Daily Commentary BY THE CURVE TEAM –

Strong Employment Growth Continues

18th of August, 2017

Australia’s employment market continued its strong run in July with another solid result. The strength will hopefully feed through to wage pressures eventually, but for now wage pressures remain absent according to another wage measure. Meanwhile markets got the wobbles overnight as the confidence in the Trump Administration continues to deteriorate.

Australia’s employment growth beat estimates yet again in July with total growth in new jobs coming in at 27,900. The better an expected result wasn’t enough to put too much of a dint in the unemployment rate after only a small lift in the participation rate. Aggregate hours work were also down a touch but it was a strong result nevertheless.

The strength in the labour market is still to filter through to wage growth with the other main measure of wage growth yielding another disappointing result. The Average weekly earnings data showed the annual rate of growth was 1.8%, similar to the Wage Cost Index. However the divergence between private and public wages is a little more distinct with the annual rate of private wage growth at a paltry 0.8%.

Wages and inflation were on the forefront of Fed speakers’ minds again overnight with more doubt being cast over the outlook for the FOMC’s rate hike ambitions. Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari both echoed recent concerns over the outlook for inflation from other Fed members, with the latter also concerned over the looming debt ceiling debate.

Markets didn’t seem to pay much attention to the growing concerns of the Fed speaker and were more focused on the accelerating demise of the Trump Administration’s credibility. Markets are losing faith in the Trump administration and rumours that Trump’s key economic advisor Gary Cohn was set to quit in disgust regarding the President’s response to the Charlottesville racial violence.

While the rumour was later denied, it was enough to knock markets for six. Equities were hit hard while bonds rallied, driving yields back down to recent lows. The USD and gold were also bid. It appears the extended run of low volatility is coming to an end. We could be set for a rough ride over the months ahead.

David Flanagan

Director - Interest Rate Markets