Strong October labour data in Australia reinforce views that the RBA has ended its tightening cycle
Markets
US Treasuries outperformed Bunds yesterday. Yields dropped between 2.2 (2-yr) and 4.7 (7- to 10-yr bucket) bps. The majority came right after the cash market open, catching-up with the Nov 11 release by ADP. The creator of the unofficial monthly payrolls report recently started providing weekly updates as well. Tuesday’s print showed companies shedding 11.3k jobs a week in the four weeks through October 25. Longer maturities including the 10-year found a bottom after a $42bn 10-yr Note auction tailed slightly with bidding metrics a tad weaker. The currently outsized market relevance of alternatively sourced data (such as ADP’s) due to a lack of official government releases may fade in coming weeks. A bill to end the 43-day long shutdown passed the House in a 222-209 vote, despite two Republicans defecting and with the support of six Democrats. President Trump signed that bill into law overnight, supporting risk sentiment. The White House instructed staff to return to their offices starting today but it’ll take several weeks at least to overcome the backlog. It means no jobless claims or October CPI that were otherwise scheduled for today. WH Press Secretary Leavitt said yesterday that it’s unlikely that last month’s inflation figures will be published at all. The same goes for the payrolls report, although some expect the Bureau of Labour Statistics to combine two months (October and November) into one statistic to catch-up. German rates yesterday eased between 0.3 and 2.6 bps in a bull flattening move, navigating through a flurry of ECB speeches. FX markets were a sea of calm and we expect more of the same today. EUR/USD overcame European weakness into the US open and ended the day marginally higher just shy of 1.16. DXY treaded water around 99.5 with a weaker JPY preventing losses for the trade-weighted index. USD/JPY rose to a new 9-month high (154.79). Sterling faced selling pressures over the last couple of sessions amid Labour’s internal disarray spilling on the streets, a weak labour market report and sub-par Q3 growth. EUR/GBP appreciates to 0.884, the strongest level since April 2023. UK GDP expanded by 0.1% compared to the 0.2% expected and with the accompanying monthly series revealing underwhelming dynamics (-0.1% m/m in September after stagnating the month before). The numbers are another blow to chancellor Reeves going into the critical Autumn Budget on November 26, which is expected to end up in Labour breaking its 2024 election manifesto through introducing additional taxes. To help fill a fiscal hole of as much £35bn, the UK Treasury has presented the Office of Budget Responsibility with plans to cut household bills and lower inflation (through lowering regulated prices). That should pave the way for further BoE rate cuts and lower borrowing costs. The OBR delivers the economic forecasts to which the UK fiscal rules are being measured against.
News and views
Strong October Australian labour market data strengthen the view that the Reserve Bank of Australia is finished with its policy normalization cycle. The number of employed people rose by 42k, beating 20k consensus. Details showed an even bigger increase in full-time employment (+55k) which was partly offset by less part-time jobs (-13k). The unemployment rate dropped back to summer levels (4.3%) after spiking to 4.5% in September. The participation rate remained steady at 67%. Hours worked rose by 0.5% M/M, outpacing the 0.3% M/M employment growth. The AUD government bond curve bear flattens this morning with yields rising up to 10 bps at the front end of the curve. The Aussie dollar profits marginally, currently changing hands around AUD/USD 0.6550.
The UK October housing market survey from the Royal Institution of Chartered Surveyors (RICS) showed the national price balance slightly declining from -17% to -19% in October. Details showed new buyer enquiries at the weakest level since April (-24%) as uncertainty surrounding the upcoming Autumn Budget (potential changes to property-related taxes including stamp duty, capital gains and inheritance tax) not only led to reduced buyer demand, but also sales and new property listings. Above target inflation and rising unemployment are also negative for the overall market. Agreed sales registered a net balance of -24%, down from -17%. A net balance of +7% surveyors anticipates a modest improvement in 2026. New vendor instructions (-20%) hit the lowest level since 2021.
Author
KBC Market Research Desk
KBC Bank
