PERTH: Surprisingly strong employment figures have dashed hopes for further Reserve Bank interest rate cuts, sparking a sell-off in big banking stocks that dragged the sharemarket to its weakest point in nearly a month.
Australia’s unemployment rate unexpectedly dropped to a 19-month low of 5.8 per cent in November, beating economist expectations by a wide margin, despite a big jump in the number of people looking for work.
The strong employment figures put a rocket under the Australian dollar, which surged nearly US1c into the mid-US73c range following the data release, but shares moved lower as investors pulled out of the financials.
At the 4.15pm (AEDT) official market close, the benchmark S&P/ASX200 index was down 42.8 points, or 0.84 per cent, at 5037.7, while the broader All Ordinaries index fell 42.4 points, or 0.83 per cent, at 5087.5.
“The upbeat results, which show a strong jobs market, decreases the chances of a rate cut which isn’t good for financials stocks,” Australian Stock Report chief executive Anthony D’Paul said.
IG strategist Evan Lucas said the local market copped “a towelling” on the diminished rate cut expectations. “Good news is bad news,” he said, for investors betting on high-yielding stocks in a low rate environment.
Capital Economics chief Australia economist Paul Dales advised “taking November’s Australian labour market data with a pinch of salt”.
“But even underneath the salty surface the labour market does appear to be strengthening,” he said.
“This doesn’t necessarily rule out further interest rate cuts when the outlook for investment and inflation is still so weak. But it does make them less likely.”
On the local market, financials were leading the market lower, with the big four banks stepping sharply into the red. The sector has lost more than 3 per cent this week.
Mining stocks fared the best, as the major miners were scooped up by bargain hunters after a week of heavy selling.
The buying came despite iron ore moving to a new 10-year low of $US38.30 a tonne, down 1.3 per cent from its prior close of $US38.80 a tonne.
Oil prices were higher on Wednesday, recovering from steep falls this week even as sentiment remained bearish over the sector’s oversupply.
