Week in review

• RBA keep rates on hold at 0.10%
• U.S. ISM non-manufacturing surges to 63.7
• China PMI for services rises to 54.3

Week ahead

• Australian business and consumer confidence indices
• U.S. CPI inflation
• Australian labour market report

Thought of the week

Speculation that central banks may have to raise interest rates sooner than planned has investors worried, and markets have moved to price in policy tightening in the year ahead (see chart). However, the RBA maintained a consistently dovish message in its policy statement last week. Despite the economy performing better than expected, the RBA must balance this out against the medium term difficulties in generating higher inflation through a tighter job market and stronger wage growth. Not to mention the potential economic soft-patch as the impact of fiscal support starts to fade. The noise around the housing market is just that, noise. Policy is changed according to the underlying pace of inflation in the economy, not because of pockets of inflation, whether they be in house prices or elsewhere. Risks around any financial instability created by residential lending will likely be addressed through new macro-prudential rules being introduced in the months ahead.

Australia implied cash rate

30 day interbank futures implied yield

Source: FactSet. J.P. Morgan Asset Management. Data reflect most recently available as of 08/04/21.
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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