Australia labour force data showed employment grew by 17,500 below market forecasts (consensus 20k) while the unemployment rate rose slightly to 5.6% (consensus: 5.5 per cent). The growth split of full-time to part-time workers continued this month with 64,900 full-time roles added and 47,400 part-time positions lost. This continues the sizeable growth in full-time employment of 4 per cent over the last year compared with 2.4 per cent growth in part-time work. The participation rate also rose to 65.7 per cent, 1 per cent higher than this time last year as worker engagement continues to improve into 2018. The housing market continues to slow in Australia but is still growing with residential property prices rising 5 per cent in the year to December. Gains in Melbourne of 10.2 per cent in the year to December more than offset the slowdown in Sydney which only grew 3.8 per cent in the calendar year. RBA minutes expressed little concern at the total risk of households switching to principal and interest repayments from interest-only loans whose terms are expiring while noting it would hurt some individual households substantially.
The US share market was down almost 4 per cent last week with one of the main culprits being the weakness in the technology sector where concerns over a data breach in Facebook saw tens of billions in market cap wiped out. The announcement of new trade sanctions against China and retaliatory sanctions by the Chinese government exacerbated concerns for the global economy and saw major developed and emerging market indices down for the week. The Australian share market followed global equities lower although by a lesser extent dropping 2 per cent over the week with the strength in energy shares from stronger oil prices helping to offset the broader market decline.
Oil prices bounced back last week following news from OPEC that global crude supplies would fall into balance with global demand by the end of September, sooner than previous forecasts. This follows last week’s surprise news that US crude inventories unexpectedly declined. The Bank of England decided to hold the rate at 0.5 per cent in line with consensus expectations. The comments of key policy makers that wage growth is accelerating, and economic slack has been exhausted contributed to expectations of a rate increase in May this year. This helped the pound rally against the Australian dollar by the end of the week.
All eyes were on the Federal Reserve last week as its March session delivered on market expectations with a rate hike of 0.25 per cent. This now brings the U.S. cash rate (1.75 per cent) above the Australian rate of 1.5 per cent for the first time in 18 years. In addition, there was the announcement of a further interest rate increase for next year. It was highlighted that 7 of the 16 members of the Board were in favour of a fourth planned hike for this year. That is up from 4 members at the last session and remains a source of speculation that we might see a bigger divergence between Australian and U.S. rates before the year is over. These movements were dwarfed however by concerns in global equities over escalation of trade sanctions between major economies following the recent decision of the Trump Administration to target China over intellectual property violations with economic sanctions. This saw long-duration bonds rally and yields fall over the week.