Week in review

• U.S. unemployment rate fell to 4.2%
• China services PMI fell to 52.1; manufacturing PMI fell to 49.9
• Australia Q3 GDP rose 3.9% y/y

Week ahead

• China exports, CPI, and PPI
• U.S. CPI
• University of Michigan consumer sentiment index

Thought of the week

Chairman Powell’s recent hawkish comments sets the stage for the Federal Open Market Committee (FOMC) meeting this month. The implications of Omicron will undoubtedly be at the crux of the discussions. In the event of an acceleration, consensus expects a doubling of tapering pace to USD 30bn/month - this would allow a rate hike as early as March 2022. However, it’s likely that the Fed will re-iterate its separation between tapering and rate hikes. This allows for a few months of data after the completion of tapering to assess the state of labor market recovery and the stickiness of inflation. In the short-run, the spread of Omicron may see a rotation from risk assets to safe-haven assets such as government bonds and defensive sectors. That said, if Omicron proves to be less virulent, the pullback in risk assets could present an opportunity for investors to buy the dip. In the longer-run, the Fed tapering will induce a rising yield environment which bodes well for value stocks such as financials.

Federal Reserve monthly asset purchases

USD billions

Source: FactSet, Federal Reserve, J.P. Morgan Asset Management.
Guide to the Markets –Asia. Data reflect most recently available as of 04/12/21.

0903c02a82467a72