Aussie dives on weak employment and Chinese data

Summary:

• Australian employment shrinks while unemployment rises in October
• A set of Chinese figures for October disappoints across the board
• Aussie dollar moves lower, there is still space to run lower before striking the key support

The Aussie dollar is by far the worst performing major currency in the G10 basket after both domestic jobs data and Chinese releases for October came in well below expectations. Employment in the Australian economy shrank 19k last month, while the median estimate had called for a 15k increase. Moreover, the previous reading for September was revised down to 12.5k from 14.7k. Looking at the details of the release one cannot find too many rose points as employment fell both in full-time jobs (-10.3k) and part-time jobs (-8.7k). That is not the end of the bad news out of there as the jobless rate unexpectedly ticked up to 5.3% from 5.2%, whereas the participation rate ticked down to 66% from 66.1%. It looks like a clear unwanted mixture, however, one needs to take into account that we have had a steady increase in participation in the Australian labour market over the recent months which has held the unemployment rate steady since spring. We do not think this release will be a game-changer for the RBA, hence rates should stay intact till the end of this year. Anyway, the probability of more cuts next year has noticeably jumped.

The second points dragging the Aussie down this morning was a set of Chinese releases for October as all of them surprised to the downside. First of all, industrial production rose only 4.7% YoY, far below the expected value of 5.4% YoY and retail sales increased 7.2% YoY, compared to the median Bloomberg estimate of 7.8% YoY. These two releases seem to suggest that domestic demand remains fragile there. The same conclusions could also be drawn from inflation readings as the ongoing CPI growth is being driven solely by goods inflation (meat prices in particular) while service inflation has been slowing down since the start of the year. An exogenous structure of Chinese inflation signals the PBoC may continue tweaking its policy in order to make it yet more accommodative and thereby help the economy keep on track. Last but not least, investments in fixed assets (excluding the rural sector) rose only 5.2% YoY since the beginning of the year, hitting the slowest pace since at least 1998. Furthermore, a rise keep being driven mainly by state-owned companies, while private companies keep underperforming. Investment growth in private firms reached its slowest pace since the end of 2016.

Chinese investments in fixed assets reached in October their slowest pace since at least 1998. Source: Bloomberg