Wet lettuce | BetaShares

Wet lettuce

BY David Bassanese | 5 July 2021

Week in review

  • Global equities continued to grind higher last week, helped by ongoing solid economic growth yet still benign long-term bond yields. In a further sign that U.S. inflation fears have likely peaked, Wall Street shrugged off a further surge in the ISM manufacturing price index to 92.1 in June – the highest level since 1979! And although Friday’s gain in U.S. payrolls was stronger than expected at 875k (market 700k), the market focused on signs of improved labour force participation and the potential for rising supply to ease labour shortages and potential wage pressures. The $US strengthened last week, which along with weaker iron-ore prices weighed on the $A. Oil prices rose following a (likely temporary) delay in OPEC’s anticipated decision to increase supply a little further.
  • As expected, local economic data revealed ongoing strength in house prices and home lending, while Sydney’s lockdown dragged on. So far at least, local markets are ‘looking through’ the lockdowns, anticipating the hit to economic growth and corporate earnings will be modest and fleeting. We’ll see!

Week ahead

  • In a data-light week, minutes from the latest Fed meeting will be the highlight – with intense market focus on the degree to which the timing of bond tapering (the slowing in the rate of monthly bond purchases) and even potential rate hikes were discussed. I suspect nothing much will emerge from the minutes, with major decisions still to be agreed.
  • [As regards tapering, I suspect the likely eventual decision (perhaps as early as next month’s Jackson Hole meeting of global central bankers) will be to modestly scale back purchases by around $US10 billion per month, such that the current $120 billion per month program is gradually wound down over a year – with an announcement some months before the actual tapering begins. And all this will take place before the Fed contemplates any rate increase, which on this schedule would still not be before mid/late 2023. If I’m right, such a well-telegraphed and glacial pace of Fed tightening could be like hitting the market with a wet lettuce leaf over the coming year, and unlikely to derail the uptrend in stocks. Of course, all this does crucially depend on the annualised rate of core consumer price gains slowing back to a 2% or less pace over the next three to six months (as I expect)].  
  • In Australia, the key event this week will be the RBA meeting, which is now widely expected to confirm the Bank’s open mindedness to potentially lifting rates by late 2024 (effectively by the Bank announcing it won’t extend its current 0.1% yield target on government bonds maturing in April 2024 to those maturing in November 2024). The RBA is also anticipated to announce a shift from a multi-month bond buying commitment (i.e. $100b over 5 months) to a more flexible monthly commitment (i.e. $20b per month, or $5b per week) which would be more in line with the Fed’s current approach. Like the Fed, this will give the RBA scope to glacially slow the rate of bond purchases over time, with hope that this will also feel to the market like it’s being flogged with a wet lettuce leaf.


  • Although it seems increasingly likely that the Fed will announce a tapering of bond purchases in coming months, given it still views current inflation pressures as temporary, and is more focused on lingering spare labour market capacity, it will likely proceed vary carefully – and try very hard not to unduly upset the equity or bond market. Provided U.S. inflation pressures ease, therefore, the backdrop for markets remains encouraging.
  • The RBA is likely to lag the Fed in announcing bond tapering, much less rate increases. Indeed, Australia’s low vaccination rollout makes the economy now more vulnerable to COVID than the United States.

Have a great week!


  1. Darren Hooper  |  July 5, 2021

    David, thank you again for your consistent high quality commentary, even better for backing off some of the US political opinion that I felt got in the way of your economics insights last year.

    I and my wife have a number of investments with you (eg HACK, FOOD).

    I hope you do not mind me making a product suggestion. To do with inflation.

    I have been reading an enormous amount about inflation, and how to get growth investments in the current potentially inflation environment. There’s been limited material from an Australian perspective and so have read a lot of barrons, fortune and WSJ, as well as LiveWire closer to home.

    What about a inflation/ growth ETF. I worry about normally recommended REITs supposedly being good with inflation especially if they re moderate to high geared. But I have been reading that Transurban and Atlas Altera even Computershre could all do well with inflation.

    I am not keen on boring investments to deal with inflation, but those that have a growth profile that could excel with inflation.

    How about an ETF that is growth oriented, taking Australian and worldwide assets, expected to perform even better with inflation?

    Just a thought. Thank you again for your excellent commentaries, I look forward to them each week

    1. David Bassanese  |  July 5, 2021

      Hi Darren

      Thanks for your feedback.. We did a webinar a few weeks ago on investment ideas in a rising inflation environment. No investment is perfect but you may find the webinar of interest. You can get access to it via our library of webinars.


  2. John Victor Ovens  |  July 5, 2021

    Thanks, David. I enjoy your inciteful commentary and have a wide selection of ETFs from the Beta Shares stable to help with the diversification.

  3. Ramon Vasquez  |  July 8, 2021

    Hello Everyone .

    Is it possible for BetaShares to think about having a ” Fund of Funds ” of all of the BetaShares ‘ funds themselves ?

    In other words an ETF within which each and everyone of the

    B’s ETFs are represented , and , perhaps , equal-weighted ?

    Best wishes , Ramon .

    1. BetaShares Client Services  |  July 9, 2021

      Hi Ramon,

      Thanks for the comment, and the insightful suggestion.

      We always appreciate new ideas and are constantly considering new products to put on the market that are in line with investor’s needs. We will pass your suggestion on to our product development team.

      BetaShares Client Services

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