Weekly Market Recap
Everyone loves vanilla QE
Week in review
- Australian consumer confidence rises to 105.0 for October
- Australian unemployment rate increases to 6.9% for September
- U.S. CPI inflation 1.4% y/y for September
- China 3Q20 real GDP
- RBA policy meeting minutes
- Eurozone PMI manufacturing index
Thought of the week
The RBA has set the scene for a rate cut in November. It’s debatable whether a 15 basis point rate cut from 0.25% to 0.10% will have a meaningful impact on the economy, it will be symbolic more than anything. What could be more meaningful is if the RBA expands its bond purchase program. Under yield curve control the RBA targets a yield of 0.25% on the 3-year government bond yield, purchasing bonds to ensure the yield remains at or below this level. Historically, RBA has been such that forays into the bond market have been limited in achieving this. The RBA has also purchased bonds further along the yield curve to remove any perceived dislocations. However, an extended scheme may look more like vanilla QE where the RBA targets a value of bonds it will purchase over time and at a longer maturity. Specifically, Governor Lowe referenced 10-year bonds yields being higher in Australia then elsewhere giving a strong hint at where the purchases may be targeted. This may not come in November, but it is coming.
Australian – U.S. government bond spread
Difference between Australian and U.S. 10 year bond yields
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.