Tim Hext: What Australia’s ‘impressive’ jobs run could mean for markets

Here’s what the latest jobs data means for markets, according to Pendal’s head of government bond strategies TIM HEXT

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THE Australian job market continued showing strong resilience in September.

Jobs increased by 64,000, of which 51,000 were full time.

Labour supply also showed strong growth.

A record participation rate of 67.2% and strong population growth drove growth in labour supply, only slightly below jobs growth. As a result, unemployment was steady at 4.1% (though it fell from 4.14% to 4.07% before rounding).

This continues an impressive run for jobs, despite an economy growing at only 1%.

Job growth this year has been averaging almost 40,000 a month – above longer-term averages nearer 25,000.

As population growth moderates, the RBA will be hoping job growth moderates with it to stop labour markets getting tighter rather than looser.

Next week, we get the quarterly break down of jobs by sector.

If the trend of the past few years is to continue, the majority of growth will be in the Construction sector and the Health and Social Assistance sector. This is all driven by state and Federal Government spending, which is independent of interest rates.

Until the governments get their infrastructure and NDIS spending under control, something that will not happen near term, unemployment will stay reasonably low.

Attention will then turn to where full employment is.

As we covered off in our Australian Quarterly, the RBA believes it is nearer 4.5% unemployment. We think this too high. The US Federal Reserve revealed recently that it believes it is nearer 4% for the US economy.

Globally, we see the trend for lower inflation but strong employment being repeated across most developed markets.

The theme underlying this is relief on inflation as supply chains fully normalise, as well as strength in employment driven by big-spending governments.

Bond markets have moderated rate cut expectations this month.

What’s next?

After today’s employment numbers, a February rate cut of 0.25% has gone from 100% chance to only 75%. Anything lower than 50% gets our attention as a good risk-reward trade given our view of a likely cut.

Markets will range trade for now, but the next important data in Australia is Q3 CPI, which is due on 30 October.

This should be market-friendly (our forecast is headline 0.1% and underlying 0.7%) and see the RBA revise down its future inflation expectations in its early November Monetary Policy Statement.

This will leave the door wide open for a rate cut in February.

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.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

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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