Aussie jobless rate rises

Emily Nicol
Chris Scicluna

Overview:
Some rather mixed news regarding the coronavirus mapped onto a variable performance for Asian stock markets today. In China, where the number of new coronavirus cases in Hubei fell sharply, and the PBoC confirmed a 10bp cut in the benchmark 1Y loan prime rate to 4.05% and a 5bp cut in the 5Y rate to 4.75%, the CSI300 leapt 2.3%, rising to the highest level since before the Lunar New Year holiday and indeed moving back into positive territory for the year to-date. Stronger-than-expected Chinese data for new bank lending subsequently released – including an increase in aggregate financing to above 5000bn yuan in January – tallied with the better mood in China’s markets too.

Elsewhere, however, stocks fell in Korea (the KOSPI closed down 0.7%) where the number of reported cases jumped and, following market close, a first fatality from the coronavirus was confirmed. And in Japan, where two deaths from the virus were reported among the Diamond Princess cruise ship passengers, equities made only relatively modest gains (the Topix closed up just 0.16%) despite a further notable weakening in the yen, which is currently close to ¥111.75, the weakest in almost eleven months. Indeed, with the S&P500 having maintained its relentless uptrend (closing up 0.5% yesterday) and futures currently pointing to additional gains today, a key theme is the strength of the dollar, which has now risen on a trade-weighted basis to its strongest since May 2017 (DXY above 99.8) and saw the euro briefly pushed below $1.078 a little while ago too.

In the bond markets, USTs have remained within yesterday’s range (10Y yields currently a touch below 1.56%), consistent with the mixed messages from equity markets. With the exception of the very long end of the curve, however, JGBs weakened slightly, with 10Y yields returning above -0.05% on the back of the weaker yen, which if sustained should provide a modest inflationary impulse to please the BoJ. Elsewhere, ACGBs gained (10Y yields down 3½bps to back below 1.00%) following an increase in Australia’s unemployment rate (see below). And ahead of today’s UK retail sales data, European govvies are so far largely little changed following a slightly softer German consumer confidence survey but upwards revision to French inflation.

Euro area:
As expected, this morning’s GfK survey results suggested that German consumer confidence has softened, but only a touch. In particular, the headline index, which is quoted as a forecast for March, dropped 0.1pt to 9.8, still towards the top of the range of the past nine months but well down on the levels registered from the second half of 2017 through to the middle of last year. Perhaps surprisingly in light of concerns about the potential impact of the coronavirus, the survey index of economic expectations rose to a three-month high in February. But other key indices slipped back. Among those was the measure of propensity to buy, which nevertheless remained relatively elevated by historical standards and above its level a year ago, suggesting that consumer spending should continue to grow in the first quarter.

Following this morning’s German results, this afternoon brings an update on household sentiment in the euro area as a whole, with the preliminary February estimate of the Commission’s consumer confidence index due. In January, the index moved sideways at -8.1, matching December’s near-three-year low. And a slight deterioration, consistent with this morning’s German GfK index, is expected in the current month.

Meanwhile, the final estimates of French inflation in January this morning brought a modest upwards revision from the preliminary release, with the EU measure nudged up by 0.1ppt to 1.7%Y/Y, a thirteen-month high. On the national measure, while the headline rate was unchanged at 1.5%Y/Y, energy price inflation was revised higher from the flash release (by 0.8ppt to 4.5%Y/Y). But with manufactured product prices still down compared with a year earlier and services inflation down 0.1ppt to 1.3%Y/Y, core inflation on the national measure fell in January by 0.1ppt to 1.0%Y/Y.

Beyond the economic data today, the ECB will publish its account of the January monetary policy meeting when its strategic policy review was officially launched. In addition, ECB Vice President Luis de Guindos will speak publicly.

Australia:
In line with the improved labour market activity suggested in yesterday’s online job vacancy data, today’s ABS employment numbers came in a touch stronger than expected as disruption from the impact of the bushfires appeared to have no material impact on the headline statistics. Indeed, total employment rose 13½k in January, which was more than fully accounted for by a jump in full-time positions filled, with the 46k increase the firmest for twelve months. Nevertheless, given recent weakness, this still resulted in the softest annual rise in full-time employment (144k) since April 2017, to leave total employment up 247k, similarly the weakest for almost two years. And that saw employment growth ease 0.2ppt on the month to 1.9%Y/Y, down 0.9ppt from the peak last May. The number of hours worked also continued to trend lower at the start of the year, with the 0.9%Y/Y increase in January down from growth of 2.2%Y/Y previously and the softest for two years.

With the number of people joining the labour force having risen at the start of the year, to leave the participation rate (66.1%) just below August’s record high, the unemployment rate more than reversed the surprise drop in December, rising 0.2ppt to 5.3%. Of course, this remains firmly above the RBA’s estimate of the NAIRU (about 4½%) suggesting still ample slack in the labour market. Moreover, with GDP growth likely to remain sub-potential over coming quarters as the impact of the coronavirus on China’s economy hits demand for Australian commodities and services, the unemployment rate might well nudge higher over coming months. So, while RBA Governor Lowe has recently noted increased concerns about the possible impact that further rate cuts might have on the housing market, today’s figures arguably still support the case for additional easing in due course – indeed, markets are still pricing in a probability of greater than 50% of a 25bps rate cut in the second half of this year.

UK:
Today will bring January’s retail sales figures from the UK. Sales (whether including or excluding auto fuel) are expected to post positive growth on the month for the first time since July. However, the consensus forecast of about ¾%M/M would still leave sales down about 1.0%3M/3M, matching the equivalent rate in December, to suggest no improvement in underlying momentum in spending in the New Year. Meanwhile, ahead of tomorrow’s flash PMIs, this morning will also bring the CBI’s latest industrial trends survey, which will provide an update on manufacturing conditions in February.

US:
In the US, the usual weekly jobless claims data are due along with the Philadelphia Fed business survey results for February and the Conference Board coincident and leading indicators for January.

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