How are the financial markets affecting my term deposits?
We’re currently in a fascinating and uncertain period for international financial markets. In this blog, we take a brief look at the factors influencing markets, and how these might affect the returns you can expect on your bank deposits.
Equity markets were generally up in September. Gains in local currency of between 1% and 2% for the month were achieved. Australia and New Zealand recorded a photo finish in local terms. Both markets were marginally behind the S&P500’s return in local currency for the month. In New Zealand top performers included Kathmandu (+23.2%) and Fletcher Building (+16.0%). Both companies are in cyclical businesses and have operations in Australia and New Zealand.
There are currently several major international political events affecting the financial markets. In the United States, the move to impeach President Trump is formally underway. At the same time, Trump continues to spearhead the trade war with China – a conflict that has contributed to several large drops on the Dow Jones over the past year. In Britain, the ongoing Brexit saga still has no clear outcome, making investors jittery.
Globally, there is concern about the overall economic outlook. Central banks are continuing to keep interest rates low in an attempt to stimulate their respective economies as global growth slows and the effect of the trade war and the rising cost of doing business in the US and China start to have an impact.
This persistence of lower interest rates means that bank term deposits are currently offering investors record-low returns on their money. A deposit of $1 million, which may have previously earned around $60,000 per year, is now likely to earn less than $30,000. This is concerning if you’re relying on term deposits to grow your wealth for retirement or as an income in retirement.
In the coming months, we expect interest rates to remain low or continue to fall. The Official Cash Rate (OCR) currently sits at 1.00%, after cuts in May and August reduced it from 1.75% (where it had remained since November 2016). It is forecast to drop by another 0.40% over the next year, although it is running out of room to drop much further. While in our view we don’t expect rates to stray into negative territory, we certainly don’t anticipate an improvement in bank deposit rates in the near future.
If you’d like to know more about the financial markets and current economic trends, check out our regular publication, The Monthly View for our thoughts on financial markets. To read the full monthly view, please click here.
Speak to one of our experienced advisors about how you can achieve meaningful returns on your investments. Alternatively, call us on 09 308 1450 to find out more.