Overview

• Markets open the week to news over the weekend of air strikes against Syria, thus far drawing only verbal condemnation from Russia. Even Russia’s prediction of ‘global chaos’ if the West hits Syria again has not filled markets with fresh dread, if the limited FX market movements so far this morning are any guide. The risk sensitive AUD/USD poked its head above 0.78 on Friday night, but has opened marginally weaker this morning after the military action against Syria. US equity markets closed lower despite stronger-than-expected major bank earnings. On the commodities side, the largest mover has been oil, which rose sharply last week and has continued to rise.
• Thursday’s jobs report and an expected 5.5% unemployment rate for March would suggest an incremental reduction in spare capacity, though unemployment is still above the NAIRU full employment rate, thought to be around 5%.
• Leading indicators of labour demand such as from the monthly NAB Business Survey and Job Ads suggest that further near-term trend employment growth is expected. NAB’s forecast for employment is for a rise of 25K, a little above the 20K consensus.
• Tomorrow’s RBA Minutes are unlikely to flesh out too many new hints on monetary policy. Of keen interest tomorrow will be Chinese GDP and March growth reports, growth expected to be a still solid 6.8%. Thursday is shaping up as another important day for the AUD and the AUD/NZD, NZ’s Q1 CPI then set for release. NAB’s forecasts suggest upside risk for both currency pairs, the NZ CPI likely to be low.
• A month ago, we explored alternative measures of labour market tightness, notably from SEEK, a hot topic given the interest in assessing how close the economy is to full employment and any follow-on inflationary consequences. Such alternative indicators also pointed to only gradual progress being made time toward full employment.
• This week we take a look at another reflection of labour market tightness, this one from the quarterly NAB Business Survey, the March quarter survey due out Thursday. In addition to the larger sample estimates of Business Conditions and Business Confidence, the quarterly survey polls business on constraints to growth.
• One such restraint, the Difficulty of Finding Suitable Labour, by December last year was reported by over half of all firms, at 55.5% of firms, and a little above the 53.4% still nominating Sales/Orders as a restraint. While the Sales and Order constraint has been trending somewhat lower, the Difficulty of Finding Suitable Labour jumped 10% points last year. It’s an indication pointing to a greater shrinkage in perceived labour market spare capacity than the ABS measures have so far reported.
• Also released in the NAB Survey will be an update on Capex plans for the year ahead. This measure of Capex intentions has been lifting since the end of 2012, foretelling the rise in non-mining business investment since 2013. Rises initially were moderate but are now lifting more noticeably. Mining capex has been restrained but anecdotal reports point to recent rises in “catch-up”/operational capex and some LNG expansion interest.

For further details, please see the attached document:

• Australian Markets Weekly: 16 April 2018 (PDF, 281kb)