Weekly Market Recap
Fiscal splurge on the way
Week in review
- Australian building approvals up 2.6% m/m
- China Caixin services PMI slips to 56.3
- U.S. ISM manufacturing index rose to 60.7
- Australia retail sales
- Australia housing finance
- U.S. CPI inflation
Thought of the week
The Democratic party in the U.S. will soon control the House, Senate and White House, paving the way for greater legislative and regulatory change. Crucially for markets, this increases the probability of a larger fiscal stimulus package once the new administration takes over. Bond markets were quick to reflect this in rising bond yields. As this week’s chart shows the change in U.S. 10-year bond yields is being driven by rising inflation expectations. Based on the size of any stimulus package this, along with the general improvement in the U.S. economy, should continue to push bond yields higher over 2021. Higher inflation is one of the risks to monitor for asset allocators this year. Rising bond yields could bring the relative attractiveness of equities into focus and elicit a ‘less loose’ response from the U.S. Federal Reserve, reviving fears of a 2013 style ‘taper tantrum’ in markets. Our base case is that inflation will move modestly higher this year, but that the Fed will be very patient in shifting policy even with more fiscal stimulus in the works.
Inflation expectation and bond yields
Change in U.S. 10-year treasury yield since Jan 2020, bps
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.