Weekly Market Recap

Risk-free recalibration

07/02/2022

Week in review

RBA maintains patient view on inflation
Australia retail sales decline 4.4% m/m in December
Australia building approvals surge 8.2% m/m in December

Week ahead

U.S. CPI inflation for January
U.S. Consumer confidence
Australia business and consumer confidence surveys

Thought of the week

The valuation of the ASX 200 has falling 18% since its peak in December 2020 but has experienced a more precipitous drop in the last few weeks. While the equity market looks more attractively valued today than a over a year ago, things still look pricey on a historical basis (see chart). This de-rating of equities is weighing on overall market performance, as the impact of rising rates and a higher discount rate to future earnings is applied. However, a correction in the market based on the gradually tightening of rates is more likely to be a correction in the ongoing bull market rather than the start of a bear market. Eventually valuations will stop falling as markets adjust to the tightening rather loosening policy backdrop. Falling valuations which corresponds with a decline bond yields would present a much worse outlook. In this scenario, concerns on growth would fuel a flight to safety and a bond market rally. Some growth risks may be keeping longer dated bond yields in check for now, but we expect yields to rise as the mix of growth and inflation improves.

Risk-free recalibration

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Data reflect most recently available as of 02/02/22.
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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WEEKLY MARKET RECAP

Weekly Market Recap 20230320

Sticky shelter costs: Slow moving property market means U.S. will not hit inflation target this year

Weekly Market Recap 20230313

Blowing through the buffer: The savings rate has fallen to pre-pandemic levels increasing the pressure on household spending habits.

Weekly Market Recap 20230306

Blowing through the buffer: The savings rate has fallen to pre-pandemic levels increasing the pressure on household spending habits.

Weekly Market Recap 20230227

Good news is bad news : A resilient economy comes at a cost, higher rates

Weekly Market Recap 20230220

Not bothered : Australian business conditions ticked higher in January, but will it last?

Weekly Market Recap 20230213

Take me higher : Rates are going higher but just how much is still up for debate.

Weekly Market Recap 20230206

Looking for the bright side : Equities have a romantic view of the outlook but may not love corporate earnings.

Weekly Market Recap 20230130

Hard vs soft landing : The rally in equities suggests the market is discounting the chance of a U.S. recession. Is this time really different?

Weekly Market Recap 20230130

Sticky vs flexible inflation : Falling inflation is helping markets to rally, but the sticky parts of the inflation basket are yet to move

Weekly Market Recap 20221219

Margin call : How far will companies go to protect margins?

Weekly Market Recap 20221212

Higher ground : Waiting on the U.S. Fed to signal where they think rates will go in 2023.

Weekly Market Recap 20221205

Second hand news : The monthly inflation series suggests inflation is peaking, but this won’t change the outlook for the RBA this week.

Weekly Market Recap 20221128

Recession is coming: The recession is coming, but not everywhere and not all at once.

Weekly Market Recap 20221121

Takin’ care of business : Inflation may be starting to roll-over but unemployment rates really yet to rise, central banks have more to do

Weekly Market Recap 20221114

My own two hands : The size of U.S. rate hikes may be about to get smaller, but the ending policy rate may be higher.

Weekly Market Recap 20221107

My own two hands : The size of U.S. rate hikes may be about to get smaller, but the ending policy rate may be higher.

Weekly Market Recap 20221031

Under pressure : Domestic inflation pressures rose sharply in the third quarter, but it’s a case of slower not lower for the RBA.

Weekly Market Recap 20221024

Hey now, you’re an all-star : Restrained supply may be one reason credit spreads are not wider, but this won’t last.

Weekly Market Recap 20221017

Ready for the fall : Earnings expectations are yet to catch up to the market, this may change in the current U.S. earnings season

Weekly Market Recap 20221010

sLOWEly does it : Pivot and pivot again, a smaller than expected RBA rate hike last week raised markets hopes for the peak in hawkish central banks.

Weekly Market Recap 20221003

Times like these : The aggressive repricing of rates is tightening financial conditions much faster than prior rate hike cycles

Weekly Market Recap 20220926

Fasten your seatbelt for a bumpy ride: Looking at the Fed’s recent rate hike and the current economic outlook.

Weekly Market Recap 20220919

I’ve got the power : Fiscal support is picking up in Europe as governments try to keep the lights on

Weekly Market Recap 20220912

Nothing comes close : How close is close enough for central banks when it comes to getting inflation back to target

Weekly Market Recap 20220905

The heat is on : A big week for central banks as the market grapples with higher for longer when it comes to interest rates

Weekly Market Recap 20220829

That don’t impress me much : The U.S. may avoid recession, but don’t expect a lot of growth from the world’s largest economy.

Weekly Market Recap 20220822

Castles made of sand : Chinese stocks have been left out of the bear market rally, when will sentiment turn for the better?

Weekly Market Recap 20220815

Castles made of sand : Chinese stocks have been left out of the bear market rally, when will sentiment turn for the better?

Weekly Market Recap 20220808

Are you gonna go my way : Up or down? Business surveys are providing conflicting messages on the health of the U.S. economy.

Weekly Market Recap 20220801

Is this it? : Growth is taking over from inflation has driving force for yields. Is this it for higher yields or just a pause?

Weekly Market Recap 20220725

Some don’t like it hot : Inflation continues to run ahead of forecasts, keeping pressure on central banks to deliver outsized rate hikes.

Weekly Market Recap 20220718

Are we there yet?: U.S. inflation is rising, but bond yields are falling. Do recession risks mean that we’ve passed the peak in yields?

Weekly Market Recap 20220711

What to expect when you’re expecting : Market based measures of inflation expectations are softening, but may not be enough for rate setters

Weekly Market Recap 20220704

When the spending stops : Consumers not confident, but still spending

Weekly Market Recap 20220627

Not yet the house of pain: Housing activity in the U.S. is slowing but lack of inventory will support prices and household wealth.

Weekly Market Recap

Rumour has it : The leaked guidance by the U.S. Federal Reserve pushed up rate expectations, and suggests a more aggressive pace of rate hikes to come.

Weekly Market Recap 20220613

A show of wealth : A cooling housing market and rising rates may lead to many Australian feeling less wealthy.

Weekly Market Recap 20220530

Stuttering not stopping : Economic data out last week points to a slide in activity in developed economies rather than a stall.

Weekly Market Recap 20220523

Don’t step on the crack : Markets are pricing for a recession which may not come, but some cracks are starting to appear in the riskier parts of the credit market.

Weekly Market Recap 20220516

Rocky mountain high : U.S. inflation is still running hot, rocking markets last week, but we may be passing the peak in both inflation and central bank hawkishness.

Weekly Market Recap 20220509

Higher ground : Central banks are acting to catch up to the inflation outlook and willing to front load rate hikes, but this may not lead to a soft landing for the economy.

Weekly Market Recap 20220502

The heat is on : The strong inflation reading for Australia should be enough to spur the RBA into action this week, but only slowly.

Weekly Market Recap 20220425

Off target : Inflation pressures are building more slowly across Asia, and some central banks are responding, but the normalisation path will be relatively gradual.

Weekly Market Recap 20220411

Tired of waiting for you : The RBA has signaled that higher rates are coming, but the market remains far ahead of what may be delivered.

Weekly Market Recap 20220404

Dealing with distortion : Rising yields hide the very negative real yields underneath as the distortion in bond markets grows

Weekly Market Recap 20220328

Fighting back with fiscal : Europe’s probability of recession is predicated by governments willingness to spend.

Weekly Market Recap 20220321

False start for recession : Flattening yield curves and falling sentiment gaps maybe signaling a false start to a recession.

Weekly Market Recap 20220314

Uneven impact of rising commodity prices: Rising commodity prices are a headwind for some, and a tailwind for others.

Weekly Market Recap 20220307

The impact of Russian default on global banking system should have limited effects on the global financial system.

Weekly Market Recap 20220228

Wind of change: Business sentiment surveys picked up in February as omicron fades, but higher oil price brings a new headwind to the global economy.

Weekly Market Recap 20220221

Under pressure: Core rates of inflation continue to rise in many developed markets, will central banks come out fighting with big rate hikes?

Weekly Market Recap 20220131

Not as bad as you think.

Weekly Market Recap 20220124

Turn it around: This week’s thought and chart look at the improving sentiment in the manufacturing sector and why the momentum in the economy shouldn’t be underestimated.

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