Weekly Market Recap

CAPEX and consumer spending

18/10/2021

Week in review

Australia business confidence rises to 13 from -5.5
Australian unemployment rate rises to 4.6%
U.S. CPI inflation firm at 5.4% y/y

Week ahead

China 3Q21 real GDP
RBA monetary policy meeting minutes
U.S. and Eurozone PMI surveys for September

Thought of the week

The spending power of consumers and the expected release of pent up demand is a well-documented reason to see the recent moderation of economic growth as a slowdown rather than the start of a down-cycle in economic activity. However, the consumer is only half the story and the supportive dynamics for companies to spend will add another pillar to the still robust global growth outlook. Capital goods shipments across G3 economies have greatly outpaced what was experienced coming out of the last two recessions (see chart). Extremely low financing costs, as well as record profits, means companies are flush with cash to spend. Some of this spending may also be in response to not being able to source enough labour. Either way, business surveys on capital expenditure intentions are near the peaks seen during the prior expansion, suggesting that corporate investment will continue in the year ahead.

G3 capital goods shipments

Rebased to 100 at start of recession

Source: FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Data reflect most recently available as of 15/10/21.
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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