Quicknote: Aussie jobs market still red hot

We continue to think Australia will end 2022 as one of the world’s best placed developed economies. Today’s 3.4% unemployment rate was better than expected and even the seasonally adjusted figure shows that 32k jobs were created. This is an amazing number.

To put it into context, earlier this week we saw 52k jobs lost in the UK during the September quarter, which was almost twice as bad as market consensus. This week’s data shows the problems in Europe and Asia feel like worlds apart.

The RBA will be mindful of these figures given wages growth was also higher than expected and recent inflation numbers are above their appetite. We’ve already seen an RBA upgrade to 2023 inflation figures in the most recent minutes.

There is a growing risk for a 50bpts hike, however, we don’t think the RBA will shift away from its 25bpts increase stance, instead it might have another one or two rate rises in the bag before it stops.

Bottom line: Australia remains a high growth economy that is positively exposed to a China turnaround, whenever that comes. The RBA will be a little unsettled by recent inflation (CPI and wages) and constraints in the labour market, but mindful of pushing rates too high given asset sensitivities in housing. Ultimately, Strong jobs will underpin house prices and limit declines.

Two year bond yields will rise to the 3.5-4.0% range, sending the Aussie dollar higher with them. The higher dollar will help offset some inflationary pressures.