Daily Market Digest: Australia unemployment, BoE rate decision

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Market headlines

  • Australia unemployment rate rises to a 4-month high at 5.80%
  • Bank of England keeps monetary policy unchanged with interest rates at 0.50%
  • BoE signals further stimulus is required following its final assessment in August
  • UK PM Theresa May appoints Philip Hammond as the new Chancellor of the Exchequer, replacing George Osborne
  • US producer prices rise for the third consecutive month

Today’s Economic events

  • UK RICS house price balance 16% vs. 8%
  • Australia MI inflation expectations 3.70% vs. 3.50% previously
  • Australia employment change 7.9k vs. 10.1k
  • Australia unemployment rate 5.80% vs. 5.80%
  • Australia new motor vehicle sales m/m 3.10% vs. -1.0% previously
  • Switzerland PPI m/m 0.10% vs. 0.20%
  • BoE keeps interest rate unchanged at 0.50%
  • Canada NHPI m/m 0.70% vs. 0.20%
  • US PPI m/m 0.50% vs. 0.30%; core PPI m/m 0.40% vs. 0.10%
  • US unemployment claims 254k vs. 263k

Market Performance

FX Market Performance (12GMT, 14/07/2016)
FX Market Performance (12GMT, 14/07/2016)

Australia unemployment rate rises to 5.80%

Latest data from the Australian Bureau of Statistics showed that the unemployment rate rose to a seasonally adjusted 5.80% in June. The Australian unemployment rate was at 5.70% previously in May. On the month, the economy was seen adding 7,900 jobs lower than the forecasted 10k job estimates. The slower pace of job numbers follows May’s net job gains of 19,200.

Australia Unemployment Rate – July 2016 (5.80%)
Australia Unemployment Rate – July 2016 (5.80%)

Full-time employment hiring saw an increase of 38,400, while part-time jobs fell 30,600 during the month of June. The participation rate edged higher to 64.9% from 64.8%.

Commenting on the jobs report, ABS analysts said “the figures show that hours worked by employed people declined, but not by as much as in previous months. We are yet to see an increase in hours worked in 2016.”

Still, many believe that Australia’s unemployment report as understated. The ABS also acknowledged this in a note saying, “We were expecting a soft headline number today because the group being ‘rotated out’ had a much higher employment to population ratio than then the average of the sample. That is, the odds lay with the incoming group having a lower employment to population ratio than the group going out.”

Fed Beige Book calls economic growth “moderate”

The Federal Reserve said that the US economy continued to expand from mid-May through the end of June but cautioned that there was a very little indication that inflation would surge anytime soon. In its Beige Book report, the Fed said that wage pressures remained modest to moderate in most of the regional central bank districts with prices pressures seen to be moderate. The report released late yesterday noted that there were initial signs of softening consumer spending while manufacturing activity was also painting a mixed picture on growth.

“Price pressures remain slight, with contacts generally reporting no movement in selling prices,” the report said.

The Beige book report was compiled by the St. Louis Fed with information collected before July 1st, 2016. The report also mentioned that the UK’s vote to leave the EU caused some concern among businesses in the US. Overall, the report showed a broadly positive outlook, saying “outlooks were generally positive but more cautious, with the upcoming presidential elections and the Brexit vote driving some of the uncertainty.” The Beige book report comes ahead of the Fed’s next monetary policy meeting due on July 26 and 27th.

The data did not have any major impact on rate hikes as the markets widely expect to see the Fed stay on the sidelines at this month’s meeting.

Bank of England keeps rates steady

The Bank of England kept interest rates unchanged at 0.50% at its monetary policy meeting today catching many on the wrong foot. The MPC voted 8 – 1. Investors were bracing to see the central bank cut interest rates by 25bps today.

Bank of England – Interest Rate: 0.50% (July 2016)
Bank of England – Interest Rate: 0.50% (July 2016)

In its monetary policy report, the BoE said that it was likely to deliver stimulus in three weeks time as a “package of measures” after it completed its assessment of the Brexit impact. The BoE published its meeting minutes simultaneously noting that, “In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August.”

The British pound surged on the news as the BoE held rates steady. The London FTSE100 was seen trading weaker as the index posted strong gains in the run up to the BoE meeting fuelled by speculation of further policy easing. However, much of the gains are seen to be short lived as the BoE is expected to act sooner than later. In the UK’s political landscape, following the appointment of the new Prime Minister Theresa May and a new Chancellor of the Exchequer, Philip Hammond, the markets were seen being less nervous.

The BoE Governor is expected to meet the new Chancellor later today. In his previous speeches, Carney said that he did not favor lowering interest rates too much, in what is being seen as a hesitant move towards negative interest rates. He said that he did not want to follow the example of the ECB or the BoJ where rates are negative.

US producer prices rise 0.50%

US producer prices were seen rising in June as business paid higher prices for goods and services, underlining the fact that a rebound in oil prices and tighter labor markets were pushing prices higher. The PPI data released by the US Labor department earlier today showed that the headline PPI increased 0.50% on the month in June. This was more than analysts expectations of 0.30% increase and a rise from 0.40% in May. Producer prices have increased for the third consecutive month so far. Excluding food and energy prices, US PPI rose 0.40% in June, beating estimates of a 0.10% increase up from 0.30% in May.

The weekly jobless claims data was also released simultaneously which showed that claims held steady at 254k last week. The claims were less than forecasts of 265k with the data indicating that employers were more confident in hiring


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