Weekly Market Recap

Stagflation vs Greenflation

11/10/2021

Week in review

RBA keeps rates on hold and taper of bond purchase in place.
Australia trade surplus increases to all time record of $A15.1bn
RBNZ raises official cash rate by 0.25% to 0.5%

Week ahead

Australia business and consumer confidence
Australia labour market report
U.S. CPI inflation

Thought of the week

According to Google Trends, searches for the term “Stagflation” are the highest since the middle of 2008. “Greenflation” will soon too perhaps given the shifting policy mix that is creating demand for non-fossil fuels. Stagflation is something to be monitored given inflation surprise is near record highs and economic surprise back to a very low level (see chart). However, its difficult to see stagflation taking hold when there are reasons for both growth to increase and inflation to fall in the coming quarters. The upside to the growth outlook comes from higher levels of capital spending by businesses, spending power of consumers and higher rates of productivity. Meanwhile, disruptions to supply chains and imbalances in energy markets should slowly start to rectify themselves, particularly as COVID-19 impact on the global economy fades. While rates of inflation will start to fall back, its likely that they will remain higher than the very low rates of inflation experiences during the 2010s.

Inflation surprising to the up, growth to the down

Index

Source: Citigroup, FactSet, J.P. Morgan Asset Management. Data reflect most recently available as of 08/10/21.
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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