Daily Commentary BY THE CURVE TEAM –

Slack Still Remains

23rd of March, 2018

A lot for markets to digest over the past 24 hours as there was a raft of key data and events that took place. First, domestic employment data for February continued to track along nicely however slackness is still clearly evident. While offshore, trade negotiations between China and the US enter a new realm as President Trump looks to fulfil another one of his campaign promises.

Employment conditions continue to be one of the pillars of strength for the Australian economy with yet another month of gains in February. While it was a touch short of expectations, jobs were up 17,500 in February. We are now up to 17 months of employment growth.

The unemployment rate edged higher to 5.6% on the back of an uptick in the participation rate. While the full-time, part-time split continued to show signs of volatility with full-time jobs climbing and part-time jobs falling.

The RBA perceives full employment to be around 5% and until we get closer to this level, it is unlikely we will see a lift in wages and subsequently a change in rhetoric from the central bank.

Adding to this notion is the under-employment rate, those employed but would like to work more, which ticked up. This implies that while we are seeing robust hirings and strong business conditions, those who are joining the work force are forced to compromise on the amount they actually want to work.

Until we see the demand for jobs lift to be more in line with the supply, consumers are still going to feel the pressure as they are restricted in the amount that they can earn.

To the US and President Trump has ordered tariffs on $50bn of Chinese imports overnight, a move designed to reaffirm the US’ position in the global economy. China has responded saying that they will not stand for this.

Equity markets took a hit while safe haven assets were on the bid. However, it will be interesting to see how this unfolds as there is a two week consultation on what is likely to be taxed.

Quickly over to the UK and the Bank of England left rates on hold for the time being, but indicated that May could see the next move up. While growth remains subdued, wages are on the rise and it looks like slack in the economy has been used up.

Japan and Canada get their February CPI readings today while The US is due Durable Goods Orders and New Home Sales.

Oliver Parsons

Client Relationship Manager