The data release of the week was the stellar September unemployment number which fell to 5% (from 5.3% last month) - historically seen as the level where Australia is at “full employment” and is the lowest unemployment rate since April 2012. The 5% level is also where the RBA was targeting unemployment, but two years earlier than forecast, which in isolation may increase the chances that the RBA will raise interest rates sooner than expected. This month’s decline in unemployment however needs to be considered in the context of a longer term trend (rather than one month’s data) and it remains to be seen whether it is sustained going forward. So, for me, there’s no change to the timing of RBA rate hikes just yet.
Although less volatile than the week prior, market sentiment remained negative last week as investor attention returned to the economic consequences of US tensions with China, US tensions with Saudi Arabia, the prospects of higher US interest rates, Brexit risks and fiscal developments in Italy. Despite some stability returning to markets early last week, risk aversion once again took hold and markets sold off to close the week lower… again.
And after conceding defeat in the Wentworth by-election on Saturday night with an unprecedented 20% swing, the Liberal party is now clinging to the hope the government can maintain its majority as the race for the seat of Wentworth narrows. While postal votes counted on Sunday heavily favoured the Liberals, giving the Coalition some hope of retaining the seat, independent candidate Dr Kerryn Phelps was still 1,600 votes in front. The final result may not be known for days.
But don’t worry as the outcome doesn’t materially increase the chances of an early federal election because Phelps had, going into the election (and since over the weekend) indicated her in-principle support for the government on matters of confidence and supply.