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Asia markets rebound, AUD stronger on jobs data

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Shares in markets across Asia rose on Thursday following overnight gains on Wall Street, with Hong Kong’s Hang Seng index leading the pack among the region’s major markets. The S&P/ASX 200 gained as much as 1.4% to a high of 7296.80 early on and consolidated gains to close up 1.05% at 7250.80. AUD/USD is holding above US73c. NZX 50 closed up 1%.

AUD/USD jumped above US73c after the seasonally adjusted unemployment rate in Australia fell by 0.2 percentage points to 4% in February 2022, the lowest unemployment rate since August 2008, according to data released by the Australian Bureau of Statistics (ABS). 

Employment increased for the fourth month in a row, by around 77,000 people (0.6%) in February and was around 202,000 people (1.5%) higher than the pre-Delta period high of June 2021. Seasonally adjusted hours worked rebounded in February by 8.9%, following the large fall of 8.6% in January.

Interest rates

In the US overnight, the Dow Jones Industrial Average was up 1.55%, the S&P 500 rose 2.24%, and the Nasdaq advanced 3.77%, as the US Federal Reserve raised interest rates by 25 basis points for the first time since 2018 and indicated a further six rate hikes this year.

Fed chair Jerome Powell said the committee had made “excellent progress” in cutting bond purchases, a process known as quantitative tightening (QT). The Fed has US$9 trillion in bonds, with some economists expecting a reduction in purchases of up to US$1 trillion. The Fed plans to let many of the bonds that it owns mature without replacing them.

QT is the opposite of quantitative easing (QE), where the Fed buys bonds to flood the economy with cheap money. QT can be just as powerful in pushing up borrowing costs.  As the central bank stops buying, the price of bonds fall. When prices fall, the yield, or borrowing cost, rises, making loans for business and consumers more expensive.

The effect can be to slow economic growth, with slower demand helping to reduce inflation, which is soaring in the US. The Fed revised its inflation rate forecast to 4.3% by the end of this year, up from a previous forecast of 2.6%. The next FOMC meeting is in the first week of May.

Oil

The International Energy Agency has lowered its forecast for oil demand and supply following the jump in prices, conflict in Ukraine and lower than previously anticipated global growth estimates.

The group cut global oil demand estimates by 35% for 2022 in its latest monthly report, according to CBA analysts, which is equivalent to around 1% of global supply.

So-called “demand destruction” - where higher prices lead to less consumption - would account for the fall in demand alongside weaker growth forecasts.

“The IEA expected world GDP will expand 3.4% this year, down from a previous estimate of 4.3%,” said Vivek Dhar, a commodities analyst for CBA.

“Weaker growth in the US, Europe, Russia and Asia is expected to more than offset stronger economic activity in the Middle East, Latin America and parts of Africa from higher commodity prices,” he said.

AUD/USD US73.14c

WTI currently US$97.12 a barrel

Brent crude oil US$100.68 a barrel

Spot gold US$1936.69

Bitcoin US$41,036


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