Weekly Market Recap
Deflating the reflation trade
Week in review
- RBA cuts rates to 0.1%, schedules $100bn in QE
- Australia retail sales -1.1% m/m for September
- Australia housing finance 5.9% m/m for September
- Australia business confidence
- Australia consumer confidence
- U.S. CPI inflation
Thought of the week
Uncertainty surrounding the U.S. election is likely to linger. Even if one candidate gains the required 270 electoral college votes to win, many of the state level races were close enough that court action and recounts are possible. What is clear, is that the next person to sit in the Oval Office will preside over a divided government as the Republicans hold the Senate and the Democrats the House of Representatives. A divided Congress limits the scope for large policy changes, with most significant actions coming from the President’s pen in the form of executive orders. This means the expected large scale fiscal stimulus is fading fast. The reflation trade is fading with it. This week’s chart shows market expectations for U.S. inflation using 5y5y inflation swaps as well as consumer expectations in the coming years from the New York Fed. Markets have yet to reflect a complete reversal, but higher inflation leading to steepening yield curves was a driving force behind the move in to value stocks. Something that may now take longer.
Inflation expectations will be tested
Consumer inflation expectations and market pricing of inflation
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.