Weekly Market Recap
Defaults to rise
Week in review
- Australia capital expenditure falls 5.9% q/q
- U.S. Durable goods orders surge 11.2% m/m
- German business sentiment moderates
- Australia 2Q real GDP
- U.S. labour market report
- RBA official cash rate announcement
Thought of the week
Economic indicators continue to improve for the U.S. economy which is helping support the equity market. However, we do expect economic momentum to soften into year-end as the rebound from the depth of the economic crisis passes. In the interim, risks assets such as equities and high yield debt continue to perform well. For high yield markets there will be some delay between the current state of the economy and the peak in the default rate. As this week’s chart shows, there is approximately a four quarter lag between tighter loan standards and a the peak in the default rate, suggesting a rise in defaults in the coming quarters. Given the heavy stimulus measures taken by the U.S. government and the Federal Reserve, this default cycle may not be as severe as others or reflect the size of the drop in U.S. economic activity. Defaults are not all bad as the process theoretically frees up resources for use elsewhere in the economy.
More defaults to come
JPMorgan Global Research Enhanced Index Equity Fund
To achieve a long-term return in excess of the benchmark by investing primarily in a portfolio of companies, globally; the risk characteristics of the portfolio of securities held by the Sub-Fund will resemble the risk characteristics of the portfolio of securities held in the benchmark.