Australian Markets Weekly: 15 August 2016

Spare capacity in the labour market seems to have been an important part of the RBA’s recent decision to lower the cash rate further. The linkage is low wages growth – which reflects this spare capacity – and which, as a key determinant of prices, impacts on the RBA’s outlook for inflation.

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Has wages growth bottomed?

  • Our focus article is on tentative signs of a bottoming of wages growth in Australia, with both the NAB survey and the average salary advertised on SEEK’s website having lifted in recent months. The rise has been driven by NSW and Victoria, the strongest labour markets in recent times. Meanwhile, the number of applications per job ad suggests the unemployment rate should gradually decline, though sample rotation risks for unemployment are again slightly to the upside this month (but will reverse in Sep).
  • The domestic focus this week will be on the Q2 Wage Price Index on Wednesday, the July Labour Force data on Thursday and tomorrow’s RBA Minutes. Offshore, we have the Fed Minutes and various Fed speeches and a significant raft of post-Brexit UK economic data for July, including retail sales.

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