It’s all about the base(line)


Market Update: 5 May 2020

As markets are up on some more US stimulus including buying into ETFs, there again is a measure of optimism transpiring into AUD back above 64c, there’s always the realists who can douse the fire of exuberance to keep us all grounded.

Today’s reminder is brought to you by our good friends at the RBA who, in their monthly monetary policy decision tell us their baseline scenarios are for unemployment to hit 10% (which is not unexpected), but for above 7% unemployment to remain at the end of NEXT year. Further to this, zero growth for this and next year (-10% for 1H, -6% for 2020, +6% for 2021) and finally inflation to be around 1-1.5% in 2021.

This would be a bit of a reminder to the market that we are staring down the barrel of a “U” shape recovery  – of course, they are doing something to address this – such as not raise rates until we move towards full employment, suppress the 3yr bond rate around 0.25% and now a broadened acceptance of non-bank corporation bonds of investment grade as collateral – but these are of course factored into RBA’s baseline. The statement of monetary policy out later this week will go into more detail and always seems to tend in a more bearish direction.

The weekly series of Payrolls Jobs and Wages reinforce the bad with total employee jobs falling by 7.5% and wages paid decreased by 8.2%. It ran from 14th March to 18th April so still a week before true lockdown came into existence.

Sources: Bloomberg

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