November rate cut likely due to higher unemployment

14.59 AEDT, Thursday 11 October 2012

November rate cut likely due to higher unemployment
By Ben Taylor (Sales Trader, CMC Markets)

The Australian market has reversed its initial losses as the unemployment rate moved higher increasing the likelihood of a November rate cut.

The unemployment numbers showed better than expected full time employment, as well as a rise in the participation rate and the unemployment rate. The result conveys a soft labour market in the mix of waning growth both domestically and overseas.

With unemployment on the rise, October’s rate cut was well and truly justified today. The percentage chance of a rate cut in November just got better. The easing bias is here to stay. Today’s result has helped our local market defy overseas leads and pushed us into positive territory despite an overwhelming case of macro woes.

The warning signs are building from US companies as we head into the US reporting season. Alcoa has downgraded its December quarter guidance and Chevrons announcement last night of lower earnings are examples of large companies currently struggling with the current slowdown.

Open ended quantitive easing from the Federal Reserve seem to be doing little to lift the market’s belief that a turnaround is definite. Downgrades from the IMF and World Bank have spoilt the party lately while the continuous unrest in Europe ensures headlines focus on an untenable situation.

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