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Anna Hong: Bad unemployment numbers bring good news

A weekly income and fixed interest snapshot from Pendal assistant portfolio manager ANNA HONG

FOR ALMOST two years economic data points have been accompanied with lockdown disclaimers — pre-lockdown, post-lockdown, back into lockdown.

Hopefully 2022 brings more incisive data as high vaccination rates put the lockdowns behind us.

The headline unemployment numbers released yesterday briefly shocked the market.

Positivity from the end of lockdowns was briefly snuffed out as the Australian unemployment rate jumped from 4.6% to 5.2% — much higher than the market consensus. 

That was until we got to the fine print at the end.

The release was backward looking and reflected job numbers from Sep 26 to Oct 9.

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Pendal’s Income and Fixed Interest funds

That’s before NSW came out of lockdown — much less Victoria — which meant unemployment numbers in VIC and NSW dragged the national number higher.

Moreover, most borders were still shut as state policies outweigh federal.

That meant tourism-related industries in Queensland were affected, while states less reliant on tourism such as WA and NT saw an improvement in unemployment. 

Source: Australian Bureau of Statistics

So the glass is half full, given those were essentially lockdown unemployment numbers.

Furthermore, the consumer sentiment numbers around job security fears are at their lowest in more than seven years.

That’s evidenced by the labour turnover in NSW, which showed signs of better health as many workers switched jobs for better opportunities and better pay.

The economic outlook gets better as we add improving consumer spending intentions to the mix.

Higher spending in good, services and dwellings will help the states’ bottom line with stamp duty receipts and GST handouts from the federal government.

Source: Commonwealth Bank of Australia
Market moves 

Globally, most CPI numbers printed higher than consensus.

Yields rose due to global sentiment around inflation.

Australia’s unemployment number miss did not shift the yields significantly.

Source: Bloomberg
Market Implications 

Short-end cash maintains its slight curve with six months BBSW still holding its ground above the RBA cash rate of 10bps. 

Semi-government spreads have widened with issuances now coming through at close to its historical spread of +50bps to commonwealth government bonds.

The recently tendered TCV 2034 is now trading at +48bps to CGL. As semi spreads normalise the accruals can once again provide a healthy income to investors.  

Additionally, the improving Australian economy will result in higher tax receipts.

Potentially that will improve the states’ finances and be supportive of semis on reduced supply.


About Anna Hong and Pendal’s Income and Fixed Interest team

Anna Hong is an assistant portfolio manager with Pendal’s Income and Fixed Interest team.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

With the goal of building the most defensive line of funds in Australia, the team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here

About Pendal Group

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at November 12, 2021.

PFSL is the responsible entity and issuer of units in the Pendal Monthly Income Plus Fund (ARSN: 137 707 996) and Pendal Dynamic Income Fund (ARSN: 622 750 734) (Funds). A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund.

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