Australia: Much stronger than expected employment numbers - Westpac

The research team at Westpac, explains that clearly, today we had a much stronger than expected Australian employment outcome with a 60.9k rise in total employment (largest since Oct 2015) and an eye popping 74.5k full time rise (largest since 1987).

Key Quotes

“Not surprisingly, the A$ has jumped sharply higher on the news, from circa 0.7540 ahead of the data to a high of 0.7573.Given the degree of focus on employment data, we see risks of some further near term strength towards 0.7600 but view strength beyond that level into the 0.7600/50 as an opportunity to sell.”

“AU bond futures were at their price highs ahead of the release. Given the upside surprise, the subsequent reaction was relatively muted. 3yr futures fell 3 ticks, the 10yr fell 2ticks, with the curve flattening a touch as a result. Beyond those moves, however, we do not think this changes medium term risk rewards significantly. The unemployment rate is enough for the market to keep RBA pricing stable at unchanged for the foreseeable future and that will keep the front end supported.”

“For today, we expect that we have seen the trading ranges (3s 98.19-98.22, 10s 97.445-97.53) but that the market will be trading a bit heavier throughout the session. We do not expect there to be much risk added as we head into the long weekend. If anything shorts have been squeezed already, so there should be no real need to minimise positions ahead of the close.”

“Medium term, bond markets globally are on the cusp of breaking lower in yield, especially should the current geo-political situation remain tense. However, flight-to-quality rallies are often large in terms of price shifts but a short-lived. One the peak of the safe haven buying has passed, it often quickly corrects. That is our expectation, but any correction probably won’t happen until next week at the earliest. We would have no risk on at current levels, but expect to be sellers in coming days. For a new low yield trading range to be sustained, it would need to be associated with a revision to the Fed outlook, which we think would be premature.”