It was another week in which the rise in US Treasury yields set the tone in markets. Notably, however, US equities advanced whereas Europe and Asia continued to slide. Data remained consistent with the Fed's higher for longer messaging on interest rates as ongoing strength in the US labour market was confirmed. US CPI data for September shapes as the highlight on next week's calendar.
The handover to the new RBA Governor Michele Bullock started smoothly as the Board extended its pause by leaving the cash rate at 4.1% (reviewed here). Rates have now been on hold since June as the Board has elected to take time to monitor developments as the effects of its earlier rate hikes gain traction. But the Board has retained its conditional tightening bias, prepared to hike again in this cycle if the timeframe for returning inflation to the 2-3% target band risks becoming more protracted, currently forecast for "late 2025". It is now in the hands of the incoming data to determine whether or not further tightening is required. The RBA's Financial Stability Review detailed the nature of the adjustment households are currently navigating, with rising interest rates and high inflation causing discretionary spending to be pared back and savings to be drawn upon.
Australian data this week reaffirmed the upswing in the housing market. CoreLogic reported the 8th consecutive month-on-month rise in housing prices, with the national index up 0.8% in September, to now be 6.6% above the January low. Housing finance commitments have risen on the back of this, posting a 2.2% rise in August (see here). Despite the buoyant conditions in the housing market, dwelling approvals remain at low levels; however, August approvals surprised with a 7% rise (see here). In other news, the trade surplus elevated to $9.6bn in August, driven by a 4% lift in exports (see here).
A 336k surge in US nonfarm payrolls in September topped all estimates by a sizeable margin, with backward revisions adding a net 119k to payrolls over July and August. In a further signal of strength, job openings increased by 800k to 9.6 million in August. Robust labour demand held the unemployment rate at 3.8% as the participation rate remained unchanged at 62.8%. The ongoing resilience of the US labour market keeps the prospect of additional tightening in play, though average hourly earnings softened from 4.3% to 4.2%yr, well below the 5-6% range seen from late 2021 through much of 2022.
The latest developments in the euro area showed that the labour market continues to defy broader economic weakness. The unemployment rate for the 20-nation euro area is sitting on historic lows after declining from 6.5% to 6.4% in August. Strength is holding up in the labor market despite the PMI gauge indicating that the economy contracted in the September quarter. The composite PMI for August (47.2) posted its 4th consecutive reading below the 50 line that separates contraction from expansion. Weakening demand conditions were weighing on both the manufacturing and services sectors. This was also reflected in a sharp 1.2% fall in retail sales in August (-2.1%yr).