ASX Falls: Australian Market Slips as Unemployment Rate Hits 4.1%
Synopsis
The Australian share market has been brought back down to reality after new data showed more people are finding work than anticipated. Further jobs are usually seen as positive, but the unemployment rate fell to 4.1% and investors are concerned that this will prompt the Reserve Bank to increase interest rates to cool off the economy. This change in the expectations of a market that had been chasing yield for 12 months saw a massive retracement occur, especially with gold miners, while major banks remained buoyant as they geared up towards higher future returns.
The Australian stock market experienced a mood swing when the ASX plunged after new jobs data was announced. The Australian Bureau of Statistics had announced that Australia’s unemployment level remained lower despite slipping to 4.1% in December from the previous figure of 4.3%. Although it is broadly positive for the country to have more people in work, investors feared that a stronger economy would stoke higher inflation. This fear implies that the Reserve Bank may have to lift interest rates once more when it next meets in early February to prevent prices from rising so rapidly.
The market had been trading at the high of the session before the news broke, but fell 0.3% almost immediately after that announcement crossed. There were about 65,000 jobs added to the economy in one month, and most of them were full-time positions. That is an indication that companies still are hiring aggressively, which puts more money in people’s pockets. But for the stock market, this “resilient” labour market means that a revival of its “cheap money” era of lower interest rates now seems farther away than many people already hoped.
Banks and Gold Miners Diverge
While nothing seemed spared from the market’s wrath, various sectors responded in very different ways. Shares of the major Australian banks actually increased. This is because increased interest rates generally enable banks to make more money on the loans that they extend to customers. Major banks, including Commonwealth Bank and NAB all rebounded as the market started to price in a much higher likelihood of a rate hike than just yesterday.
Gold mining stocks, however, suffered a brutal day. Gold is less appealing to investors when interest rates are expected to rise, because the metal does not pay any interest or dividends. The share prices of major miners including Northern Star and Evolution Mining slumped. This was exacerbated by a negative report from one of the industry leaders which subsequently caused a “domino effect” within the entire gold sector and in doing so triggered some of the strongest losses witnessed for several months.
What This Means for the Days and Weeks to Come
Up ahead all attention now turns to the Reserve Bank of Australia or RBA who meet on February second. Before today’s news, many experts weren’t even sure if interest rates would move at all. Now, those odds of a rate increase have leapt. The mere fact that Australians logged a record 2 billion hours of work in one month is a suggestion that the economy is at its limit, which is what the central bank tries to slow down if it wants to avoid inflation snowballing.
For ordinary people, that is a two-edged sword. Meanwhile, the job market is amazingly strong and it's a great time to be hunting for work or a promotion. However, elevated resistance to another interest rate increase means that mortgage payments could be rising again very soon. Now that the market breathes what will appear to be a surprise, investors are going to pay close attention to next week’s inflation report as they want to see whether the “jobs boom” is really pushing prices up in every corner of the country.
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At Inspirepreneurs Magazine, covering entrepreneurship, business failures, and the human stories behind the world's most ambitious founders. She writes at the intersection of strategy and storytelling.
