Weekly Market Recap
Show me the money
17/05/2021
Week in review
- Australia business confidence surges to all time high
- U.S. CPI inflation increases to 4.2% y/y
- U.S. job openings jump to over 8 million
Week ahead
- RBA May policy meeting minutes
- Australia consumer confidence
- Australia labour market report
Thought of the week
Last week equity markets were rumbled as inflation fears resurfaced. The large shortfall in the U.S. April jobs report would have normally placated markets that the status quo was not about to change. But the jobs number was part of the cause, as workers may be incentivised not to look for work as long as unemployment benefits are artificially high. This reduction in supply at a time when labour demand is rising could generate inflation through higher wages. There is some evidence of this already as the number of open jobs is well above its pre-pandemic level while there are still 8 million fewer people employed in the U.S. than before the pandemic began. The lowest wage at which a worker will accept a new job in the U.S. has been rising for over a year and spiked sharply for the lowest income bracket (see chart). The consequence is that if this economic constraint continues, inflation may not be as transitory as the U.S. Federal Reserve anticipates.
U.S. workers’ reservation wage has risen sharply
Lowest wage acceptable for a new job (000s)
Source: Federal Reserve of New York, J.P. Morgan Asset Management. Data reflect most recently available as of 14/05/21.
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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