Daily Commentary BY THE CURVE TEAM –

Is the strong jobs market an indicator we can achieve a 30 year milestone?

19th October 2018

Trend employment growth is running at 26k jobs per month putting continuing downward pressure on the unemployment rate which fell sharply to 5.0% from 5.3%. Given this healthy jobs environment we are almost assured of extending our 27 years of uninterrupted growth and potentially break the magical 30 year milestone beyond 2021.

Growth is trending well above 3.00%, unemployment is going below 5.0% and core inflation is within its target range of 2-3%. Clearly, the business sector is offsetting any risk from the indebted household sector and Australia should gain direct benefits from a clear US economic revival.

The risk of faster than expected tightening in the US may be moderating as a number for FED officials are sharing their opinions that a more gradual path of tightening may be preferred. 2 yr Treasuries peaked at 2.90% overnight but I sense this is more related to an auction next week of 2 yr fixed rate, 2 yr FRN, 5 & 7 yr fixed rate bonds totalling $127 billion next Tuesday to Thursday. The market knows there is a reduced demand at these auctions by the FED and so the bidders are keen to extend yields up to as high as they can. Buyers love a bargain and a plentiful supplier.

The CNY traded as weak as 6.94 yesterday and is about to retest its all time low of 6.96 back in January 2017. The US trade war is one reason for this extreme currency weakness, but the continued economic challenges China faces and their massive foreign borrowings in USD are impacting capital flows just like all the emerging markets at present.

Peter Sheahan

Director - Institutional Markets