Labour Market Report Sparks A Sharp Reversal

Aussie rates futures extended overnight session weakness ahead of domestic employment data, before reversing sharply on an unexpected uptick in unemployment and a soft headline employment figure.

• While the January employment data appeared to deliver tentative signs of labour market cooling, post-data briefings by the Big-4 banks all signalled caution re: taking a firm view. Factors deemed to be in play included “seasonal patterns”, “a greater than usual ‘holiday effect’” and the fact that “the ABS reported “more people than usual with a job indicating they were starting…work later in the month.”
• YM and XM were -10.0 to -13.0 early, only to surge 15-16bp before closing +2.0 and -2.0, respectively.
• AU/U.S. 10-year yield differential is 4bp lower at -2bp, narrowing post-data.
• Swap rates also reversed the early push higher, with the 3s10s curve 4bp steeper.
• Bills closed 1-6bp, bull steepening, also more than reversing early losses.
• Immediate RBA-dated OIS was a tad lower with an 88% chance of a 25bp hike priced for next month. Terminal rate expectations (Sep/Oct-22) continued to fluctuate between 4.10%-4.22%, closing at 4.12%. It traded near the top of the range pre-data.
• ANZ now forecasts the RBA cash rate target peaking at 4.10% in the current cycle.
• Supply matters headline locally tomorrow.