Weekly Market Recap

Surprise, surprise

14/06/2021

Week in review

Australia business confidence slips 3.7pts to 19.8
Australia consumer confidence dips 5.9pts to 107.2
U.S. CPI inflation jumps to 5.0% y/y

Week ahead

U.S. Federal Reserve policy meeting
RBA minutes of monetary policy meeting
Australia labour market report

Thought of the week

Somewhat against the consensus view bond markets have been rallying and yields falling. If anything the concerns around inflation, the impact of supply-chain bottle necks and rising labour costs, should put upward pressure on bond yields. It may be that the consistent messaging from central banks around inflation pressures being transitory are starting to sink in. Alternatively, it maybe that some of the disappointing economic data on the U.S. labour market has tempered views on the risk around a policy error if the labour market is tightening faster than thought. Certainly the ‘million jobs’ a month view in the U.S. has not transpired. This week’s chart shows the relationship between economic surprise and government bond yields in the U.S. The relationship is not perfect and yields can be moved by other forces, but it does suggest that some of the misses on economic data is having an effect. Given the strength of global economy is would be hard for yields to remain this low.

Lower yields on lack of surprise

U.S. Treasury yields and economic surprise

Source: Citigroup, FactSet J.P. Morgan Asset Management. Data reflect most recently available as of 11/06/21.
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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