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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