The Monday Report

This story features PHARMAXIS LIMITED, and other companies. For more info SHARE ANALYSIS: PXS

By Greg Peel

At 114,000 new jobs, the US non-farm payrolls result for September came in close enough to expectation. The surprise came with the fall in the official unemployment rate to 7.8% from 8.1% in August. It is considered that in excess of 200,000 new jobs are needed to shift the unemployment rate dial, but the result reflected revisions to the previous two months' jobs numbers.

Always with the revisions.

It is the lowest unemployment rate since January 2009 when the job shedding phase had begun in earnest in the wake of the GFC. While positive, its impact was never going to be as great on Wall Street as it may have been prior to the establishment of the Fed's QE3 program. One number is not going to change the Fed's mind, derail the 2015 zero rate policy, or halt bond purchases. It is nevertheless heartening for Wall Street that while Europe wallows in recession and China battles with its own slowing economy, signs continue to look just a little less bad in the US.

The result would nevertheless have been a fillip for the Obama campaign, and no doubt conspiracy theories will do the rounds. A Republican-supportive Wall Street was emboldened last week by Romney's debate performance, but were an election held right now Obama would still carry the day given his gap in the key swing states. Wall Street can hope, but more circumspect investors are assuming a Democrat victory at this stage. Whatever the result, getting the election out of the way, and hopefully addressing the fiscal cliff in the process, at least removes uncertainty. Uncertainty is the major reason cited by US businesses as to why they are as yet reluctant to hire. It is also a reason why the piles of cash sitting on US corporate balance sheets are not yet being deployed.

The Dow pushed up by as much as 87 points on Friday before traders realised the good jobs number doesn't mean a lot in the current context. The afternoon saw a disinterested drift-back. The Dow closed up 34 points, or 0.3%, while the S&P was a tad lower at 1460 and the Nasdaq fell 0.4% after Apple fell 2%.

The most notable move came in the US bonds market. I haven't made note of the benchmark US ten-year bond yield for a while because it’s been cemented in a range in the low 1.6s. On Friday, the range broke, however, as investors exited the safe haven. The ten-year yield rose seven basis points to 1.73%.

The US dollar was subsequently weaker, but only by a tad, losing a couple of points to 79.34 on its index. As the Friday afternoon session wore on, the newsflow continued from across the pond.

Sick of watching and waiting for Spain? Well guess what – our old friend Greece hasn't gone away either, unfortunately. Having swung from a view earlier in the year that Greece might just have to go to her current stance of eurozone solidarity, German chancellor Angela Merkel will on Tuesday visit Athens in a supposed show of support. When the visit was announced, the Greek government immediately assumed it meant the next E31bn tranche of bail-out funds will be paid next month as scheduled, suggesting Athens had managed to satisfy the troika with its re-jigged and slightly less strict budget. No way, said the German finance minister, later backed up by an ECB board member. Merkel's visit has no implications, they said, and the bail-out tranche could well still be withheld.

Either way, Athens is stepping up its security measures as the perceived enemy of the Greek people deigns to set foot on Greek soil.

So the euro wobbled on Friday night, which is why the US dollar did not retreat as much as might be expected on the positive economic data. A lack of risk-on excitement was also evident in commodity prices, which all uniformly fell by small amounts. Base metals were mostly half a percent lower, Brent crude fell US56c to US$112.02/bbl and the more volatile West Texas dropped US$1.83 to US$89.88/bbl at the end of a tumultuous week for the world's most highly traded commodity.

Gold fell US$9.10 to US$1781.30/oz and the Aussie is down 0.6% to US$1.0181. If you want a definition of what is a really shocking PMI result, you just need to look at the Australian construction PMI. Given the number represents a pace of expansion/contraction either side of the 50 neutral mark, a result of 40 means rapid contraction. Australia's construction PMI, released on Friday showed a fall to 30.9 in September from 32.2 in August to mark the 28th month of going backwards. The falling number suggests the sector is only getting worse and there is no sign of bottoming out.

The SPI Overnight rose one point.

It's Columbus Day in the US tonight, which means banks and the bond markets are closed, but stock and commodity markets are open. Activity will probably be low. Alcoa usually reports on a Monday to kick off a US quarterly result season, but the holiday pushes the report out to tomorrow night. From that point US corporate earnings and 2013 guidance will be the driving factor for Wall Street for the next few weeks outside of any further headlines from Europe. Expectations are dour to bleak, but as usual it all comes down to just how low analyst forecasts have been marked and whether upside surprise can be garnered from pessimism.

US stock indices are not reflecting weak earnings expectations of course, given the sugar pill of QE3. It's a quieter week for US economic data this week, with the Fed Beige Book out on Wednesday and the trade balance on Thursday, followed by the PPI on Friday.

It's a bit busier in Australia, where today we see the ANZ job ads series, tomorrow the NAB business confidence survey, and Wednesday the Westpac consumer confidence survey. Thursday culminates with our own jobs numbers for September, which will provide more fodder for RBA policy expectations.

The highlight in Europe and the UK will be a round of industrial production numbers this week. China will be back in business after its week-long holiday.

On the local stock front, Pharmaxis ((PXS)) will provide a quarterly result on Wednesday, while ERA ((ERA)) and Iluka ((ILU)) will get in early on Thursday with quarterly production reports.

Rudi will appear on Sky Business on Thursday at noon.

 

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms