Weekly Market Recap
Who do you believe?
01/11/2021
Week in review
- Australia trimmed mean inflation increases to 2.1% y/y
- U.S. 3Q Real GDP slows to 2% q/q annualised
- Australia preliminary retail sales 1.3% m/m in September
Week ahead
- RBA policy meeting
- U.S. Fed policy meeting
- U.S. nonfarm payrolls and labour market report
Thought of the week
Rising inflation and hawkish comments from central banks around the world have led to an aggressive repricing of the rates outlook nearly everywhere. There is concern that central bankers are going to make a policy error by either moving too fast or too slow when it comes to policy normalisation. The Bank of England and the Bank of Canada are heading towards earlier rate hikes as inflation pressure builds, potentially harming the economic outlook. Meanwhile, the Fed could fall too far behind the curve if it keeps policy loose and rising inflation expectations become embedded. Either way, the flattening of the yield curve indicates that markets expect rate hikes much sooner, in turn curbing the longer run growth outlook. Markets may have gone too far in bringing forward rate expectations and central bankers are likely to push back on market expectation, but this requires delicate messaging which may not be enough to satiate markets given more persistent inflation.
Yield curve spread starting to narrow
Difference between 10 and 2 year bond yields
Source: FactSet, J.P. Morgan Asset Management. Data reflect most recently available as of 27/10/21.
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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