Daily Commentary BY THE CURVE TEAM –

Another Bumper US Employment Report Ahead of Huge Week

5th of November, 2018

Another bumper nonfarm payrolls report in the US headlined a huge weekend of data and economic news. It comes ahead of another huge week both locally and offshore which will be crucial for markets and the outlook for interest rates.

The Fed is now certain to hike next month as the employment market in the US goes from strength to strength. Total employment growth for the month was 250,000 in October, well ahead of estimates. The key was another uptick in wage growth with the annual rate up to 3.1%, the highest level since 2009.

Bond rates surged on the result with yields climbing across the curve while the USD also bounced back after being on the back foot most of the week. There will be a real test for the US bond markets this week with a wave of Treasury issuance due. It will also be an interesting week for the US with mid-term elections tomorrow.

Friday also saw the release of the latest local retail sales numbers. The result was consistent with a softening of the domestic economy, outside of the stellar export outcomes, with retail sales ex-inflation only rising 0.2% for the quarter, half the rise expected.

While we are yet to see the second round effects from the deterioration in the housing markets, it could only be a matter of time. Auction clearance rates continue to wilt as the pick up in activity for the spring selling season continues overwhelm the market. The market still could have some way to fall just to align with tighter lending standards let alone the other headwinds currently putting pressure on prices.

It will be interesting to see what the RBA has to say about the latest developments this week. They will have ample opportunity to provide us with an update on how they see the current situation and how it will impact the outlook.

The RBA board is set to meet tomorrow where no change to the current setting of monetary policy is expected. They may take the opportunity to flag any changes that will then be fleshed out in their quarterly Statement on Monetary Policy which is due out on Friday. The main data highlight for the week is also on Friday in the form of the latest monthly finance approvals which will be well worth a look.

David Flanagan

Director - Interest Rate Markets