Weekly Market Recap
Real rates remain retrenched
15/11/2021
Week in review
- U.S. CPI inflation hits 30 year high of 6.2% y/y
- Australian unemployment rate jumps to 5.2%
- Australian business confidence rises to 20.8
Week ahead
- China fixed asset investment and retail sales
- Australia wage price index
- U.S. retail sales
Thought of the week
The transitory nature of inflation continues to be tested and prices are rising in the U.S. by the fastest pace in more than 30 years. Prices in the U.S. rose by a much higher than expected 6.2% compared to a year ago and 4.6% when food and energy are excluded. The price pressures are broadening across a wider range of groups. Some of this is a result of the supply chain bottlenecks, the ability of auto manufacturers to source semiconductors is a clear example. Other prices rises are in response to higher levels of demand and companies being able to pass on higher input costs to consumers that are willing to pay. The result is that inflation is moving faster than the rise in nominal bond yields and real bond yields are being pushed further into negative territory. The role that bonds play in a portfolio is changing as real yields are likely to be very low, if not negative, for some time. The ballast to offset equity risk in portfolios will increasingly have to come from other assets.
Real rates remain retrenched
U.S. 2 and 10 year yields adjusted for inflation
Source: FactSet, J.P. Morgan Asset Management. Data reflect most recently available as of 12/11/21.
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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