Devon Funds Morning Note - 2 September 2025

Tuesday 2nd September 2025

Kiwi Markets Climb as Global Nerves Linger

Global

Markets kicked off September wrapped in caution as the first session of the month coincided with the Labor Day closure in the US, keeping volumes light but nerves on edge worldwide. With Wall Street offline, investors digested a complicated mix of prior US closes and newer European data. The S&P 500 ended the previous Friday at 6,460.3, while the Nasdaq held at 21,455.6. The NZ dollar found a pulse, ticking up to USD $0.59, as traders reassessed the rate differentials that hammered the currency in August and weighed the possibility of further cuts from the Fed later in September. Emerging market currencies also drew support from steady commodity prices and fresh hopes of stimulus in China, despite reminders in Asia that any rebound will be bumpy and uneven.

Across Europe, local bourses drifted sideways, with London’s FTSE edging down and the DAX mostly flat. German retail sales undershot expectations, reaffirming the region’s growth jitters. Market participants remained positioned for incoming PMI prints and ECB rhetoric in the days ahead, while oil prices settled above US$66/barrel as OPEC production cuts continued to support energy names—a theme helping offset softness in tech and cyclicals.

Asia experienced subdued, range-bound trading. Hong Kong’s Hang Seng was little changed, while Shanghai’s CSI 300 eked out modest gains on tech, autos, and insurers but remains stuck in a holding pattern until there’s clearer policy action from Beijing. Activity in Japan scanned flat; investors rotated into exporters and blue-chip defensive names, while domestic-oriented stocks lagged. Sentiment in Asia continues to hinge on signals from US central bankers and the durability of July’s rebound in global trade data, with the market’s mood noticeably more jittery than just a few weeks ago.

Big global stories that set the table: China’s factory activity showed slight expansion for the first time in six months, with an official PMI of 50.3, while US PCE inflation pointed to slowing but still sticky prices. Gold held above US$3,470/oz as traders parked cash in defensive havens, and cryptocurrency markets saw a sharp jump, led by Ether’s 17% rally on speculation of SEC approval for a new ETF. Manufacturing data and business surveys globally suggest a gradual but uneven improvement, but the “risk on” switch is clearly not being flipped with much enthusiasm.

New Zealand

The NZX 50 built on Friday’s momentum with another strong session, advancing 1.1% in a broad-based rally led by utilities and defensives. Heavyweights like Meridian, Contact, and Mercury NZ drove gains, and the market stayed resilient despite ongoing weak signals from travel, consumer retail, and construction. Dividend announcements—most notably Air New Zealand’s final dividend and buyback—kept sentiment buoyant. Capital raisings from the likes of Me Today and Metro Performance Glass highlighted continued support for well-run, growth-focused businesses by institutional funders, but also underlined the challenges still facing smaller companies on the path to profitability.

Macro signals brightened slightly on an uptick in ANZ Business Confidence (net +50%), though “own activity” indicators show Kiwi corporates are still operating with some caution. All eyes are now on the RBNZ and inflation data later in the month, with markets optimistic but not euphoric as spring gets underway.

The new month opens with cautious optimism. Global risk remains tightly bound to macro and central bank signals, while Australia and New Zealand’s markets offer moments of local resilience. Investors on both sides of the Tasman are cautiously plucking higher-yielding names and defensives, happy to let the rest of the world do the worrying for now.

Australia

The ASX 200 closed down 0.5% at 8,927 as miners and banks floundered. Fortescue fell 4.0% after weak iron ore shipments, BHP and Rio Tinto both slipped, and the entire resource sector saw sentiment hit by concerns about flagging Chinese steel demand and softer commodity imports. Even as the recent local reporting season saw a slew of ASX 200 companies deliver upside surprises, Monday’s trading made it clear that momentum is fragile.

Banks didn’t fare any better. Commonwealth Bank and Westpac both shed almost 1% in market value. In the property sector, Stockland and Mirvac nudged lower amid a more cautious outlook on residential property starts and approvals, with the latest housing numbers revealing a 6% drop in building consents and approvals well below historical averages.

Still, not all was lost. Consumer discretionary stalwarts like Harvey Norman provided a counterweight, bolstered by August’s 2.1% jump in retail sales and a strong run through earnings season. In tech, NextDC extended gains on positive guidance about data center expansion. The overall market remains up 2.6% for August and a robust 10.9% on a year-on-year basis—even as the mood sours just ahead of the RBA’s next policy decision.

The macro-outlook in Australia is complicated. Manufacturing PMI surprised to the upside (at 53), but soft residential approvals and mixed economic signals have left traders wary of calling the bottom in property or the start of a new upturn for mining. The RBA’s September decision looms large—with many still expecting a pause, but the board telegraphing an increased willingness to tighten again if wage and price pressures persist. Portfolio flows are tilting toward quality defensive names and companies with robust dividend policies. Institutional investors are keeping half an eye on the Aussie dollar as a further depreciation from current levels may trigger more foreign inflows, especially if US yields start to retreat later in September.

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