It’s been a week of uncertainty as geopolitics have played out across the globe. With Iran’s anticipated retaliation against the US bombings behind us, what’s ahead for markets and oil prices? Milford Portfolio Manager Mark Riggall talks to Ryan Bridge about the effects of recent events, interest rates, and inflation – and how all three will influence the second half of 2025.
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Bridge talks Business: 24 June 2025
Episode Transcript
Ryan Bridge
Kia ora and welcome to Episode 38 of Bridge talks Business with Milford. When the world feels unstable, when journalists like me are lighting up your news notifications with the headlines about the Middle East, trade wars, the price of oil, inflation – there’s one man you want to talk to to steady the ship. So, I gave Mark Riggall a call from Milford, and he has agreed to talk to us and sit down today. First, here’s your top five business bits.
- A drop in US auto sales after that surge that we saw ahead of tariffs being introduced. The data came from the latest retail sales report, which also showed a general slowing in the pace of spending by the US consumer.
- The US Federal Reserve held rates steady while projecting weaker growth and higher inflation, uncertainty about those tariffs and their impact on inflation keeping central bankers sat on their hands.
- The Bank of England cut rates by a quarter of a percent, joining the ECB and other non-US central banks in cutting rates recently with inflation slowing in those countries.
- Geopolitical concerns leapt to the forefront of investor minds last week as the US bombed Iranian nuclear sites with movements in the price of oil.
- This week we look to the monthly business surveys monitoring US weekly jobless claims for signs of continued deterioration in the job market there, as well as keeping an eye, of course, on the Middle East.
So, those are your headlines for this week. Let’s take a deeper dive now with Mark Riggall, Portfolio Manager at Milford. Mark’s the guy you want to talk to when things are a bit rocky around the world. Just a note that this segment is informational only and should not be considered financial advice. Mark, welcome back to the podcast.
Mark Riggall
Good to be here.
Ryan Bridge
Good to see you. Just a little bit has happened since we last spoke.
Mark Riggall
Just a bit.
Ryan Bridge
So, things have pulled back a little bit in the Middle East in the last 24 hours, which is a good thing. What’s been happening with, well, let’s start with the world. What’s been happening, you know, markets reacting to what’s happening there?
Mark Riggall
Yeah, well, obviously, it’s been building for a couple of weeks, but it’s been quite short lived, really. So, the idea is really around firing rockets at each other. And then obviously the US made a strike on the weekend. And the oil price has been the key point, which is important for the rest of the world. I mean, two countries can unfortunately engage with each other. But for the global economy, it’s the oil price that really matters. So, when an oil price starts going up, that’s a tax on consumers because it costs more to ship things around and increases prices. So, if the oil price is going up, that’s generally not a great thing for the global economy. And so seeing it surge from its lows a couple of months ago, up 15, 20 percent is somewhat concerning. But then we’ve seen a crescendo in the last 48 hours where oil really rallied, and then it’s fallen back and is now back pretty much where it was before the Israel-Iran escalation happened.
Ryan Bridge
Which is kind of weird, right? We saw this attack, the US hit the nuclear sites in Iran, and then everybody was worried about what will Iran do in response. And within minutes of that response, the price of oil was coming down because clearly they saw this as one of the weaker responses you could get from Iran.
Mark Riggall
Yeah, markets or investors will look for escalation or de-escalation. So, going into this, it was clear that things were escalating. The US were going to make a strike at some point and investors were becoming nervous about the implications of that. Because it’s more uncertainty. Uncertainty is something that generally markets don’t like. Now, once you’ve had the strike and then, OK, nervous about what the retaliation might be, and like you say, it appears that the retaliation was somewhat performative and investors are hoping that we can draw a line under the whole episode. And there’s recently been a ceasefire announced as well. So, hopefully you can draw a line under it and move on and start to look at the next thing. I think we’ve got to have an open mind and be attuned to the risks. But, you know, optimistic that things are past the worst.
Ryan Bridge
This is just me looking at this from an outsider, but is there a point at which markets just become resilient? You know, we’ve had tariffs. We’ve had so much stuff thrown at the markets this year. Is there a point at which investors just become so immune to it that movements aren’t as great as they otherwise would be?
Mark Riggall
Yeah, I think we’ve got a number of episodes this year, including tariffs and now the geopolitical situation, where the escalation to what could be a really bad situation and then rapid de-escalation is almost happening so quick that investors don’t have time to respond. And the faster money investors, the people that do trade more high frequency, are actually going, hang on, I’m not going to react immediately to this because who knows what might change for the better in the next 24 hours. And that’s what we saw with tariffs, right? You tariff rates went on and were at a very, very high level, and then they were rapidly ratcheted down. We’ve had a pause on tariffs. So, news got better very quickly. And so this time around, look, the potential outcomes could be or could have been really bad if it spilled over into the Middle East, Strait of Hormuz was closed, things like that. But I think investors were willing to kind of hold fire, if you like, and not press the sell button too quickly, waiting to see if things would settle down, and lo and behold, they did.
Ryan Bridge
For markets, what how does this play out? I mean, most investors would be investing for the longer term, presumably anyway. So, this will be short-term noise?
Mark Riggall
Yeah, I think really it is short-term noise. What investors want is a stable environment where you can go about analysing the fundamentals, be they fundamentals of a country, a particular sector or a particular company. So, that’s the environment you want. You don’t want to be side-swiped by all these geopolitical dramas and tariff episodes. So, if we can get to a situation where these things can calm down, then that will be a better environment to invest in, if you like.
Ryan Bridge
Is this something that you almost factor in? Because part of the equation here is Donald Trump being in the White House, right? And it’s the most powerful country in the world. It’s the biggest economy in the world. And he’s pulling a lot of the levers and a lot of this back and forth is a result of that. Is that something that you almost have to factor in when you’re investing nowadays?
Mark Riggall
Yeah, I think so. I think the Trump administration is not necessarily the primary cause, but is maybe a symptom of a global economy and a world that’s in flux. We’re changing how things are happening, what policies are being enacted by either governments and central banks as well. The mix is very different to what it was before 2020, before Covid. And that’s not just in the US, but it’s in Europe and it’s in other parts of the world as well. So, it is a changing world that we’re in, which is interesting. And it gives rise to opportunities to us as investors to try and invest in a different way. I think what Donald Trump is doing is actually part of that kind of changing world.
Ryan Bridge
So, how does an investment strategy change or what opportunities can be created in a situation like this?
Mark Riggall
So, I think the big thing that we’re seeing, you know, change between now and where we were before Covid, is the inflation situation. That’s still a thing. And the reason it’s still a thing is because governments have been spending lots of money and they’re pumping money through economies. And that’s supporting the pace of inflation at a higher level than what it was. So, that’s not talking about inflation running at four, five or six percent. We’re not talking about the 1970s, but we’re talking about inflation levels that are higher than where they were prior to Covid and post the GFC. And so that means that interest rates are higher now than where they were post-GFC, when most governments were in austerity. They’re reducing spending by trying to reduce the debt load. And so interest rates are higher. Governments keep wanting to spend money. That includes in Europe. And so we’re seeing implications of that. Things like the gold price. One of the things we’ve seen this year is the really impressive performance from things like gold, which is seen as a store of value in a world when inflation is running quite high.
Ryan Bridge
So, let’s take a look if we can head to the second half of the year. Hopefully it’s not going to be as eventful as the first half of the year, although who knows.
Mark Riggall
Yeah.
Ryan Bridge
But what are we expecting for markets, not just the US but around the world for the second half?
Mark Riggall
Yeah. So, when we look at policy, be it monetary policy from central banks or government policy, that operates with a lag. So, the policy will be enacted and then it will impact the economy over a period of time. And so what we’re going to see in the second half of the year in the US is the impact of the tariff uncertainty and policies that have been put in place from March, April. And so that’s going to probably lead to a little bit of weakness in the US economy over the next six months. Not a lot. But just an economy that’s growing probably below trend. So, the last two years has grown at two and a half percent, say maybe in the next six months, it might grow more towards one, one and a half percent. And there’s risks obviously around that. It could be slightly faster. It could be slightly slower. But that’s a slower pace of growth because of that policy that’s already been enacted. But then we’re looking forward beyond that and seeing that government policy is going to be more stimulative and so likely stimulating the economy in 2026, which, of course, investors will look forward to and maybe smooth out some of that potential weakness that we’re seeing in the economy in the next six months. That’s going to be an interesting period, because we’re going to see this weaker economic data coming through and we’re going to be watching for signs the labour market in the US is deteriorating, but then maybe be optimistic because, hey, we see a bit more stimulus coming through in the next six months. And that means that maybe the Fed can cut rates because employment markets are deteriorating and that will support the economy. And we can be not so fearful of this weaker economic data. But I think those are the kind of things we’re looking for in the US in the next six months, at least.
Ryan Bridge
And in terms of the New Zealand economy, you talk about things that have happened, or are happening, which might have a lag. Obviously, we’ve been cutting our Official Cash Rate and we had growth in the first quarter. We had growth in quarter four last year. But there is talk that maybe we’re a bit stuck in quarter two where we are right now. Do we do you expect that as those OCR cuts continue to come through, and flow through, that we will see things improve?
Mark Riggall
Yeah, so the New Zealand economy is very similar to some other economies around the world, like the UK, for example, where inflation has been a bit sticky. And that’s largely because of the construct of our inflation basket. A lot of the price measures are actually very slow moving. And so rather than inflation running up really, really high and then coming back down really quickly, that’s smoothed out. So, it means that the peak in inflation wasn’t quite as high as it was somewhere like the US. But it means that the tail, ie the extra inflation we’re seeing over a period of time, is a little bit stickier than we would like to see, or at least the central bank would like to see. And what we need as an economy is interest rates lower, because mortgages are the lifeblood of the household balance sheet. And so if we see lower mortgage rates, that will enable households to be able to spend a little bit more freely. That’s true in New Zealand. It’s true in the UK and some other economies around the world. And thankfully, we are seeing inflation coming down, but not quite as quickly as we would like, and to enable central banks to cut rates. I guess the good news is that there’s lots of room to cut rates because many central banks are still above their own neutral level. So, we can see interest rate cuts come through, not just the neutral, but if things get worse, they can go below neutral to try and stimulate the economy. So, there’s lots of firepower there to try and support the economy. We just need this inflation to play ball and start reducing to allow those interest rate cuts to come through.
Ryan Bridge
Mark, thank you very much for coming in. Good to have you on as always.
Mark Riggall
Yeah, great to be here. Thanks.
Ryan Bridge
That was Mark Riggall, Portfolio Manager at Milford. And as always, great to get some context around the headlines that you’re seeing in the news every day, to get an idea of what’s really happening out there in the markets and around the world. Don’t forget you can like, follow, subscribe this podcast wherever you like to listen and share it with your friends and family if they’re into investing or wanting to get into investing. Until next week, take care.
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