Weekly Market Recap

Electric Avenue

04/10/2021

Week in review

Australia retails sales -1.7% m/m in August
Australia housing finance -4.3% m/m in August
China PMI for manufacturing declines to 49.6

Week ahead

RBA interest rate decision
Eurozone retail sales
U.S. nonfarm payrolls

Thought of the week

Bonds were in focus last week as a jump in yields created anxiety for investors. The hawkish shift by central banks in recent weeks in addition to surging energy prices lifted bond yields, as investors started to factor in more permanent and higher inflation. Higher inflation could lead to markets starting to price in rate hikes even sooner. Conversely, it could mean a drag on growth as household discretionary spending is squeezed, adding to already lingering growth concerns. However, history shows that supply shocks in energy markets can be extreme but are not usually permanent, and household balance sheets are in fairly robust shape. Furthermore, energy only accounts for between 7-8% of the inflation basket in many developed economies, which is relatively small compared to core goods or shelter costs. Markets may be adjusting to a firmer inflation outlook and higher yields, but those rises are still likely to be modest given the economic backdrop.

Surging energy prices stoking inflation fears

Indexed to 100, 31 December 2019

Source: CRB, FactSet, NYMEX, J.P. Morgan Asset Management. Data reflect most recently available as of 30/09/21.
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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