Australian labour market data for the month of July came out near consensus

Markets

An interview with US Treasury Secretary Bessent got full coverage thanks to an otherwise empty economic agenda. He suggested that the Fed should cut rates by 50 bps in September given lack of evidence of significant tariff-related inflation and following significant downward revisions to June and May payrolls data. Bessent thinks that the Fed probably already pulled the trigger if data would have been more accurate. He sees scope for the Fed funds target range to fall by 150-175 bps. While we don’t side with the total magnitude of policy easing, we do side with the argument that once the Fed engages to additional rate cuts, they should/could opt for a bigger start. The Powell Fed has a history of waiting until they are absolutely convinced about something and then opting to move quickly. In this respect, it’s telling that US money markets in the wake of the Bessent interview for the first time discounted more than a 25 bps rate cut in September. It even triggered hawkish comments by Chicago Fed Goolsbee (voter) who warned against being lurched into action especially given persisting services inflation. We’d err on the side of the dovish positioning to be extended though if today’s (producer price inflation, weekly jobless claims) or tomorrow’s (retail sales, empire manufacturing survey, University of Michigan consumer confidence) data shows signs of weakness. US Treasuries rallied yesterday with the curve moving lower in a parallel shift (5-6 bps across). We continue to prefer steepening going forward. EUR/USD closed above 1.17 for the first time since end July with the YtD top at 1.1829 being the reference. The approaching Alaska summit between US president Trump and Russian President Putin is a wildcard for trading.

News and views

Australian labour market data for the month of July came out near consensus this morning. Employment rose by 24.5k (from +2k in June and vs +25k consensus). The full-time/part-time breakdown was opposite to last month. More pronounced gains in full-time occupations (+60.5k) were partly offset by a 35.9k decline in part-time jobs. The unemployment rate ticked lower (4.3% to 4.2%) but the participation rate (67.1% to 67%) did the same thing. The female employment-to-population ratio and participation rate reached 60.9% and 63.5% respectively, both new historical highs. In a separate release, the Australian Bureau of Statistics indicated that average weekly ordinary time earnings for full-time adults has been greater than A$2000 for the first time ever in May (A$2010). Annual wage growth remained high at 4.5%. The solid labour market report strengthens the view that the Reserve Bank of Australia can take a gradual normalization approach going forward after lowering its policy rate by 25 bps to 3.6% earlier this week. Money markets favour a skip at the next, September, meeting followed by a 25 bps rate cut in November. They see room for one more additional move after that early next year. The Aussie dollar briefly profited from the labour numbers, but couldn’t hold on to gains. AUD/USD (0.6550) is locked in a trading range between roughly 0.64 and 0.66.

The UK Royal Institution of Chartered Surveyors (RICS) released its July Residential Market Survey. Sales market conditions remain challenging with previous signs of recovery faltering somewhat. Measures of demand (new buyer enquiries – 6 from +4) and agreed sales (-16 from -4) slipping back into negative territory. Meanwhile, forwardlooking sentiment now points to a largely flat picture for activity in the near-term (1 from 7). At the 12-month time horizon, sentiment is a little more positive, with a net balance of +8% of contributors anticipating a pick-up in sales activity. Supply indicators point at marginal growth when it comes to new listings on the market and a flatter pipeline for new instructions moving forward. House price indicators signalled a small downward adjustment in average house prices across the country. Over the coming three months, respondents expect prices to remain under a small degree of downward pressure. The 12-month outlook however thus suggest and increase in prices.

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