Weekly Market Recap

Week in review

RBA holds rates at 0.75%, downgrades growth outlook
Australia retail sales -0.5% m/m
China PMI manufacturing dips to 51.1

Week ahead

NAB business confidence
Westpac consumer confidence
Housing finance

Thought of the week

The economic data out for Australia in the last few weeks has been mixed, but the message from the RBA is much clearer. They are ready to cut if needed, but do not see that need being very high given the economy is tracking close to their forecasts. The RBA has cut their growth forecasts for the coming year, reflecting the impact of the coronavirus and bushfires on the expected activity in the first half of the year. The average growth rate over 2020 is 25bps lower to 2.25%. This creates a new benchmark for the RBA to assess the outlook and means that misses on growth won’t necessarily lead to rate cuts. However, the forecasts are based on current market pricing for interest rates, which is still for a rate cut this year.

Market still pricing a rate cut, but later in the year
Market implied cash rates in Australia

Source: FactSet, J.P. Morgan Asset Management, all returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.

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