US equities snapped a run of three straight weekly gains, declining by their most since mid July. Fiscal sustainability concerns increased after the US Treasury announced plans to significantly increase its buyback operations of longer-dated bonds. The benchmark US 10 and 30-year yields, both at elevated levels, ended the week higher. Signs of these concerns spilling into the FX market were evident as the US dollar softened this week (-0.8%).
Australian labour market data this week looks to support the RBA remaining on hold, though next week's inflation report will likely be given more weight by the central bank. Employment fell by 15.8k in July, lifting the unemployment rate from 4.4% to 4.5%. These were downside surprises on expectations for modest jobs growth (12k) and a steady unemployment rate (4.4%). However, as noted in my review (see here), the higher unemployment rate was due to rounding effects, while employment growth was still tracking at a solid pace with gains averaging around 34k per month over the past 3 months.
The RBA has stressed not overly interpreting volatile labour market data and only last week reaffirmed its view that the overall balance of conditions remained tight - despite revising up its outlook for the unemployment rate. Meanwhile, wages growth held steady at a 3.2% annual pace in the June quarter, broadly in line with RBA forecasts (see here). Private sector wages growth eased to a 4-year low (3.1%), continuing to be outpaced by the public sector (3.4%).
Focus around the Treasury's buyback plans overshadowed events in the US. The minutes of the Fed's July meeting expressed caution, reflecting the split 9-3 decision to hold rates steady. Inflation risks are seen as 'skewed to the upside' and that 'many participants' expected policy tightening would be required unless inflation declined. Also gaining attention was the fact that Chair Warsh was exploring reducing the number of policy meetings from 8 to 6 per year.
In the UK, markets continue to price a BoE rate hike by year-end, though the data makes a case against it. The single month unemployment rate was 5.4% in June, a high since late 2020, while the more stable 3-month measure held at 4.9% against expectations to decline to 4.8%. Meanwhile, wages growth for the 3 months through June eased to a 4.1% annualised pace, softening from a prior 4.4%. Higher energy prices saw headline CPI lift from 2.6% to 2.9%yr in June, in line with forecasts. Core CPI was unchanged at 2.6%yr but services inflation - the key part of the basket for the BoE - slowed from 3.6% to 3.4%yr.
