Weekly Market Recap

Carpe Diem

08/02/2021

Week in review

RBA hold rates at 0.1% extends QE by $100bn
Australia housing finance up 8.6% m/m
Eurozone real 4Q20 real GDP -5.1% y/y

Week ahead

Australia business confidence
Australia consumer confidence
U.S. CPI inflation

Thought of the week

The RBA’s new motto may be carpe diem, or seize the day, as they surprised many with an earlier than anticipated $100bn extension to the quantitative easing (QE) program. Forward guidance was also strengthened, and interest rates will not rise until 2024 at the earliest according to the RBA. The extremely dovish view on rates and need for ongoing monetary policy support contrasted the good news on the economic outlook, at least for growth. The RBA expects that the economy will return to its pre-COVID level by the middle of this year. Despite the looming bond purchases the yield on Australian 10-year government bonds has jumped to its highest level in almost a year on the better growth outlook. The RBA may have seized the day but will be acutely aware of the consequences of running rates for too low for too long in an economy with already very high household leverage. In the meantime, the continued economic recovery and rising bond yields bodes well for the outperformance of banks and the financial sector.

Rising yields good for bank performance

Source: FactSet, Standard & Poor’s, Tullet Prebon, J.P. Morgan Asset Management. Data reflect most recently available as of 05/02/21.
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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