Weekly Market Recap

Fiscal splurge on the way

18/01/2021

Week in review

Australian retail sales rose 7.1% m/m
Australian housing finance rose 5.6% m/m
U.S. CPI inflation rose 1.4% y/y

Week ahead

Australia consumer inflation expectation
Australia unemployment rate
U.S. Markit manufacturing & services PMI

Thought of the week

The minutes from the latest Federal Open Market Committee meeting show that Federal Reserve (Fed) officials voted to continue its USD 120billion per month asset purchase program. However, some officials are now contemplating the need to start reducing monetary stimulus. This naturally has brought on fear of another taper tantrum and pushed the spread between two- and 10-year Treasuries to its highest point in almost three years. In 2013, yields surged following the Fed’s unexpected announcement that it was considering dialling back its asset purchases, which provoked severe market volatility. While some officials have entertained the idea of cutting bond purchases, most have called the debate premature and do not expect any changes before 2022. Rising Treasury yields signal investor confidence in a near-term economic rebound, which will support the case for equities in the medium term. Investors should remain cautious amidst the uncertainty surrounding vaccine deployment and further fiscal aid.

Yield spread between 2- and 10-year Treasuries
Basis points

Source: FactSet, J.P. Morgan Asset Management. Data available as at 13/01/21
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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