Weekly Market Recap
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
- 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
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