6 Oct 2023
Tight US labour market pushes bond yields higher
Markets
- Local and global equity markets were mixed this week as bond yields surged on inflation and higher interest rate concerns.
- The US 10-year government bond yield continued to rise breaking through its highest levels since August 2007. The equivalent Australian bond yield climbed to an 11-year high.
- In local stock news, TPG Telecom is still in discussions with Vocus for the sale of TPG’s enterprise, government, wholesale business and fixed infrastructure. The original deal they had expired.
- Newcrest announced a special dividend of US$1.10 as part of their takeover deal with Newmont. The special dividend was expected.
- Oil prices fell sharply this week with reports that Russia may lift its diesel ban in coming days and US government data indicating weaker demand for gasoline.
- The Aussie dollar fell to US62c during the week as the US dollar surged ahead on expectations another US rate rise is likely before the year is out.
Economics
- The RBA, under a new Governor, held the cash rate steady at 4.10% at its October meeting, as expected. The fourth consecutive month of no changes. Two notable changes to the statement provided both comfort and concern in relation to the path of rate changes from here.
- Australian home prices remained strong in September with imbalances continuing to favour demand as the labour market remains strong and fixed rate mortgage resets are yet to hit home. Nationally, home prices rose by 0.9% in the month, with Sydney prices up 1%, down slightly from the previous month, whilst Adelaide led the gains with a 1.7% increase.
- The pace of Australian private sector credit growth rose to 0.4% in August, up from 0.3% growth in the previous month. However, the annual rate of credit growth slowed further to 5.1%, the slowest run rate since September 2021. Personal credit growth remained elevated whilst business credit growth rose in August.
- New Australian housing lending rose by a stronger than expected 2.2% in August driven by owner-occupiers. Building approvals recorded a strong 7% rise in August, but the data here remains extremely weak.
- The Australian trade surplus widened to $9.6 billion in August, with exports rising by 4% driven by non-monetary gold, whilst imports fell by 0.4% driven by industrial transport equipment.
- US employment data showed job openings increased to 9.6 million in August, from 8.9 million in July, highlighting that resiliency remains even with the backdrop of another potential rate hike from the Fed. Private payroll jobs rose by 89,000 in September. Still healthy, but came in well below expectations, and is the fewest number of jobs added since 2021.
- US construction spending rose by 0.5% in August whilst two key manufacturing indices rose in September, both coming in above expectations but remaining in contractionary territory.
- Speculation has surged that Japanese officials will need to intervene in currency markets to stop the Yen from falling further as it hits multi-decade lows. Officials maintained they would only intervene to calm volatility, not to target a specific level.
Politics
- The US government once again averted shut-down with a last-minute deal to extend funding through the next 45-days. The deal didn’t include any new funding for Ukraine. The deal also subsequently resulted in the removal of the speaker of the House, Republican Kevin McCarthy, led by a small element of his own party with support from the Democrats. It is the first time since 1910 a leader of the US House has been removed.
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