Brief Summary:
- Australian employment numbers will be released tomorrow at 11:30am. The series has been volatile recently causing some participants to question its reliability. Market expectations are for a loss of around 30 thousand jobs and an unemployment rate of 6.2%. Today, the Australian Bureau of Statistics signalled that much of the outsized gains in July and August will be revised down tomorrow due to errors surrounding the seasonality of data. This puts expectations for the latest release up in the air and raises the chances of volatility around the event.
- U.S. employment numbers were release last Friday which showed the U.S. labour market continued to strengthen. 248,000 jobs were added and the unemployment rate declined to 5.9%. It is expected that the Federal Open Market Committee may shift its rhetoric soon to indicate interest rates may rise sooner.
The holding pattern continues
Yesterday, the Reserve Bank of Australia held its October monetary policy decision where it kept interest rates at 2.50%. The board made few changes to the statement other than a few minor tweaks to their assessment of the labour market. The board noted that employment numbers have been ‘unusually volatile’ with particular reference to last month’s outsized employment growth of 121,000 jobs; the largest monthly increase ever.
Of particular note was this line was added about property investors, “Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise over recent months.” Previously, in the Financial Stability Report delivered last week, the RBA have signalled that they may look to limit lending to investors in an attempt to cool the property market.
Loans to investors account for about 50 percent of the total and the board sees the booming property market, particularly in NSW and Victoria, as a macroeconomic risk; specifically stating, “The composition of housing and mortgage market activity is becoming unbalanced”. Such measures would aim to raise interest rates on property investment loans without affecting any other types of loans. This would have the effect of raising rates without unnecessarily dragging the whole economy.
The AUD appreciated on the back of the decision as such measures suggest that there is some pressure on the board to raise interest rates. However, such measures should actually buy some time before the first interest rate rise so one would think the market would position for low rates for longer. In the case of New Zealand, lending restrictions alone did not manage to cool the property market to a sufficient level. Many market participants believe the first Australian interest rate rise will happen at some point in 2015.
Chris Chandler