Australian Markets Weekly: Forward indicators point to a weaker labour market & lower rates

The RBA has cut the cash rate to 1%, arguing that lower rates are an effort to reduce unemployment and not a response to a deteriorating outlook.

By

For the full picture, download the report – Australian Markets Weekly 9 July 2019.

  • The RBA has cut the cash rate to 1%, arguing that lower rates are an effort to reduce unemployment and not a response to a deteriorating outlook, which it still views as “reasonable”.
  • The forward indicators of labour demand tell a different story. All three major measures of job vacancies are falling, while surveyed hiring intentions have rolled over. That said, surveyed unemployment expectations are mixed.
  • Constructing a summary index from these leading indicators, the labour market has rapidly cooled and is at a point consistent with unemployment edging higher and lower interest rates. With the RBA cutting rates, this deterioration contradicts its more optimistic narrative, where we think a weaker outlook will see it cut rates again later this year, alongside the government delivering additional fiscal stimulus.

The week ahead – NAB business survey and an update from regulators; Fed testimony

The June NAB Business Survey is released on Tuesday and will show if the post-election bounce in business confidence has translated into improved business conditions. The Council of Financial Regulators, which is chaired by Governor Lowe, is publishing a quarterly update on regulation and the housing market on Wednesday. Internationally, Fed Chair Powell delivers his semi-annual testimony to the House on Wednesday and the Senate on Thursday and the FOMC minutes are out on Wednesday.

Customers can receive Australian Markets Weekly and other updates directly in their inbox by emailing nab.markets.research@nab.com.au with the name of their NAB relationship manager.