Markets muted after ‘ridiculous’ employment data

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Financial market participants were taken by surprise today as labour data for the September quarter showed the strongest employment statistics since the global financial crisis.

Wednesday, November 3rd 2021, 7:01PM 1 Comment

by BusinessDesk

BNZ head of research Stephen Toplis said the employment rate was verging “on the ridiculous” and may not be sustainable.

The headline unemployment rate, at 3.6%, is well below the Reserve Bank of New Zealand’s (RBNZ) estimated threshold of where the hot labour market starts to cause inflation.

Toplis said the central bank hiking the cash rate by 50 basis-point at its November meeting couldn’t be ruled out, but BNZ was not forecasting it.

Westpac’s chief economist Michael Gordon, on the other hand, said the data showed the NZ economy had “shot the lights out” and that the RBNZ will “need to take more action to cool things down”.

“We’re now forecasting the official cash rate to rise to a peak of 3% by mid-2023, from its current level of 0.5%,” he said in a note.

Gordon said there was “a reasonable case” for a 50-point hike in November, a view which was echoed by an upwards move in bond yields after the news.

The yield on a 2-year government bond jumped 6 basis points to 2.1% before settling back where it started.

Longer-dated yields saw a similar move, as did the NZ dollar which jumped a third of a US cent to reach 71.31 US cents having fallen from near 72 US cents overnight.

NZ’s benchmark equity index, the S&P/NZX 50, was almost completely flat, gaining just one single point to reach 12,993.83. Turnover was $150 million.

Head of retail at Devon Funds Greg Smith said an unemployment rate of below 4% had probably already been factored into share prices.

“If it had gone the other way the market may have traded lower,” he told BusinessDesk.

Smith said investors were hoping to see a number that was “not too hot, not too cold” with the RBNZ already tightening its monetary policy which has been boosting asset prices.

“I think jobs numbers will be seen by investors as confirmation that the economy is proving to be resilient,” he said.

Some covid-affected stocks led the index higher today, with Tourism Holdings climbing 2.5% to $2.83, Vista Group International up 2% at $2.55, and Kathmandu Holdings 1.9% at $1.61.

Pushpay Holdings climbed 1.6% to $1.88 ahead of next weeks’ half-year report, which analysts at Forsyth Barr expect to include a 20% increase in earnings.

Z Energy is also expected to report improved earnings tomorrow but remained unchanged at $3.61 with its share price anchored by the Ampol takeover offer.

Fisher & Paykel Healthcare, which makes up a significant chunk of the index, was up 1.9% at $31.98 and will report its half-year result later in the month.

Australia and NZ Banking Group avoided Westpac’s pitfalls and climbed 1.2% to $29.58 after its chair referenced “improving economic conditions” and A$6 billion of “surplus capital” in its annual report released today.

Tags: Market Close

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