December jobs report ‘critical’ for RBA interest rate outlook

December jobs report ‘critical’ for RBA interest rate outlook

Despite the deceleration in hiring, labour market participation is seen holding at 66 per cent, keeping the national unemployment rate steady at 5.2 per cent, in line with the RBA’s forecasts offered in November last year.

ANZ Bank is looking for a 5,000 jobs increase in employment during the month, something it believes will help cement the view that further stimulus is required to bolster economic growth and place downward pressure on unemployment.

“This would mean that monthly jobs growth averaged less than 10,000 a month in the December quarter, down materially from the average 28,000 gain in the September quarter and the 23,000 average for the June quarter,” Mr Plank said.

“If we couple this with the downward pressure on the RBA’s economic forecasts from the soft consumer spending result for the September quarter, then a February rate cut is the likely result.”

ANZ Bank is forecasting the RBA will cut Australia’s cash rate to a record low of 0.5 per cent when it holds its first policy meeting of the year on February 4. That view is favoured by most economists with only four of 19 polled by Bloomberg tipping the cash rate will remain unchanged at 0.75 per cent. All of Australia’s major banks expect the cash rate will be reduced.

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Ahead of Thursday’s jobs report, traders also favour a rate cut with overnight index swaps markets pricing in a 56 per cent probability of a 25 basis point reduction to the cash rate early next month. That probability moves to 100 per cent by June while another rate cut, taking the cash rate to 0.25 per cent, has been priced in during the second half of the year.

The release of Westpac Bank’s Australian consumer sentiment report for January on Wednesday could also help fine tune near-term expectations for RBA policy settings, especially if it provides clues as to whether the surge in retail spending reported in November will be sustained in the months ahead.

Having fallen in December due to increased concern about the economy and recent rate cuts from the RBA, Westpac Bank chief economist warns the January reading could be impacted by the bushfires during the survey period.

“It will capture the impact of the bushfire emergency affecting much of Australia’s south east that has included widespread smoke pollution in the major capital cities,” Mr Evans said.

ANZ Bank’s weekly Australian consumer confidence index plunged to near-global financial crisis lows at the start of the year, reflecting deepening concerns about the outlook for the domestic economy. Widespread bushfires across the country, and the accompanying smoke they brought to many of Australia’s largest cities, were cited as one factor behind the plunge in confidence levels, pointing to downside risks for the Westpac survey.

The banks are forecasting the RBA will cut Australia’s cash rate to a record low of 0.5 per cent.Credit:Bloomberg

Outside of Australia, other economic data highlights include New Zealand, Japanese and Canadian consumer price inflation, ZEW investor sentiment in Germany along with flash manufacturing PMI reports for January from Europe and the United States.

Central bank meetings will also take place in Japan, Canada and the Eurozone although no change in policy settings is expected.

After being dominated by financial heavyweights last week, the US corporate earnings season will gather pace with Netflix, Atlassian, IBM, Johnson & Johnson, Proctor & Gamble, Intel and American Express among the big names to report.

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“So far earnings growth looks decent,” said AMP Capital senior economist Diana Mousina. “Consensus is looking for a small decline in quarterly profit growth, but we expect earnings will show a small rise over the quarter and see earnings up by around 2-3 per cent on a year ago.”

Domestically, investors will also production updates from BHP Group on Tuesday and Santos on Wednesday along with December traffic figures for Sydney Airport on Monday.

Last week, Australia’s benchmark S&P/ASX 200 rose above the 7000 level for the first time, supported by strong gains in industrial, financial, real estate, technology and resource stocks.

David Scutt covers markets for The Sydney Morning Herald and The Age

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