Gillham: RBA Underestimates AI Jobs Threat as ASX Hits Record

The Reserve Bank is expected to leave interest rates unchanged next week. Dale Gillham, chief analyst at Wealth Within, said that would be a mistake. Not because inflation is about to surge. The bigger threat is artificial intelligence, which he argues will hollow out Australia's labour market far faster than traditional models predict.

A Goldman Sachs report identified 35 major Australian companies where labour costs have grown much faster than sales. Banks, retailers, healthcare companies, technology firms and industrial businesses made the list. Many have already said AI will play a bigger role in improving productivity, Gillham noted. Those are only the companies we know about.

Across corporate Australia, the hiring question has changed. Businesses are no longer asking who to hire next. They are asking whether they need to hire anyone at all. That shift points to a structural problem for employment, Gillham said. A company's top priority is shareholder satisfaction. Rising profit margins are the surest way to keep shareholders happy. AI lets businesses grow revenue while employing fewer people. That is a different kind of challenge than a typical cyclical downturn.

The RBA spent years warning that inflation was above the 2-3% target band and could not be ignored. Now it is expected to hold rates steady because price growth has eased and unemployment sits within a range the central bank considers manageable. Gillham's concern is that the labour market is already at the upper band of what is acceptable. The trajectory over the next two years could be far worse.

If Australian companies adopt AI as aggressively as many are signalling this reporting season, unemployment could move above 5% far quicker than traditional economic models anticipate, Gillham said. By the time official data confirms the trend, thousands of jobs may already have disappeared.

The RBA has always argued that monetary policy needs to be forward-looking. If that logic applies to inflation, it should apply to employment too, Gillham said. The biggest risk over the next few years is not another inflation shock. It will be a jobs shock.

All Ordinaries Hits Record High on Broad Rally

Markets had a strong week. The All Ordinaries Index surged 3.4% to a fresh all-time high after months of grinding sideways and repeatedly testing resistance. The rally was broad-based. Technology and Materials led the charge, with Healthcare and Financials also contributing. When multiple sectors move in the same direction, it usually signals a healthier and more sustainable bull market, Gillham said.

Information Technology was the best-performing sector, rising more than 7% after further falls in the oil price. Materials and Healthcare each gained more than 6%. Both sectors came off double-digit pullbacks and drew buyers ahead of earnings season.

Energy was the weakest sector, falling over 2% after softer oil prices weighed on oil and gas stocks. Utilities slipped under half a per cent. The market is waiting on the rate decision, and heavily weighted names traded sideways over the past couple of weeks.

Genesis Minerals led the ASX Top 100, climbing more than 17%. Vault Minerals followed, up over 16%. Both benefited from a strong overnight rise in the gold price, which appears to have found a major bottom, Gillham said.

Woodside Energy was the weakest performer, followed by Ampol Limited. Both fell more than 3% on the oil price wobbles. The Lottery Corporation lost over 2% as sellers took control at the heavily defended $5.70 level and pushed the stock sharply lower.

The next key level on the All Ordinaries is 9,800, which now becomes major resistance. The stubborn 9,200 level that repeatedly rejected the market has finally become support.

Gillham said with reporting season underway, this remains a stock picker's market. Some companies will exceed expectations, others will not, making careful selection more important than ever.