The ASX hit a five-month high today after it followed the lead of overseas markets to gain more than 1.6%. All 11 sectors ended the session higher, led by Real Estate (+4.2%), Tech (+2.8%) and Materials (+2.3%).
The benchmark ASX 200 index is now up 2.7% for the week and has gained 4.8% since June 30.
Lithium miners were particularly strong as COP28 prompted promises to transition away from fossil fuels — Pilbara Minerals gained 8.74%, Core Lithium ended 10.2% higher, Liontown Resources (ASX:ASX:LTR) added 8.43% and Latin Resources Ltd (ASX:LRS, OTC:LRSRF) gained 17.95%.
Today’s market strength followed the Federal Reserve’s decision overnight to keep its target rate unchanged and was further supported by ABS employment data released today that provides an argument against a further RBA rate hike.
November jobs report
ABS data showed that the Australian economy added 61,500 jobs in November vs the 11,500 expected. Yet the unemployment rate rose to 3.9% from 3.7%, as the participation rate surged to a record high of 67.2%, up from 67.0%.
eToro market analyst Josh Gilbert commented on the figures:
"Australia’s unemployment rate rose more than expected to 3.9% today, which will likely raise investor expectations further that the Reserve Bank of Australia is done hiking interest rates. The good news was employment also saw strong growth, a balance the RBA would have wanted to see.
“The data today suggests Australia’s labour market is loosening up. With job advertisements falling and strong population growth, both the easing of the labour market and a rise in the unemployment rate are likely to continue into 2024.
“This is the final Christmas present for the RBA after being handed down better-than-expected inflation data and softer-than-expected retail sales in recent weeks. This is also translating into a great December for investors, with the ASX up almost 4% already this month.
“The unemployment rate was 3.7% in October, with strong employment growth. This continued tightness has affected wages throughout 2023 and it was evident in the wage price index released for the September quarter, rising by 1.3% – the fastest quarterly rise on record.
"However, in her most recent statement, Michele Bullock pointed to a peak in wages, so this is clearly becoming less of a worry for the central bank.
“Despite markets pricing the US Federal Reserve to cut rates by March, investors locally should not expect the same from the RBA anytime soon. Although we may have seen the final hike from the RBA with data moving in the right direction, it may still be one of the last major central banks to cut rates in 2024."
Read more: Job market slips as unemployment rises to 3.9% despite record participation rate
Local rate cut expected in 2024
Commenting on the FOMC decision overnight, IG markets said, “As widely expected, the Fed kept its Federal Funds target rate unchanged at 5.25%-5.50%. Notably, the all-important median ‘dot’ showed no more rate hikes for the first time since March 2021, and three rate cuts are expected in 2024.
“The odds of a Fed rate cut in March rose to 73%, and the market moved from pricing in 3 ½ rate cuts in 2024 back to 5 — where it was pre-last week’s hotter-than-expected payroll data.”
Following the rate decision in the US, the Australian interest rate market has pulled forward expectations of a first 25 basis point rate cut from the RBA in 2024 from November to June, while a second 25 basis point rate cut is now fully priced by November 2024.
This did come before today’s release of the ABS job report, yet — according to IG — today's jobs numbers won’t cause a drastic repricing of those expectations.
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