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Taylor Nugent

Taylor Nugent

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In this Weekly. we discuss how broader financial conditions, and not just the cash rate, are influencing the economic outlook.

A more positive risk backdrop begins the new week. US equities are higher, the S&P500 up 1.9%, extending a turnaround after dipping into bear market territory intraday on Friday.

Although employment growth disappointed yesterday, and along with wages data from earlier in the week, remains consistent with a rate rise of 25bp by the RBA in June.

Risk assets remained out of favour as concerns over inflation and recession risk continued to dominate.

The ongoing theme of mounting growth concerns against a backdrop of central bank tightening is continuing to drive market movements.

Inflation is now forecast to peak at over 10% this year in the UK

The RBA yesterday increased the cash rate target by 25bp to 0.35% and said it will do what is necessary to return inflation to the band

There’s been a strong risk-off sentiment to the start of the week.

Wages likely to pick up despite NAIRU uncertainty. The RBA’s latest ‘best guess’ of the NAIRU is 4%.

Bond yields have fallen sharply overnight, but that doesn’t mean inflation expectations are going away, or does it?

US inflation rose as expected, but there’s still been a reaction in the bond markets.

The reaction to the Fed minutes early yesterday morning continued to dominate markets overnight.

RBA’s April meeting yesterday left policy on hold at 0.1% but underwent a substantial rewrite to the post meeting statement.

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