13 Feb 2014
Flash: Australian jobs unlikely to change RBA's neutral stance - Nomura
FXStreet (Bali) - According to Economist Charles St-Arnaud and Strategist Martin Whetton, both working at Nomura, today's poor Australian jobs report is unlikely to change the RBA's view of the economy.
Key Quotes
"Most of the job losses were again for full-time jobs (-7.1k), while there were some small gains in part-time jobs (3.4k). The total number of hours worked was increased in the month (by 1.3% m-o-m) despite the decline in employment, which is a sign of increased labour productivity."
"Overall, we view this report as negative. It shows that job creation has stalled and, as a result, the unemployment rate continues to increase gradually. However, this is not surprising since, according to the Okun‟s Law, below-trend growth should lead to a higher unemployment rate."
"Nevertheless, today‟s report is unlikely to change the RBA's view of the economy, as it expects the unemployment rate to continue to increase above 6%. While the stronger-than-expected inflation number in Q4 reduced the likelihood of a rate cut, continued economic weakness in the short-term means the RBA should remain on hold for some time. We continue to expect the first rate hike in the first half of 2015."
"Rates markets have lowered their expectation of RBA hikes in 2014, although the 1yr rate still has around 50% of a 25bp hike priced in. Although the numbers were indeed poor, the rates and FX market are aware that the RBA specifically referred to worsening unemployment, so while it pushes away the idea of early rate hikes, it does not mean the market will be preparing for rate cuts. In terms of positioning, earlier today we suggested shorting AUD against CAD. In rates, we still see the market risk of the OIS curve pricing in hikes later in the year; we are paid October RBA date OIS."
Key Quotes
"Most of the job losses were again for full-time jobs (-7.1k), while there were some small gains in part-time jobs (3.4k). The total number of hours worked was increased in the month (by 1.3% m-o-m) despite the decline in employment, which is a sign of increased labour productivity."
"Overall, we view this report as negative. It shows that job creation has stalled and, as a result, the unemployment rate continues to increase gradually. However, this is not surprising since, according to the Okun‟s Law, below-trend growth should lead to a higher unemployment rate."
"Nevertheless, today‟s report is unlikely to change the RBA's view of the economy, as it expects the unemployment rate to continue to increase above 6%. While the stronger-than-expected inflation number in Q4 reduced the likelihood of a rate cut, continued economic weakness in the short-term means the RBA should remain on hold for some time. We continue to expect the first rate hike in the first half of 2015."
"Rates markets have lowered their expectation of RBA hikes in 2014, although the 1yr rate still has around 50% of a 25bp hike priced in. Although the numbers were indeed poor, the rates and FX market are aware that the RBA specifically referred to worsening unemployment, so while it pushes away the idea of early rate hikes, it does not mean the market will be preparing for rate cuts. In terms of positioning, earlier today we suggested shorting AUD against CAD. In rates, we still see the market risk of the OIS curve pricing in hikes later in the year; we are paid October RBA date OIS."