Weekly Market Recap

Under pressure

23/08/2021

Week in review

Australian unemployment rate falls to 4.6%
RBA look set to continue with QE taper in September
Australian wage cost index rose 0.4% q/q in 2Q.

Week ahead

Eurozone composite PMI
Australia capital expenditure
U.S. PCE deflator

Thought of the week

The Aussie dollar has weakened sharply against the U.S. in the last few weeks. Fears of a slowdown in economic activity in the U.S. and China, along with large falls in iron ore prices and weaker near term domestic activity as COVID cases spike, are all weighing on the currency. Iron ore prices are down more than 20% since the start of July, but remain high given the strength of this years rally. However, coal prices are pushing the other way, creating somewhat of an offset. The pick-up in COVID cases and the restrictions in place across large swathes of the country are being reflected in bond markets as the spread between U.S. and Australian 10-year government bonds widens (see chart). While not a perfect relationship to the currency, the market seems to be reflecting further weakness in the local economy and the prospect of a delay in the RBA’s tapering plans. The RBA’s preference for fiscal policy support in the near term may see yields retrace some of the fall.

Widening yield spreads weighing on the Aussie dollar

Source: FactSet, WM/Reuters, J.P. Morgan Asset Management. Data reflect most recently available as of 20/08/21.
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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