is more expensive now because of
this uncertainty.
Speaker 2 (23:19):
People who are listening, how does that work?
Speaker 3 (23:23):
Think of it as insurance. So if you want to
ensure yourself against a let's use currencies as an example.
A movement in the New Zealand dollar over a particular timeframe.
Speaker 2 (23:35):
That means you're selling your goods for effectively fewer New
Zealand dollars. Perhaps, is that.
Speaker 3 (23:41):
Well you are paying You are paying a higher premium
to gain that protection. So that that's what's going on.
Because we are more unsure as to where these asset
prices and in this case, where the New Zealand dollar
is going to be in the future, you need to
pay more to ensure yourself against moves in the in
(24:05):
the currency.
Speaker 2 (24:05):
Is the word hedging a crude way of referring to
that as well?
Speaker 3 (24:09):
Or yeah that's right. Yeah, So I mean, you know,
bringing this back to exporters. That is something that they
may want to do is to look to hedge themselves
against currency movements. That wouldn't be helpful, And of course
it's the one that we just described. You know, if
the key we dollar keeps appreciating on them, that's something
which is going to be reducing those those global returns.
Speaker 2 (24:31):
I love it when I ask for a prediction because
I always think it's the most unfair thing I can
do with you guys, even though part of your game
is professionally calculating what predictions you can sort of safely
make make within a set of parameters. I guess would
be some sort of confusing way of putting it. But
what do you think is going to happen to the
New Zealand dollar versus the US and other currencies as
a result of the latest news.
Speaker 3 (24:54):
Yeah, I mean this is going to be the hard thing. Yeah,
I mean again, you know, we can go back to
the example of the Israeli strikes and they're was a
modest amount of US dollar strength and that was against
US as well, you know, so New Zealand dollar weakness.
But yeah, the background is one where you know, if
(25:16):
you think about what, why is it that we're being
able to have this period of appreciation versus the US dollar.
It's because on a long long term basis, we are
still below sort of an average level, you know, and
this is this is reflected in the US dollar side
(25:37):
as well, you know, So you know that's the big
backdrop is that because we are below those long term
average levels, that if you get a catalyst that might
push us up, then you know, it can have a
bit more of an impact.
Speaker 2 (25:49):
How much do long term averages affect people's attitude towards
the currency's value. So you know, you might have if
the currencies have never existed, you'd be looking at a
whole bunch of criteria, But when the currency has a history,
if there's a long term average, how much of a
role does that actually play in the way people perceive
its value.
Speaker 3 (26:07):
I mean, the interesting thing about it is it's it's
a really simple approach, obviously, right, But the amazing thing
is that it does have quite a good relationship with
things like you might have heard of purchasing power parity,
or the economists have got a big, big mac index,
and so the idea is that you shouldn't pay a
(26:29):
different price for something in another currency. So the currency
the exchange rate is going to ensure in the in
the in the long run that that doesn't happen. And
so what you get is you get generally a relationship.
If a currency becomes, you know, lower than its long
term average, it's usually also the case that it's screening
(26:52):
that way on a on a McDonald's index, that you know,
that currency needs to appreciate and lift up because it's
paying too much for a for a hamburger in a
big Mac in the U. Yes, you know, if we
stay with this example.
Speaker 2 (27:07):
Of in terms of data trackers, you've probably heard of
the Pentagon Pizza tracker. Yes, yeah, the new one, which
is so the pizza The Pentagon Pizza Tracker, by the way,
people is it's a monitor which predicted they know when
(27:27):
the military maybe going into some sort of heightened activity
because they track the number amount of pizza that gets
ordered within pizza shops within a certain area radius of
the Pentagon. I mean, well, funnily enough, they were right,
weren't they. I guess that there was this in the
last two or three or four days. There is a
(27:48):
bunch the pizza tracker predicted a lot more activity and
then hey, presto, look what we've had. Yeah, hey, you
mentioned in the currency side of things, the Japanese yen.
Does I mean, I just take a few comments and
go one plus one plus one equals three. But is
(28:09):
it a fair enough guess that a currency like the
Japanese yen, which is seen as a stable currency, that
that might see an increase and it's value given that
it's not associated with the US dollar and political decisions
over there, what do you think the story would be there?
Speaker 3 (28:27):
You know, that's been a theme for the year, has
been okay, if we're going to move away from the
US dollar at the margin, you know, again, it hasn't
been wholesale. There's just been this marginal view of perhaps
there's a you know, a couple of reasons to not
hold the same amount of US dollars, and who do
(28:48):
you go to? You know, And the answer ultimately is,
there's not really an alternative if you're thinking about a
wholesale movement to another currency. Because the capital market, so
that's the share market in the US and the bond
market in the US, the fixed income market. You know,
they are the two largest markets in the world by
(29:11):
some margin, by by a long, long way. So the
idea of moving wholesale, Okay, we'll just abandon the US
all together and we'll go somewhere else just just doesn't work.
There's no markets that can that can take that amount
of money. But at the margin, yes, you know, Japan
is looked at as one that's probably next off the rank.
The dynamics are different there though, Like what is it
(29:33):
that causes the strength in the Japanese yen when sort
of resentiment sours. It's not so much people globally looking
to invest there. There is definitely that, but it's more
about the Japanese savers. So Japan is a provider of
capital to the world because they save so well, But
then when they become concerned, they want to bring that
(29:54):
money home, and that's the main channel that causes the
Japanese yen to appreciate. It's sort of a home bias.
It's bringing the money back in different dynamic for the US,
where it's people seeking out that market and wanting to
place capital there. So they'll both do similar things, usually
in those times of fear, which they will appreciate, But
(30:19):
the dynamics are slightly different because the US borrows from
the rest of the world, so they have a debt.
Japan's one of the places which allows them to have
a debt to the rest of the world because they
are the provider of savings essentially.
Speaker 2 (30:33):
I want to dig into the euro where that sits
in the scheme of things. But we'll do that in
just a moment. By the way, and all this I
think that you've been talking about, Hamish, were talking about uncertainty.
We might try and tie that back into whether that's
actually the chief villain when it comes to just our
attitude towards spending here. But we'll dig into that a
bit more with Hamish Pepper. He's a fixed and common
currency strategist at Harbor Asset Management. A fascinating conversation twenty
(30:55):
to six back in a.
Speaker 4 (30:56):
Mow Yes, welcome back to smart Money.
Speaker 2 (31:13):
Welcome in if you've just joined us, you're a little late.
We're with Hamous pepperies of fixed incoming currency strategist at
Harbor Asset Management, and we started by talking about the
just you know, the how s farmers were spending as
a result of field days and everything, but not as
big as we'd think. And we're going to dig into
that a little bit more because I think there's a
(31:34):
theme Hamish we've found in the question of uncertainty. But
before that, we're talking about currencies and what the Japanese
yeen and how we haven't depreciated in ways we might
have in the past under similar circumstances. Where's the Euro
sitting all of this with the yen and the US
dollar and the New Zealand dollar and that, Well, of
course we're in significant compared to the euro, but how
(31:56):
does the Euro behave?
Speaker 3 (31:58):
Yeah, so it's got similar characteristics to Japan in the
sense that it too is also like a provider of
capital to the world. They're a saver and I with
that then that's kind of a first box tacked in
some ways, Like you know, you tend to like countries
like that they don't have a reliance on the rest
of the world to fund themselves. The US is a
(32:20):
real exception, right, just because of some of the things
we were talking about earlier in terms of you know,
the capital markets that they have. So, yeah, Europe's probably
in the MAX as a place and the Euro is
in the MAX as a place where you could see
some of that safe haven dynamic that the issue with
them to know is like, just take Germany for example,
we're talking about equity markets, won't we Well, let's go bigger. Actually,
(32:44):
let's go for the whole of European Union. They're equity
markets will add up to fifteen trillion dollars. But that's
it's only a quarter of the size of the US market.
So they don't they don't. Really, it's again the same thing.
They've got some capacity, you know, to take that kind
of demand and that that kind of flow, but they're
(33:04):
not really going to be able to manage that wholesale
shift away from from the US. But you know, we've
seen already this year then benefit both in terms of
the currency but also the equity market as well.
Speaker 2 (33:20):
Quick question for me people on the day to day
spending thing. Should Should I be filling the car up tonight?
Speaker 3 (33:31):
Yeah? I feel the same thing on the way in right. Yeah,
I mean I'm going to have to because the tank's
empty after driving that from the middle of the North Island.
But yeah, I mean it's interesting, isn't it. I Mean,
already it was the case that driven the increase in
oil prices that we've had, you know, prior to the
weekend that there was going to be a bit of
pressure for those those prices at the pump to increase,
(33:53):
and you know, I think it seems reasonable that you
know that that pressure is at least going to remain.
Speaker 2 (33:59):
Would that have instantly happened already, that the fuel that
companies will be responded to something already or is actually
fell fell up before nine am, you'll be fine.
Speaker 3 (34:08):
Yeah, well we have to have a look at and
see exactly what happens, you know, in the morning in
terms of what it'd be probably more into our afternoon
in terms of how much oil prices move on the
on the global market. And of course the exchange rate
is going to be an important part of you know,
calculating what it means for the New Zealand dollars. But
you know, just just on that point, this is where
(34:29):
just on that farmer piece, you know, it's not all
you know, kind of one way traffic in the sense
that you know that that is a kind of a
cost of production for most farms is you know, diesel
and petrol, and so this will also be something which
is perhaps taking the shine off and may continue to
(34:51):
do so some of those higher export prices.
Speaker 2 (34:54):
Because one of the things we're going to explore this hour,
was you know, when will people know if it's okay
to spend again? When will we see businesses, farmers, et
cetera start to really spend. And I I wonder if
it's if the answer, because at the start of the hour,
I was thinking it was to do with just we
need to see more good news for the farming sector.
I was wondering if because one of the words that
(35:15):
keeps on cropping up in our conversation is just around uncertainty.
We're talking about uncertainty around the US markets and the
decisions are being made with tariffs, and it's actually not
so much prosperity related, it's uncertainty related. Do you think
that's it? I mean, it's a bunch of things, isn't it.
But how big deal is the uncertainty that we just
have globally?
Speaker 3 (35:36):
No, it's huge. And you know we've used the word
a lot in our conversation. But you know, if you
do something like do a word count of the number
of times uncertainty is appearing in say, central bank communication,
it's off the charts. You know, you know, many many,
many multiples is that word appearing versus normal, normal, times.
(35:59):
And I think what it does for an economy is
if you think about you know, households and businesses, is
in both cases it probably causes a delay in spending.
So firms are going to be less confident about committing
to you know, big pieces of investment. For households, they
(36:21):
too will be less confident committing to you know, big
pieces of investment or big pieces of spending, you know,
big ticket items for example. You're not going to feel
as confident going and committing to a new car, for example.
And so that I think is why we are seeing
you know, confidence in those sectors. Business confidence is rolling off,
(36:42):
and consumer confidence is still at levels that you would
associate with times like COVID and the global financial crisis.
Speaker 2 (36:49):
I mean, I don't know what your own personal observations
arecus you know, your job is sort of so intertwined
with the way people view money and markets and things.
But personally, I've been intellectually aware that times are tough,
but I haven't thought of it for myself until probably
just the last two or three weeks when I had
to do myttacks and I had to pay for health
(37:12):
insurance and other insurances, and I'm going and then the
rates and you suddenly go for the first time, I've
gone bloody hell. And so I'm a delayed reaction. I
don't think i'd be alone in having this delayed reaction.
My confidence is only just slumped just recently.
Speaker 3 (37:31):
Yeah, you would not be alone at all. I think
what's happened is we've been celebrating inflation returning to more
normal levels. But what has happened through that period where
we had really high inflation is it's lifted up the
price level of lots and lots of things, and so
in order for those to come back down to where
(37:52):
they were before the big bout of inflation, you actually
need deflation. You need prices to be falling, and that's
very unlikely to happen, you know, at least in aggregate.
So what you're describing to them, for sure is something
that others are too. You know, there's a feeling too,
which is that cost of living you know, dynamic. I
won't call it a crisis, but that cost of living
dynamic is I think weighing.
Speaker 2 (38:14):
Which is why I reckon that there's a good case
too for the cash rate to drop again. Simply that's
what I'll be hoping for Yeah, and.
Speaker 3 (38:23):
I think you're not alone. Financial markets agree they were
probably a little challenged by the recent set of communication
from the Reserve Bank of New Zealand. But we've still
got priced one more rate cut, probably in August rather
than the meeting that we have next month. But I
think you know, the broader point here is perhaps there
(38:44):
was expectation of more impact from the drop and interest rates.
So we've had two point twenty five percent taken off
the cash rate, and yeah, we we probably haven't seen
yet anyway, the normal amount of impact from that amount
(39:04):
of of of loosening. We would describe it as. So yeah,
to your point, you know, we're closely watching whether that
will change, but markets are saying base case, there's more
to come.
Speaker 2 (39:15):
Right, Look, we'll be back in just to mo it's
eight minutes to six news talks. He'd be yes, welcome back.
Time is upon us with. Hamish Pepper is a fixed
income and currency strategist with Harbor Asset Management. Hamish Lucky.
Last question, just quickly, being a fixed income guy, do
you find that these are the times when fixed income
there's a few more people inquiring about just certainty of
(39:36):
getting their money someway where they can just get the
steady stream of income. Is it busy times for you?
Speaker 3 (39:42):
Yeah? I think. I think the driver of the busy
times has been the falling of interest rates. So people
are noticing that term deposit rates have come off and
they're around that four percent level, and you know, if
you think about what the market is implying, you know
that they'll fall further, perhaps another twenty five basis points.
I think that's the main driver of inquiry, as people
who are looking to ensure they can need to have
(40:05):
a particular level of income, and so what are the
other options available to them? Well?
Speaker 2 (40:11):
Hey, time flies me having fun. Thanks so much for
your time in this afternoon. Amish for the chat. When's
the next tramp.
Speaker 3 (40:18):
Or on the valley? A few months time out? There?
Can't wait?
Speaker 2 (40:24):
Good work. He's planning her head. That's where she go
to these guys heart brasset dot cirta and zy thinking
her head even when it comes to the tramp. Hey,
thanks so much for your time. Homi's good work.
Speaker 3 (40:33):
Cheers, cheers made and.
Speaker 2 (40:35):
We'll be back same time again next week. If you
want to check out any of the hours you've missed,
go and check out our podcast for the Weekend Collective
on News Talks are Beat Dot Curtain in zid or iHeartRadio.
We get our hours up pretty quickly. It was a
fascinating show across the board today all three hours, so
go and check them all out. I recommend it highly. Anyway,
we'll be we'll be back next week. We've got Elsa
Wilf joining us for the one with Faddyr show. She's
(40:57):
all about renovating and making the most out of your
property and so we'll be having a chat with Elsa
about that and Sandy Passley, the former principle of barret
Ing Joint Us for the parent Squad. We'll look forward
to your company again Sunday at six next thanks to
my producer Isaiah. Great job, mate, and we'll enjoy the
rest of your evening three to six.
Speaker 1 (41:17):
For more from the Weekend Collective, listen live to News
Talks ed b weekends from three pm or follow the
podcast on iHeartRadio.
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