Weekly Market Recap 20230130

Week in review

Australian unemployment rate 3.5% in December
China real GDP 2.9% y/y 4Q 2023
U.S. retail sales -1.1% m/m in December

Week ahead

Australia business confidence
Australia 4Q 2022 CPI inflation
U.S. 4Q 2022 real GDP

Thought of the week

Equities have rallied so far this year driven by positive views of China re-opening and a soft-landing of the U.S. economy. We remain cautious when it comes to equity markets, maintaining a defensive bias given the uncertainty around inflation and the policy response. The pace of inflation is falling and will continue to do so this year. But the question is whether it will fall far and fast enough for central banks. Signs that inflation have peaked are not the same as inflation being consistent with central bank targets. Meanwhile, tight labour markets in many countries is adding to the persistence of inflation. The Atlanta Fed split the U.S. CPI basket into ‘sticky’ and ‘flexible’ items and the decline in headline inflation is being driven by ‘flexible’ items even as ‘sticky’ prices continue to move higher. That may seem obvious given the name – ‘sticky’. Analysis done by the Atlanta Fed suggests that inflation expectations are linked to ‘sticky’ prices, meaning that it may take longer for the specter of inflation to be removed from financial markets.

U.S. ‘sticky’ and ‘flexible’ inflation

12 month annualized

Source: Federal Reserve of Atlanta, FactSet, J.P. Morgan Asset Management.
Data reflect most recently available as of 20/01/23.
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

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