2015 begins with a drop in the number of employed people


The labour market began the year on a soft note - employment declined by 12.2k in January. 

While any decline in jobs is disappointing, it should be taken into the context of very strong job gains in the previous two months. 

The three-month average was healthy, at 24.7k. 

The decline in jobs for January resulted in the unemployment rate edging up to 6.4%, the highest since August 2002. 

The gradual increase in the unemployment rate over the few years has continued, and could extend a little further. 

There are mixed signals for the labour market outlook. 

Leading indicators, such as job ads, have continued to point to further improvement in the labour market. 

However, unless there is a more pronounced pickup in domestic demand, we can only expect modest job growth at best. 

While the lift in the unemployment rate helps to justify the RBA's latest rate cut, and firms the case for another, it should not come as a major surprise for the RBA. 

That said, ongoing weakness in the labour market and domestic economy suggests that another rate cut in the first half of this year remains likely.

Consumer inflation expectations in February lifted 0.8 percentage points to an annual pace of 4.0%, according to the Melbourne Institute. 

Despite the lift, expectations remain low by historical standards and suggest inflation expectations remain well-contained.

Share Markets:

A ceasefire between Russian separatists and Ukraine along with a surprise rate cut from Sweden boosted sentiment overnight.

Meanwhile, US economic data was a bit disappointing. Equity markets focused on the positives, with indices across Europe and the US rising.

Interest Rates: 

US treasuries strengthened slightly, (yields fell).

Bonds were initially sold off on better risk appetite, sending 10-year yields to a high of 2.05%, but then yields fell to 1.99% after retail sales and jobless claims disappointed.

Yields on Australian bond futures slipped 1 basis point for 3-year and 10-year bonds to 1.85% and 2.49%, respectively.

It followed a decline in yields in the primary market yesterday.

Foreign Exchange:

The US dollar weakened against a basket of currencies, after economic data came below expectations.

Other developments also supported the other majors. News that the ECB had raised the cap on emergency funding for Greek banks helped the euro rose to a one-week high against the US dollar, and also strengthened against the AUD.

GBP strengthened on an upbeat report from the Bank of England.

The Australian dollar fell to as low as 76.4 US cents after the unemployment rate rose to a 12-year high, but more than regained those losses overnight in line with the fall in the US dollar to trade around 77.4 US cents. 


Commodity prices rose, supported by the weaker US dollar and the lift in risk appetite.

Oil prices strengthened, helped by news of more investment spending cuts by oil firms. Gold prices were also up slightly, also supported by the monetary stimulus decision by Sweden's central bank.


Eurozone industrial production was flat in January, versus consensus expectations of +0.2%. 

The country breakdown however, revealed a pickup in Germany, France and Italy, but a contraction in Spain and Portugal. 

Sweden's central bank (Riksbank) joined the list of those easing this year, cutting its repo rate from zero to -0.10% and announcing it will buy government bonds soon.

The central bank Governor has said that the bank was "ready to do more".


Machine orders jumped 8.3% in December, well beyond consensus estimates for a 2.3% rise.

While this data series is notoriously volatile, it provides a positive sign that the economy is recovering from a recession induced by the sales tax hike last year.

New Zealand:

New Zealand's Business manufacturing PMI fell sharply from 57.1 in December to 50.9 in January.

It was the lowest in two years. The index remains just above 50, therefore continuing to signal expansion.

United Kingdom:

The Bank of England was upbeat on the UK's growth outlook and lifted growth forecasts. However, low inflation thanks to low oil prices is limiting the need to raise rates soon.

Governor Carney has said that "the UK is not experiencing 'deflation'".

Forecasts suggest that inflation will hit its 2% target in around two years.

While the BoE was open on cutting rates if global growth slowed and prices were falling, "the most likely next move in monetary policy is an increase in interest rates". 

United States:

US retail sales fell 0.8% in January, disappointing market expectations of -0.4%.

Even when stripping out energy-related factors, sales were disappointing, rising just +0.1%.

Lower fuel costs, a strong labour market and high consumer confidence appear to be having a limited impact on household spending.

US jobless claims rose by 304k, above consensus of 287k for the week ending 7 February.

The four-week moving average however fell to 289.8k, the lowest in three months indicating that the labour market remains in good shape.

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