Weekly Market Recap

Rent’s due

16/08/2021

Week in review

Australian business confidence plunges
U.S. CPI inflation steady at 5.4% y/y
U.S. Senate passes U.S.$1.2tn infrastructure bill

Week ahead

Australia labour market report
RBA monetary policy meeting minutes
China retail sales and fixed asset investment

Thought of the week

What will it take for bond yields to rise? The stronger outturn in U.S. employment for July added a few basis points to 10 year U.S. Treasuries as it signaled the on-going tightening the labour market. However, there was little reaction in the bond market to another month of plus 5% inflation. The details of the inflation report suggested that some of the recent price pressures in used cars and travel-related services will indeed prove to be transitory. Still ongoing supply chain disruptions will prevent a more meaningful moderation in prices, keeping inflation elevated into year end and above what policy makers were likely expecting. For now, bond markets may place less emphasis on the inflation prints until the reopening driven distortions start to fade and the underlying cyclical trend in inflation becomes clear. Housing costs and rents will become more important given their higher weight in the inflation basket and there is scope for plenty of upside risk (see chart).

Rising house prices suggest higher future rents

Change year-on-year

Source: BLS, Standard & Poor’s, J.P. Morgan Asset Management. Data reflect most recently available as of 13/08/21.
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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