Australian Markets Weekly: 29 August 2016

The major development for markets last week was confirmation that the US Federal Reserve is looking to hike interest rates this year.

Underemployment likely here to stay

For this week, our feature article is on underemployment and what this means for excess capacity in the labour market. We find that recent trends in underemployment appear to be mainly driven by older male workers, while recent part-time employment growth has been driven by those working on average 20-29 hours a week – a 60-80% equivalent full-time load. Those two facets suggest underemployment statistics may remain at elevated levels and importantly may overstate the degree of spare capacity in the labour market.

Marketwise, a near-term US interest rate hike is firmly on the agenda with US Fed Chair Yellen stating on Friday “I believe the case for an increase in the federal funds rate has strengthened in recent months”.

For the week ahead: The US Manufacturing ISM Thursday and US Payrolls Friday will be the major global risk events, with these two pieces key to determining the timing of when (or if) the US decides to lift interest rates this year – and possibly as early as September. China releases its key PMI data on Thursday, while domestically the most market sensitive data prints are Retail Sales and Capital Expenditure on Thursday. There is also plenty of second tier data, including Building Approvals Tuesday and RBA Credit Statistics Wednesday.

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