Weekly Market Recap

COVID-zero

08/11/2021

Week in review

U.S. Fed tapering bond purchases by US$15bn in November
RBA ends yield curve control policy and 2024 rate hike guidance
Unexpectedly the Bank of England keeps rates on hold

Week ahead

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

Thought of the week

China is one of the few remaining countries pursuing a zero-COVID- 19 policy. Many other nations have started to re-open as vaccination rates rise and they opt to ‘live with the virus’. By pursuing a strategy of elimination and economic restrictions this will weigh on the outlook for economic growth in China and potentially the world. Moreover, this could lengthen supply chain disruptions is manufacturing capacity in China slows as steps are taken to control further outbreaks. This weeks chart illustrates the divergence in manufacturing conditions, based on the business surveys, between China and the U.S. However, historically these series have moved together with a slight lag as momentum in China slowed eventually this impacted the U.S. There are mitigating factors this time with the strength of consumption in the U.S. and a generally better economic outlook in the coming quarters. However, the risk around China’s growth and impact on stretched supply chains is worth watching.

Will China drag on the world?

U.S. ISM and China PMI manufacturing surveys

Source: ISM, Markit, J.P. Morgan Asset Management. Data reflect most recently available as of 05/11/21.
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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