Daily Commentary BY THE CURVE TEAM –

Optimistic Outlook Clinging On

14th of January, 2021

The prospects for a strong economic recovery remain front of mind despite the globe still grappling with covid-19.

Job vacancies in Australia were up 23.4% over the quarter to November. This leaves them 12% higher than pre pandemic levels, which is a positive sign that businesses are looking to recover the slack in the labour market that has grown since covid.

Today the AOFM will issue T notes for the first time in over a month. In the last issuance a negative yield was accepted, so the issuance today will be watched keenly.

Both this strong outlook for employment and low government financing costs are considered crucial to Australia’s economic recovery. The RBA has put employment at the fore of its priorities so wages can eventually have upward pressure to flow through to inflation.

They are also ensuring government financing costs are very cheap with their three-year yield curve target and quantitative easing programme. Following a recession induced by the pandemic, private demand is expected to be subdued, so public demand is expected to compensate until private demand recovers.

These factors deem the medium-long term outlook as very positive and likewise for the near term with covid seemingly contained and vaccines imminent in Australia. More of a dichotomy between then short and long run outlook persists overseas.

Like Australia, low financing costs, fiscal stimulus and vaccine distribution in much of the developed world mean the medium to long term outlook is positive. However, they are grappling with covid spreading rapidly.

Much of Europe have extended and tightened lockdown measures, including Germany, the Netherlands and Sweden. The swifter vaccines can be distributed, the sooner the short and long term outlooks will align.

Josh Stewart

Associate - Money Markets