Markets Overview

  • ASX SPI 200 futures down 0.2% to 7,822.00
  • Dow Average up 0.7% to 39,802.99
  • Aussie down 0.3% to 0.6569 per US$
  • Kiwi down 0.6% to 0.6042 per US$
  • US 10-year yield little changed at 4.2748%
  • Australia 3-year bond yield rose 5.8 bps to 3.72%
  • Australia 10-year bond yield rose 3.8 bps to 4.09%
  • Gold spot down 0.3% to $2,180.57
  • Brent futures down 0.3% to $85.73/bbl

Economic Events

  • 11:30: (AU) RBA-Financial Stability Review

The relentless rally in stocks powered ahead on optimism the Federal Reserve will be able to engineer a soft landing, which would bolster the outlook for corporate earnings.

The latest round of housing, manufacturing and labor-market data pointed to a resilient economy that, in theory, would scare policymakers trying to bring inflation back to target. A day after the Fed signaled it’s on track to cut rates this year, traders decided to keep looking at the glass half full.

The S&P 500 topped 5,240. Small caps extended this week’s gains. Treasury 10-year yields were little changed at 4.27%.

Other News

Australian employment soared last month and the jobless rate declined, highlighting the ongoing resilience of the nation’s labor market to restrictive monetary policy. The currency and bond yields advanced.

Traders pared back expectations for an August interest-rate cut after government data Thursday showed the economy added 116,500 roles, almost three times the 40,000 gain forecast. Unemployment fell to 3.7% in February from 4.1% in the prior month.

“These data clearly challenge the view that monetary policy is providing enough of a drag on the economy to bring down wage growth and inflation,” said Ben Udy, lead economist for Oxford Economics Australia. The Reserve Bank will be watching closely “from here to see if the loosening in the labor market resumes.”

The currency rose as much as 0.4% after the data while yields on the policy-sensitive three-year government bond climbed to 3.7%. Traders now see a 60% chance of a rate cut in August, down from 80% before the data.

The strong jobs data contrasts with indicators ranging from business and consumer surveys to job vacancies and retail sales that suggest the economy is slowing. The RBA this week abandoned its hiking bias after leaving the key rate at a 12-year high of 4.35% as it seeks clarity on the trajectory of the economy.

The jobs figures come after data earlier Thursday showed New Zealand’s economy tipped into a double-dip recession in the face of aggressive monetary policy tightening. That’s despite its tight labor market, with a jobless rate of 4%.

The Australian Bureau of Statistics pointed out that February’s sharp gain came after a large number of people in the prior two months had reported they were waiting to start or return to a job.  “This translated into a larger-than-usual flow of people into employment in February and even more so than February last year,” it said.

Despite the jump in hiring, annual jobs growth cooled to 3.2% from 3.5% a year earlier. Economists at Goldman Sachs Group Inc. — who had forecast 90,000 jobs ahead of the data — expect annual gains to ease further to 1.2% by December.

“The strength in the labor market indicates that there is no pressing need right now to cut rates,” said Diana Mousina, deputy chief economist at AMP Ltd.

“Based on the leading indicators of jobs growth, we think the labor market will deteriorate,” she said. “The RBA will need to cut rates by around mid-year but there is a risk that this gets pushed to August or September if the economic data continues to hold up.”

The RBA  — which characterizes the labor market as still a bit tight — also expects employment growth to slow, sending the jobless rate to 4.4% by mid-2025. It will publish updated forecasts in May.

The central bank raised borrowing costs by 4.25 percentage points between May 2022 and November 2023 to rein in surging consumer prices. While inflation remains elevated, it has been steadily cooling, encouraging bets on rate cuts.

First-quarter inflation is due next month, with economists expecting it will be lower than the 4.1% reading for the final three months of 2023. The RBA’s latest forecasts show inflation only returning to its 2-3% target in late 2025.

“Economic conditions will remain subdued this year,” said Callam Pickering, economist at global job side Indeed Inc. “The risks to the economic outlook seem to lie primarily to the downside. And that should prove sufficient to bring inflation back to target, likely ahead of the RBA’s current forecasts.”