Unemployment Wobbles Higher In January, But Don’t Expect Quick Rate Cuts!

Last month Australian employment surprisingly tumbled in December, snapping four months of gains and sending the currency lower as traders boosted wagers on the Reserve Bank switching to policy easing this year. The economy had shed 65,100 roles, led by the biggest monthly drop in full-time employment since the height of pandemic, but unemployment held at 3.9%, cushioned by a sharp fall in the number of workers seeking jobs.

Now we got the next update from the ABS which showed that the economy added just 500 roles in January, confounding expectations for a 25,000 gain and well shy of numbers needed to hold down the jobless rate.

Unemployment advanced to 4.1% from 3.9% while the participation rate was steady. The number of people considered officially unemployed increased by 22,000.

“This is another sign of moderation in jobs demand,” said Diana Mousina, deputy chief economist at AMP Ltd. “I still don’t think that you can justify a near-term rate cut right now because the labor market still looks tighter than before the pandemic. It’s loosened, but not enough to get worried about.”

NAB’s Tapas Strickland noted the labour market was still tight and said the central bank would likely wait for next month’s data before drawing any firm conclusions. “If the lift in the unemployment rate is sustained, then that would suggest a softening in the labour market is occurring faster than the RBA’s track, which could give the RBA greater confidence in their forecasts of inflation heading back to the mid-point of the band,” said Mr Strickland.

But frankly, the numberwanging is all over the shop.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Are Stocks At A Precarious Pinnacle?

This is our weekly market update, starting with the US, Europe, Asia and Australia, as well as Oil and Crypto.

The S&P 500 soared to fresh highs on Friday, but fewer stocks have been participating in the rally, stirring worries that recent gains could reverse if the market’s leaders stumble.

We are talking market breadth, or the number of stocks taking part in a broader index’s rise. A high breadth is often viewed as a healthy sign by investors as it shows gains are less dependent on a small cluster of names.

The reverse, a narrowing, on the other hand is a warning. And in fact, the Magnificent Seven have accounted for nearly 60% of the S&P 500’s gain this year, according to Dow Jones Indices.

The problem is the narrow group of stocks powering the market could make it more vulnerable to swift declines if an earnings disappointment or other issue hits its biggest stocks. While most of the megacaps have powered higher this year, shares of Tesla have fallen 22%, the third-worst performer in the S&P 500, demonstrating how quickly the market’s superstars can fall out of favor.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

The Costs Of Higher Interest Rates

Introduction

Using data from various sources including the RBA and APRA, we have estimated the gross and net additional payments households are making to financial institutions in Australia, following the RBA cash rate lifts from May 2022 to date.

We have only included owner occupied and investor loans, as these are the main foci of debt, but of course higher rates have also been applied to SME’s, personal loans and credit cards, but these are excluded from this analysis. These findings are indicative only.

Approach

We took the loans outstanding data from the RBA monthly series, for both owner occupied and investor loans from their monthly series. We took the average interest rate charged on these loans again from relevant RBA data sources. We also took the total deposit pools held by the banks, using data from APRA (authorised depository institutions) and the typical interest paid from the RBA rate series.

During the period under review, the net value of loans and deposits grew, so we used the average balance each month. We applied the average interest rate charged to each balance, and compared the outcome in May 2022 to December 2023, the period over which interest rates rose. The different between the May 2022 to December 2023 is the gross increase in payments households were forced to make.

We also provided a net offset calculation because banks in the period also provided higher rates, at least to some extent on deposits, calculated with a similar method. These payments went to different households of course.

Note we have not included any assessment of capital being repaid during this period, as we worked on gross average balances. But this effectively isolates the impact of the higher rates.

Results

On a gross basis, banks received an additional $49.52 billion on an annualised basis between May 2022 and December 2023, on owner occupied loans, and $22.5 billion on investment loans. Together this is worth around $70 billion annualised. This translates to $4.13 billion per month for owner occupied loans and $1.88 billion for investor loans.

Turning to deposits, banks paid out and additional $44.09 billion on an annualised between May 2022 and December 2023, or $3.67 billion per month.

Offsetting the deposit interest paid to the mortgage interest received, Banks received an additional $26.1 billion from households on an annualised basis, or $2.17 billion per month.

We would also make the point that the interest paid by some households are generally returned to asset rich savers, not the same households. So it would be appropriate to cite the gross impact, rather than the net impact if this distinction is made.

This is in addition to returns deposited with the RBA under the Term Funding Facility.