February 23, 2021

AMW: JobKeeper’s end – economy to sustain momentum

Yields are rising in Australia and globally as the reflation trade takes hold.

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RBA’s 3yr YCC and rates forward guidance tested as markets price first hikes in 2023

  • The RBA’s cash rate forward guidance and 3yr yield curve target are being tested. Moreover, markets are doubting whether the RBA will extend the 3yr target beyond the April 2024 bond with the yield on the Nov 2024 bond increasing 8bps over the past week to 0.30%. Markets are pricing in the chance of the RBA hiking rates before its guidance of not lifting rates until 2024.

Analysis: JobKeeper’s end – economy to sustain momentum beyond March

  • What happens when JobKeeper ends on March 28 is one of the most common question asked by clients. In this Weekly we delve into the issue by looking at it through three lenses: (1) looking at the experience in NZ which ended their own wage subsidy scheme in September 2020; (2) examining which business are receiving JobKeeper and the conditions being experienced in those sectors; and (3) what government support is likely after jobseeker that may stem job losses in specific areas.
  • We conclude that the end of JobKeeper is unlikely to derail the economic recovery. Business conditions have rebounded, while payment inflows into NAB Merchants indicate a broad-based recovery in all sectors apart from ‘accommodation & food services’ and ‘administration & support services’. Underemployment has also fallen to its lowest levels since February 2019, suggesting people on JobKeeper overall are being fully utilised and presumably should be retained when the program ends.
  • Looking at NZ’s experience, there was a 1-4% increase in unemployment benefit claims following the end of their wage subsidy, while the labour market continued to tighten with the unemployment rate falling to 4.9% in Q4. Translating that to Australia would equate to a 9-50k rise in JobSeeker numbers, against recent monthly employment gains of 30-50k. Crucially, NZ also continued support for tourism and aviation sectors, limiting further job losses.

The week ahead

  • Australia: Wages on Wednesday the focal point of the week with consensus at 0.3% q/q and 1.2% y/y. Also out are two pre-GDP partials Construction on Wednesday and Capex on Thursday (note Q4 GDP is out March 3) along with Credit Statistics on Friday.
  • International: A major focus remains the US fiscal stimulus – how large the final envelop will be and how quickly it can be passed by Congress. Chair Powell is also giving testimony with markets watchful for comments on inflation and whether the Fed agrees with Treasury Secretary Yellen’s comment that the US could be at full employment by 2022. NZ: the RBNZ meets on Wednesday where the inflation track will be revised higher and estimates of spare capacity lowered. CH: a quiet week with no top tier data scheduled. EZ/UK: UK’s focus on the path out of lockdown with PM Johnson outlining his ‘roadmap’ today (Monday).

Chart 1: Yields are lifting, AU-10yr spread has flipped and has almost erased all QE narrowing

Chart 2: NZ suggests the end of wage subsidies do not derail the recovery so long as there is sufficient domestic momentum


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