The surprise spike rattled the sharemarket yesterday, sending the dollar down.
THE surprise rise in the jobless rate rattled the sharemarket yesterday and sent the dollar lower as investors bet the Reserve Bank would cut its key interest rate to stop the economy losing momentum.
Australian stocks defied a global rally that has been spurred by signs of progress in resolving Europe's debt problems. While the market initially took its lead from a 2.5 per cent rally on Wall Street, it quickly turned negative when the jobless numbers were released. The jobs news also sent the dollar down half a US cent.
The Australian Bureau
of Statistics reported that
the unemployment rate last month hit a 10-month high of 5.3 per cent, up from
5.1 per cent in July. Nearly 10,000 positions were lost in the month, confounding expectations that as many as 10,000 jobs created would be created.
Of most concern, the economy lost 12,600 full-time jobs for the month, underscoring employers' wariness about growth prospects at a time of growing uncertainty about the global economy.
The sharemarket benchmark, the S&P/ASX 200 Index, was down
22 points at its lowest, but closed up 4.6 points at 4188.
The dollar ended the Australian session at $US1.0596, little changed from Wednesday's close.
Last night in Europe, however, it had climbed
back to $US1.0636.
European sharemarkets, which rose strongly on Wednesday night, continued their advance last night in anticipation of US President Barack Obama's address to Congress on a $US300 billion ($A283 billion) stimulus plan expected to include tax cuts, infrastructure spending and direct aid to state and local governments.
US Federal Reserve chairman Ben Bernanke is also scheduled to discuss the US economic outlook.
Meanwhile, Australian economists said the Reserve Bank might actually welcome a slight increase in the jobless rate to the extent it eased inflationary pressures that would otherwise incline it to lift lending rates.
However, a sudden surge in unemployment in coming months would force the RBA to consider a cut in the current 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,'' said HSBC chief economist Paul Bloxham.
''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 being squeezed by weak consumer confidence and a flood of imports.
During the height of the wild swings on financial markets last month, investors were certain the RBA would cut the cash rate at this month's meeting. According to Credit Suisse, they are again pricing in a rate cut by the RBA's next meeting.
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.
St George chief economist Besa Deda said a continued rise in unemployment could prompt rate cuts.
She noted the RBA had already backed off its bias earlier in the year for higher rates.
Frequently Asked Questions about this Article…
How did the surprise rise in the Australian unemployment rate affect the sharemarket and the Australian dollar?
The surprise rise in the jobless rate rattled the sharemarket and pushed the Australian dollar lower as investors started pricing in a possible RBA rate cut. The S&P/ASX 200 fell as much as 22 points intraday before closing up 4.6 points at 4,188. The Aussie dollar dropped about half a US cent, ending the Australian session at US$1.0596 (it later traded around US$1.0636 in Europe).
What were the key details of the employment report investors should know?
The Australian Bureau of Statistics reported the unemployment rate rose to a 10‑month high of 5.3% (up from 5.1% in July). Nearly 10,000 positions were lost overall and the economy shed about 12,600 full‑time jobs for the month — figures that surprised market expectations of job growth.
Why could a rise in unemployment influence Reserve Bank of Australia (RBA) interest rate decisions?
Economists say a higher unemployment rate can ease inflationary pressure, which reduces the case for the RBA to raise rates. Conversely, a sharp or sustained rise in unemployment would increase the likelihood the RBA would consider cutting the current 4.75% cash rate to support the economy.
How likely was an RBA rate cut after the weak jobs numbers?
After the weak jobs report, markets increased the odds of an RBA rate cut. According to the article, Credit Suisse and market pricing suggested a rate cut was likely by the next RBA meeting, with the prospect seen as better than four‑in‑five.
How did global developments (US and Europe) interact with Australia’s jobs news to move markets?
Global markets were buoyed by signs of progress on Europe’s debt problems and anticipation of a US stimulus plan and remarks from Fed chair Ben Bernanke. Australian markets initially followed a 2.5% rally on Wall Street but then turned negative when the domestic jobs data arrived — showing local data can override global momentum.
What does the ASX 200’s intraday volatility tell everyday investors about market sensitivity to economic data?
The ASX 200’s swing — down 22 points at its low then closing slightly higher — highlights that equity markets react quickly to economic surprises like employment data. For everyday investors, this underscores the importance of watching jobs releases and central bank signals, which can drive short‑term volatility.
Which economic voices and indicators did the article say investors should watch next?
The article highlights watching commentary from economists (for example HSBC’s Paul Bloxham and St George’s Besa Deda), upcoming RBA meetings and the cash rate, future employment reports to see if the unemployment trend continues, and global cues such as US fiscal stimulus announcements and Fed commentary from Ben Bernanke.
Could a small increase in unemployment ever be a ‘good’ sign for investors concerned about inflation and interest rates?
Some economists noted a modest rise in unemployment could ease inflationary pressures, which might reduce the chance the RBA would raise rates — something markets could welcome. However, the article warns that a sudden or sustained surge in unemployment would likely prompt the RBA to consider cutting rates to support growth.
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