The Point

Employment stronger, market almost abandons rate cuts

The latest monthly unemployment data should all but seal an August rate cut, says Pendal’s Tim Hext.

Unemployment jumped to 4.3% in June – the highest rate since late 2021. Only a massive inflation surprise for the June quarter – due out next Wednesday – would stop an August rate cute, says Tim.

But is the June jobs data just noise or the start of a new, upward trend?

We won’t see further ABS jobs data until after next month’s RBA meeting.

But Tim notes that rapid growth in “non-market” jobs (mainly education and healthcare) has masked softer growth in “market” jobs for some time.

“There are signs this non-market job growth may be slowing, so unemployment may drift a bit higher into the end of year.

“However, forward indicators such as job vacancies and NAB’s monthly business survey do not suggest a sharp or rapid rise.”

Tim goes into detail here

Amy Xie Patrick: How to build defensiveness that protects and performs

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Tim Hext: No rate cuts for now, but still likely in February

Aussies are spending again. But what does it mean for rate cuts?

AUSSIE consumers are spending again – that’s the main message from the June-quarter GDP data out this week.

Overall, growth was slightly higher than expected at 0.6% versus a 0.5% forecast. Annually we are 1.8% stronger than a year ago.

But increased consumer spending comes through as a clear trend, notes Pendal’s head of government bonds Tim Hext.

Despite last year’s tax cuts and February’s rate cuts, for a while it seemed consumers were more interested in saving than spending.

However, household spending rose 0.9% in the last quarter, led by a 1.4% rise in discretionary spending.

Now rate-cut expectations have dropped from 100% chance of one cut by November to 90%.

“It does all feed into the idea that the RBA has time and optionality on its side,” says Tim.

“If the consumer gets more confident from here, some may ask if any more rate cuts are needed.”

Amy Xie Patrick: What the Fed’s shift from inflation to employment means for investors

A shift in focus from inflation to employment hints at a likely rate cut in September observes Pendal’s head of income strategies AMY XIE PATRICK

In her latest article, Amy explains how she is positioning Pendal’s income funds in response to these and other global factors.

Amy Xie Patrick: How tariffs, inflation and China’s ‘anti-involution’ policy are affecting portfolio decisions

Despite higher input costs from Donald Trump’s tariffs – and some weakness in jobs data last week – US consumer inflation has barely budged.

That’s largely due to contract lags in supply chains and producers absorbing the pain, says Pendal’s head of income strategies Amy Xie Patrick.

Purchasing manager surveys show input prices rising – a sign that tariffs are indeed biting at the producer level.

Normally, higher input costs push up consumer prices. That doesn’t seem to be happening yet.

“But this delay won’t last forever,” says Amy. “When contracts roll off, either producers absorb the cost hit or they pass it on. Either way, corporate earnings are at risk.”

While US earnings season has been solid so far, the trend is heading down: three straight quarters of falling earnings growth.

The market has yet to price-in this “pinch”, argues Amy.

In her latest article, Amy explains how she is positioning Pendal’s income funds in response to these and other global factors.