Weekly Market Recap

Feeling deflated

03/05/2021

Week in review

Australian CPI inflation 1Q21 0.6% q/q
U.S. 1Q21 GDP 6.4% q/q annualised
China PMI manufacturing falls to 51.1 in April

Week ahead

RBA interest rate decision
Australia housing finance
U.S. nonfarm payrolls

Thought of the week

Australian investors may be feeling deflated after last week’s inflation report. Inflation in the first quarter of the year rose by 1.1% y/y, below consensus expectations and some way from the RBA’s 2-3% target band. However, the full impact of the base effects from a year ago were not fully captured in this report. Government policies around housebuilding and education created a drag on prices, and the stronger currency reduced import inflation. While some of these forces will linger into the second quarter, the base effects of comparing prices to a year ago will be much stronger and inflation can be expected to move sharply higher. The strength will be short-lived and the annual rate of inflation is likely to start to fall again over the rest of the year and remain below the RBA’s target. For a central bank focused on outcomes rather than outlook this is hardly challenging the RBA’s policy stance or a change in messaging at this week’s policy meeting.

Feeling deflated

Australian CPI and core CPI inflation, year-over-year change

Source: ABS, FactSet, J.P. Morgan Asset Management. Data reflect most recently available as of 30/04/21.
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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