Weekly Market Recap

Week in review

RBA lifts cash rate by 25bps to 3.60%
China CPI inflation falls to 1.0% y/y
U.S. job openings decline to 10.8 million

Week ahead

U.S. CPI inflation
Australia labour market report
ECB policy rate meeting

Thought of the week

In a week of contrasts the RBA become sounded more dovish and the U.S. Federal Reserve (Fed) more hawkish. The market reacted by increasing the probability that the Fed would increase rates by 50bps at its March meeting, while in Australia there was a growing view that the RBA may take a break in April and resume rate hikes in May. However, a lot can change between now and when these two central banks meet in the coming weeks. Both the RBA and the Fed are hyper-sensitive to the latest data releases and the inflation and labour market data in the coming weeks will be crucial to the market assessment of what the outcome of these meetings will be. In the interim market expectations for a higher terminal rate in the U.S lifting shorted dated U.S bond yields to over 5% and inverting the U.S. yield curve by more than 100bps. The last time this occurred was in 1981. The higher yields on short dated bonds may be attractive, but the rising recession risks in the U.S. suggest building a position further out the curve and increasing duration.

U.S. yield curve the most inverted since the 1980s
Spread between 10 and 2 year U.S.Treasury yields, basis points

Source: Factset, U.S. Federal Reserve, J.P. Morgan Asset Management.
Data reflect most recently available as of 10/03/23.
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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