March 15, 2016

Australian Markets Weekly: 14 March 2016

The past week broadly saw an extension of the prior week’s price action, which broadly continued the rally in commodity prices.

Focus on the Labour Market, RBA Minutes & FOMC

  • Recent RBA communications have focused on whether the Australian labour market cancontinue its improvement and whether early-year financial market volatility impacts onthe outlook for global or Australian demand. Both will be in focus this week, with theRBA Minutes perhaps providing more concrete detail on the global risks the Bank hasbecome more concerned about since December, which prompted it to outline theconditions under which further monetary easing may be forthcoming.
  • With the ABS releasing its February data on Thursday, this week, NAB’s Chief EconomistAlan Oster explores what the NAB Business Survey is telling us about the outlook forAustralian employment and unemployment. The quarterly survey – which dates back to1989 – suggests: (i) the ABS has been overstating employment growth in recent months,but prospects remain for employment growth averaging 15-20,000 per month overcoming quarters; and (ii) the unemployment rate is likely to continue to drift lower over2016 and is forecast to end the year at 5.6%. With a high unemployment cohort droppingout this month, there is downside risk to the market’s 6% unemployment rate forecast.
  • Last week, markets continued the trend reversals from early-year weakness that began inmid-February, with oil, the $A, equities and bond yields all rising again. While the rise inthe $A is an unwelcome development for the RBA, there is some fundamental support forthe move, with commodity prices having risen since the lows around the start of the year.
  • The other big focus for the week will be the FOMC meeting on Wednesday (result 5amThursday 17th in Australia). While the markets are not expecting any change in US rates,our rate strategists suspect the Fed may not be as dovish as markets currently expect,with pricing continuing to reflect just over one rate hike before the end of the year andonly around two thirds of a chance of a hike by June.

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