Bassanese Bites: Line-ball RBA Day – July 03 2023
Global Markets
Solid economic data and a reasonably benign inflation report provided further reassuring signs to Wall Street last week that the US economy remained on a “soft landing” track. Even Powell’s ongoing threat of two additional rate hikes is being taken in its stride – on the view that the economy appears resilient enough to withstand it. Core inflation is high and slowing less quickly than headline inflation, though the trend at least appears downward.
Perhaps a greater near-term risk to markets is not that the US economy suddenly slips into recession, but that it remains too strong or reaccelerates – particularly the labour market. In this regard, key reports this week on jobs growth, job openings and jobless claims will provide an important temperature check.
Fundamentally, the US equity market appears richly valued, which does make it vulnerable to surge higher in bond yields if growth reaccelerates and the Fed becomes a lot more hawkish. But otherwise, economic resilience is now being reflected in a levelling out in earnings expectations – if inflation continues to ease in the face of a still solid “goldilocks” economy, lower interest rates and higher earnings could be the catalysts for the next leg higher in equity prices.
