Weekly Market Recap

Week in review

Australia’s monthly inflation series falls to 6.8% y/y in February
Australia retail sales increase 0.2% m/m
China PMI for manufacturing

Week ahead

RBA policy rate decisions
Australia housing finance and building approvals
U.S. nonfarm payrolls and unemployment rate

Thought of the week

How tight is too tight? That’s the debate in the market at present. U.S. equities have recovered the losses from the ‘mini’ banking crisis at the index level and markets are pricing cuts in the Fed’s policy rate from the middle of the year. The suggestion is that the policy is now tight enough to slow the economy and bring inflation back towards target. Based on the latest Fed forecasts in the Statement of Economic Projections, the Fed thinks this will take one more rate hike, but no cuts this year. However, just how much financial conditions tighten in the interim may be what swings the Fed towards the market view. The Federal Reserve of San Francisco publishes a proxy fed funds rate based on a broader range of financial variables. This series diverges from the official target from 2008 as forward guidance and the Fed’s balance sheet became an increasingly familiar part of the policy tool kit. But it’s proxy measures like this that suggest the Fed has already done enough, the risk is that they keep going.

What’s my rate again?
Fed funds rate and the San Francisco Fed proxy fed funds rate

Source: FactSet, Federal Reserve of San Francisco, U.S. Federal Reserve, J.P. Morgan Asset Management.
Data reflect most recently available as of 31/03/23.
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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