New report indicates RBA is going to go big again next month
A higher-than-expected jobs report on Thursday spurred investors to predict another 50-basis-point rate hike by the Reserve Bank of Australia when it meets next month.
The 60,000 jobs added more than doubled the 25,000 predicted by economists, initially sending yields on the three-year Australian government bond higher before the gains eased later in the day, according to a report by The Australian Financial Review.
Bond markets have now priced in another 50-basis-point jump in July. The anticipated increase follows a 50-basis-point hike earlier this month.
Tapas Strickland, director of markets and economics at National Australia Bank, told AFR that the jobs numbers justified back-to-back 50-basis-point hikes.
“There is nothing in this report to dissuade the RBA from raising rates by another 50 basis points in July and August, as is NAB’s view, as it continues to reveal a tight labour market and interest rates remain well below the RBA’s nominated 2.5% neutral rate,” he said.
Charlie Jamieson, chief investment officer at Jamieson Coote Bonds, told AFR that a recession was “almost guaranteed” as the RBA battled rising consumer prices and now forecast a contraction next year.
“Slamming the brakes on inflation will put a lot of pressure on folks that are already facing pressures of high utility bills, higher fuel costs, and, as a result, the economy will slow down fairly rapidly,” Jamieson said.
Bond markets were more focused on how central banks would combat inflation than on the economic outlook, which Jamieson said could deteriorate as rates rose.
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“As growth starts to slip, the bond market will certainly refocus on the growth aspect,” he told AFR.
The under-employment rate fell by 0.4 percentage points to 5.7% in the latest figures, AFR reported. That means the under-utilisation rate – which included unemployed and under-employed people – fell to 9.6%, its lowest level since April 1982. The jobless rate remained stable at 3.9%.
Bond investors have revised their rate-hike forecasts, predicting a series of steep increases that will take the cash rate to 3.8% by Christmas, up from predictions of 3% implied last week. Financial markets predict that the cash rate will rise to about 4.4% by May 2023, compared to predictions of 3.7% last week.
Three-year bond yields spiked 16 basis points to 3.8% following the jobs report. They levelled off at 3.6%, having gained six basis points in the session, AFR reported.
