Weekly Market Recap

Wind of change

28/02/2022

Week in review

Australia wage growth up 2.3% in 4Q21
U.S. and Eurozone composite PMIs rose to 56.0 and 55.8 in February
RBNZ hikes interest rates 25bps to 1.00%

Week ahead

U.S. nonfarm payrolls and labour market report
Australia preliminary retail sales for January
RBA official cash rate and board meeting

Thought of the week

The release of the closely watched PMI business surveys last week were a bright spot in what has been a dark market mood. The lift in services activity in February suggests that the lingering impact of Omicron is very much fading away in developed markets. This validates the view of a robust economy and rationale of central banks to move on with raising interest rates. What these surveys may not yet capture is the fallout from the situation in Ukraine. Economists are trying to assess the impact of higher oil prices on the outlook for the economy. A surge in oil prices would represent a significant adverse supply shock, dampening the growth outlook and pushing headline rates of inflation higher. To some extent it’s the pace of change which matters rather than the final level. Between 2011 and 2014 the price of oil hovered around $100 for an extended period of time without causing too much economic fallout. This is because markets and the economy can adjust to slower moving factors without too much disruption. Sentiment indicators will need to be closely watched to see whether oil or omicron wins out.

Fading the Omicron wave

Developed market PMI output indices

Source: Markit, 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 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 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 20220207

The de-rating of equities in the face of tighter monetary policy is weighing on markets, but valuations should find a footing once this recalibration process is complete.

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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