Weekly Market Recap

Ship it. Ship it good

22/03/2021

Week in review

Australian unemployment rate plunges to 5.8%
U.S. retail sales slump 3.0% m/m for February
U.S. Federal Reserve upgrades forecasts, policy unchanged

Week ahead

Eurozone Markit PMI composite
U.S. Markit PMI manufacturing
Eurozone consumer confidence

Thought of the week

The U.S. Federal Reserve pushed back against the risk of higher prolonged inflation at its policy meeting last week. The Fed views any higher rates of inflation in the coming months as being transitory rather than persistent. The updated set of economic forecasts illustrated a spike in inflation in 2021 but a rate of just over 2% by 2023. Moreover, the Fed is focused on actual inflation not expected inflation and seems dismissive of the market’s repricing of interest rate hikes. However, it’s expected inflation that will matter for markets. The surge in shipping costs is factor that some have pointed to as why inflation may be higher. This week’s chart looks at the relationship between global inflation and shipping inflation. There is some correlation between shipping costs and broader levels of inflation, it’s not a constant one. Inflation pressures may rise in the coming months and this will flow through to higher bond yields, but the Fed, and other central banks, are not going to budge.

Shipping price inflation vs. global inflation

Year-on-year change

Source: Harper Peterson, J.P Morgan Economic Research. J.P. Morgan Asset Management. Data reflect most recently available as of 19/03/21.
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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