Job growth shows an economy coming close to trend


Jobs grew by 10.8k in April, in line with our expectations. 

The pace of job gains has been softened considerably this year after the phenomenal strength in 2015. 

However, a softening in labour market conditions was largely expected. Some payback for the earlier strength in the labour market was likely. 

Further, the current pace of growth is more consistent with an economy growing close to trend. The unemployment rate was steady at 5.7%, which was helped by a fall in the participation rate. 

We expect that the labour market will be strong enough to see the unemployment rate broadly steady over the remainder of the year.

Share Markets:

Share markets lost ground overnight over concerns that the US Federal Reserve might, after all, lift the Fed funds rate in June. Markets had previously placed a very low probability on a rate hike during 2016.

The Dow fell 0.5%, the S&P500 was down 0.4% and the Nasdaq fell 0.6%. Markets were also weaker in Europe where the FTSE100 lost 1.8%, the Dax fell 1.5% and the Eurostoxx index was down 1.3%.

Interest Rates:

Interest rate markets ended the night session relatively flat. US 10 year government bond yields fell 1 basis point to 1.85%.

Two year US government yields also fell 1 basis point, to 0.88%. A June Fed hike is now seen as a 30% chance, while November is 100% priced in.

Fed member Dudley said June and July were both live, but noted risks flowing from the possible exit of the UK from the EU, implying July may be favoured for the next hike. Non-voting Fed member Jeffrey Lacker said that the case for a rate hike in June would be very strong.

The minutes of the ECB last meeting were released and continued to support the view that the ECB was open to further rate cuts on the basis of low inflation and weak economic growth.

Foreign Exchange: The USD was initially firmer making a two month high before moving back down. The euro was weaker early in the session but then recovered. The AUD lost ground against the USD early in the evening but like the euro recovered to end the session much where it began on Thursday morning.


Oil was flat at $US48.20 per barrel. Gold was down marginally and copper was a touch weaker. Iron ore slipped from $US56.78 per tonne to $US53.47 per tonne.


The MNI business indicator fell 0.5 points to 50 in May, signalling slightly weaker conditions among manufacturing and service firms.


Machine orders rose 5.5% in March partially rebounding from a 9.2% decline in the previous month.

The gain was stronger than expected, however uncertain global conditions and the recent strength in the yen are key risks to the outlook.

United Kingdom:

Retail sales in the UK (ex-fuel) rose 1.5% in April to be up 4.2% over the year.

United States:

US jobless claims in the latest weekly read were slightly higher than expected (278k vs 275k) but down on the prior reading of 294k.

The Chicago Fed's national activity index beat estimates at 0.1 (vs -0.2), consistent with an upturn in sentiment since winter while the Philadelphia Fed business outlook was disappointing, falling to -1.8 against an expectation of 3.0.

The details within the Philadelphia Fed report were more positive. Prices paid rose to 15.7 against 13.2 last month, prices received jumped to 14.8 from 7.4 and employment recovered to -3.3 from -18.5.

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