July is not a month for complacency
To me the fate of the NZD still rests with the US share market. If the S&P500 drops in the next few weeks, so too will the NZD. If the S&P500 rallies, here comes 70c.
The seasonal forces favour the downside. In the last 20 years the S&P500 has shown an upward bias: there was a 60% more chance that prices would rally in a month rather than fall. Not for July. The market has fallen 7 of the last 10 Julys. The 20-year average S&P500 return for the September quarter was -1.3%; the average for the other quarters were positive. We are entering a time that was always going to create anxiety, even before consideration is given to current economic conditions and financial market expectations.
Now, 7 out of 10 falls does not mean the 11th month will be negative also. But with the way expectations have become hyped and with the trouble the global economy is in, prudence would suggest having some cover against falling share prices in the next few weeks; likewise cover against a lower NZD.
