The Monday Report

This story features RIO TINTO LIMITED, and other companies. For more info SHARE ANALYSIS: RIO

By Greg Peel

Prior to Friday night, consensus among US economists was for 140,000 jobs to have been added in January but for the unemployment rate to have increased to 9.5% from 9.4% in December. The increase reflected expectation that previously despondent jobless would come back onto the market looking for work given an improving economy. There was a qualification provided that heavy snow may have disrupted the numbers.

Economists were therefore left scratching their heads when it was revealed only 36,000 jobs were added but that the unemployment rate had plunged to 9.0%. Snow or not, it just didn't add up. Was the result good or bad? The answer seemed to be bad, which actually means good because it means QE2 is well and truly here to stay. Thus Wall Street closed higher. The Dow gained 30 points or 0.3% and the S&P added 0.3% to 1310. Aiding the strength were further positive corporate results.

The jobs report simply again highlights the folly of becoming too obsessed with monthly data. Revisions will no doubt follow next month, just as the earlier ADP result saw a massive revision for December. It may also transpire that heavy snow prevented some regional results being collected (it has happened before) thus leaving the totals to be distorted. But at the end of the day, whether it's 9.5% or 9.0%, America still has an unemployment problem.

The US dollar index responded positively to the jobs report, rising 0.4% to 78.02. The euro was in limbo on Friday given a meeting of EU leaders in Brussels. The meeting ultimately decided that an end-March date would be set to arrive at agreed upon new emergency lending and economic governance measures with the intention of not only addressing the current crisis, but of preventing further crises.

Gold lost US$6.10 to US$1348.40/oz in response to the stronger US dollar and oil lost US$1.51 to US$89.03/bbl. But it was a different story in London.

Base metals initially dipped on the news of the supposedly weak US jobs report but they ran into some built up buy orders. The subsequent turnaround set off another round of commodity fund frenzy and by session-end copper had risen over 1% to conquer US$10,000/lb, marking a new record high. Tin also reached a new record.

Base metals traders are warning that a short term correction is inevitable at some point, but no one is game to stand in the way just at the moment. The Aussie dipped slightly to US$1.039.

The SPI Overnight added 8 points.

US stock gains may have been relatively modest on Friday night, but the US bond market is rapidly gaining momentum. The benchmark ten-year yield jumped 16 basis points to 3.64% for one of the sharpest jumps in twelve months. Increasing bond yields reflect impressions of a stronger US economy, which sees money flowing out of bonds and back into stocks and commodities. It also reflects the inflationary pressures provided by strong commodity prices, which brings us back round to QE2.

This week in the US the Treasury will auction US$72bn of three and ten-year notes and thirty year bonds. Economists will be keeping a sharp eye on demand.

It's otherwise a quieter week on the US economic front this week, with consumer credit out tonight, and wholesale trade and the monthly Treasury budget on Thursday. Friday sees the trade balance and the first Michigan Uni consumer sentiment survey for the month.

There's a little more action in Australia, with today bringing the all important December retail sales figures along with ANZ job ads and the construction PMI. Wednesday it's the Westpac consumer confidence survey, Thursday the unemployment numbers, and on Friday RBA governor Glenn Stevens will make a scheduled appearance before parliament.

Having slept off the New Year's celebrations, China will release its trade balance on Thursday and it's monthly round of inflation, sales and production data on Friday.

The Australian interim result season steps up a gear this week, ahead of the avalanche in the subsequent two weeks. Reporters include Rio Tinto ((RIO)), Telstra ((TLS)) and Newcrest ((NCM)) but there are too many to list here in full. Please refer to the FNArena calendar. 

 Rudi will be on Sky Business this week on Thursday at 12pm. I was due to appear on Friday but I've been bumped for a flood special.

For further global economic release dates and local company events please refer to the FNArena Calendar.

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