Employment stronger, market almost abandons rate cuts

Employment data came in stronger for October, prompting the market to ‘almost’ abandon 2026 rate cuts, writes Pendal’s head of government bond strategies, TIM HEXT

• Employment numbers stronger
• Most remaining economists abandon rate cut forecasts
• Find out about Pendal Government Bond Fund
• Browse all Pendal’s fixed-income funds

TODAY’S October employment numbers provided the usual amount of noise but highlighted that the rise in unemployment in September to 4.5% was a head fake.

Employment in October grew by 42,000 jobs and unemployment fell to 4.3%, or 4.33% to the second decimal place.

For those looking to dampen the noise, the trend unemployment rate stayed at 4.4%, spot on the Reserve Bank medium-term forecast.

Unemployment, October 2025 (seasonally adjusted vs trend):

Source: Australian Bureau of Statistics

Hours worked also rose to 0.5% and given it was all full-time jobs this month, the underemployment (part time workers seeking more hours) also fell to 5.7%. This leaves labour underutilisation at 10%.

Not surprisingly today’s number saw most remaining economists who had rate cuts still forecast abandon them. The market has less than 10% chance of a February cut and 20% chance of a May cut.

This has finally piqued our interest. Yes, we agree the Reserve Bank is likely to be on hold well into next year but there is time value in these sorts of chances.

We have entered some short-dated received positions post today’s numbers, as they provide a good risk/reward defensive hedge against all sorts of eventualities in the months ahead.

Our own data expectations do not have much of a view on unemployment. We think the consumer is picking up pace, but against this the government fiscal pulse is falling.

However, we think the quarterly pace of trimmed mean inflation will return to the 0.6% to 0.7% level in the quarters ahead, consistent with the Reserve Bank target.

Yes, annual numbers are lumbered with the recent 1% third-quarter number which will see annual inflation above 3% for a while yet, but it is the pulse that is important.

Meanwhile, for those planning holidays in December the Reserve Bank meeting on the 9th should be the most boring in years. ‘Happily on hold and balanced risks’ is all you need to know.

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here

About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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