THE surprise rise in the jobless rate rattled equities and sent the Australian dollar lower as investors bet the Reserve Bank could cut its key interest rate to stop the economy losing momentum.
The Australian share market defied a global rally that had been spurred on by signs of progress in Europe's debt problems. While local stocks opened in line with a 2.5 per cent rally on Wall Street, they quickly turned negative when the worse-than-expected jobless numbers came out.
The Australian dollar also fell US0.5? shortly after the release of the jobs figures.
The unemployment rate hit a 10-month high in August of 5.3 per cent, up from 5.1 per cent in July, the Australian Bureau of Statistics said yesterday. Nearly 10,000 positions were lost during the month, confounding expectations there would be as many as 10,000 jobs created.
Of most concern, the economy lost 12,600 full-time jobs, underscoring employers' wariness of growth prospects at a time of growing uncertainty about the global economy.
After falling as much as 22 points, Australia's benchmark S&P/ASX200 Index finished up 4.6 points at 4188. Last night the Australian dollar was trading at US105.91?, down from US106.06? a day earlier.
Economists said the central bank might welcome a slight increase to the jobless rate to the extent it eased inflationary pressures that would otherwise incline it to lift lending rates. But a sudden surge in unemployment in coming months would force the RBA to consider a cut to the 4.75 per cent cash rate.
"The August employment numbers show that the economy has slowed into the third quarter and the unemployment rate is trending upwards," the chief economist for HSBC, Paul Bloxham, said.
"The key question now is whether [the unemployment rate] keeps going up or not. If it only shows a modest rise, then rates will remain on hold. If the increase picks up pace, the case will build for a cut."
On Tuesday, the RBA left rates on hold for a ninth consecutive rates meeting as it weighed contending forces on the economy. High commodity prices are spurring a bulge in mining investment while other sectors are squeezed by weak consumer confidence and a flood of imports.
During the wild swings on financial markets last month, investors were certain the RBA would cut the cash rate this month. While that proved to be a wrong bet, they are again pricing in a rate cut by the RBA's next meeting, according to Credit Suisse.
Yesterday's weak jobs numbers reinforced that expectation, with the prospect of a rate reduction now seen as a better than four-in-five chance, up from a 66 per cent chance just before the release of the jobs data.
The St George chief economist, Besa Deda, said a continued rise in unemployment could prompt rate cuts.
Inside
Data might move markets but it's not always reflective of the broader state of the economy.
Elizabeth Knight, Page 8
Frequently Asked Questions about this Article…
What did the August jobs report say about Australia's unemployment rate and job losses?
The Australian Bureau of Statistics reported the unemployment rate rose to 5.3% in August, up from 5.1% in July. Nearly 10,000 positions were lost for the month, and the economy shed about 12,600 full‑time jobs, a sign employers are cautious amid growing global uncertainty.
How did the surprise rise in unemployment affect the Australian share market (ASX200)?
Local stocks initially opened in line with a global rally but turned negative once the worse‑than‑expected jobs numbers hit. The S&P/ASX200 fell as much as 22 points intraday before finishing up 4.6 points at 4,188, showing the market swung sharply on the data.
What happened to the Australian dollar after the jobs figures were released?
The Australian dollar weakened after the employment release. It was trading around US105.91 (down from US106.06 a day earlier), reflecting investor bets that a weaker jobs outlook could prompt the Reserve Bank to ease policy.
Could the RBA cut interest rates because of the rise in unemployment?
The article notes economists saying a modest rise in unemployment could ease inflationary pressures and keep rates on hold, but a sustained or larger surge in unemployment would build the case for the Reserve Bank of Australia (RBA) to consider cutting the cash rate from its then 4.75% level.
What did economists and banks like HSBC, Credit Suisse and St George say about the jobs data and rate expectations?
HSBC’s chief economist Paul Bloxham said the numbers show the economy has slowed and the unemployment trend is upwards, with the key question whether the rise continues. Credit Suisse noted markets have increased the odds of an RBA rate cut to better than four‑in‑five (up from about 66% just before the data). St George’s chief economist Besa Deda warned a continued rise in unemployment could prompt rate cuts.
How do sector dynamics like mining investment and consumer weakness factor into the RBA’s rate decisions?
The RBA weighed mixed forces: high commodity prices are driving a surge in mining investment, which supports the economy, while weak consumer confidence and a flood of imports are squeezing other sectors. That mix influenced the decision to leave rates on hold at the time and will shape future rate-setting depending on jobs and inflation trends.
Why did local markets react differently to the global rally despite signs of progress overseas?
Although global markets rallied on progress in Europe’s debt problems and a strong Wall Street session, Australian markets were hit by the domestic surprise in employment data. The worse‑than‑expected rise in unemployment undermined local sentiment and tipped markets negative despite the global backdrop.
What should everyday investors take away from the jobs report and immediate market moves?
The article suggests that while data can move markets quickly, a single report isn’t always fully reflective of the broader economy. Investors should note the unemployment uptick, its potential to change RBA rate expectations, and the contrasting strengths across sectors (mining versus consumer‑facing industries) when assessing risk and portfolio positioning.
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