The Monday Report

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By Greg Peel

Wall Street was a little dumbstruck on the open on Friday night. Economists had expected around 120,000 jobs to be added in the US in October, although estimations were always going to be rendered more difficult by the two week government shutdown period. In recent times economists have tended to overestimate the numbers, so when the October number came in at 204,000, Wall Street was momentarily stunned.

How to respond? The first move was down, on the assumption a strong number brings forward Fed tapering. But then out came Michigan Uni’s fortnightly measure of consumer confidence, which showed a drop to a two-year low 72 from 75 in the previous reading. So in the end it appeared as if Wall Street decided the “now” number was more relevant than the delayed release of the “then” number, and quickly dismissed early tapering once more. Or perhaps Wall Street just decided the October shutdown had less impact than first thought, and 204k is a great result for a recovering economy.

The Dow closed up 167 points or 1.1% while the S&P gained 1.3% to 1770 and the Nasdaq added 1.6%. It was a new high for the Dow and not far off for the S&P, and a big turnaround from last week’s tech weakness, rather blowing away the fatigue that appeared to be setting in late last week.

But there was also scepticism. Two hundred thousand jobs? Pull the other one, it plays the Star Spangled Banner. US jobs numbers are notorious for their potential to be significantly revised after the first release. The first release is an estimate based on a quick-fire survey of a limited sample set. Further data are then collected, providing for a more accurate reading a month later. Given the October shutdown would have complicated the picture, and this first estimate seems totally at odds with expectation, some on Wall Street are dismissing it as a statistical furphy.

The bond market was fairly unequivocal, nonetheless. The US ten-year yield jumped 13 basis points to 2.75%, suggesting bond traders took the number as a clear signal tapering will come sooner rather than later. Similarly, gold fell US$18.40 to US$1287.70/oz as the US dollar index jumped 0.4% to 81.23. However a weak euro added to the greenback’s strength.

Standard & Poor’s announced on Friday it had downgraded France’s credit rating to AA from AA+, suggesting the government’s taxation, labour market and other reforms will not improve France’s economic outlook. France also posted a 0.5% drop in industrial production in September. It’s a kick in the teeth for President Hollande, whose approval rating is at an all-time low. Weakness in the eurozone’s second biggest economy leaves only Germany to carry the can, as zone-wide deflation fears threaten to derail a European recovery and led the ECB last week to cut its cash rate.

The good news is that US dollar strength, combined with Friday’s Statement on Monetary Policy from the RBA which hinted another rate cut is still possible (even though economist consensus says not), pushed the Aussie down 0.7% to US$0.9379.

Commodity markets were not quite sure what to think. Friday brought news of a big jump in US jobs, a fall in US consumer confidence and a weak outlook for France. Base metals have been stuck in an unsure limbo for a while now and Friday was no different. Nickel fell a cent, while everything else closed little changed.

Oil prices rose marginally, with Brent up US76c to US$104.95/bbl and West Texas up US15c to US$94.60/bbl. Talks between Iran and the West in Geneva regarding nuclear plans and sanctions reached no conclusion, but the mood was upbeat as the participants announced they would move to Round Two.

Spot iron ore fell US$1.00 to US$135.90/t.

After a mostly sombre week on Bridge Street, the SPI Overnight rose 55 points or 1.0%.

So we enter this week with a no more clear picture of what Fed policy might be in the coming months, nor RBA policy. It’s Armistice Day today, and the equivalent Veteran’s Day in the US sees banks and bond markets closed but the stock market open, albeit many traders take a long weekend anyway.

Thereafter Wall Street will be glued to what Ben Bernanke has to say in a speech on Wednesday, while the week’s economic data releases include the Chicago Fed national activity index on Tuesday, the Treasury budget on Wednesday, trade balance on Thursday, and industrial production and the Empire State manufacturing index on Friday.

Industrial production numbers are also due from the eurozone and Japan this week, with both providing a first estimate of September quarter GDP on Thursday.

Today sees housing finance and investment lending data in Australia, while NAB’s business confidence survey is due on Tuesday and Westpac’s consumer confidence survey on Wednesday. Vehicle sales numbers are out on Thursday.

It’s a busy week on the local stock market front. There are plenty of AGMs still to be held, and this week’s highlights include Asciano ((AIO)) tomorrow, Fortescue Metals ((FMG)) on Wednesday, Macquarie Group ((MQG)) on Thursday and Lend Lease ((LLC)) on Friday.

Today sees a full-year result from Orica ((ORI)) and a quarterly from News Corp ((NWS)), while Macquarie goes ex. Aurora Oil & Gas ((AUT)) and Endeavour Mining ((EVR)) provide quarterly results on Tuesday, while Leighton Holdings ((LEI)) provides a quarterly update, SP Ausnet ((SPN)) posts its interim result and  Incitec Pivot ((IPL)) its full-year.

Wednesday sees an interim from CSR ((CSR)), full-years from DuluxGroup ((DLX)) and Graincorp ((GNC)) and a quarterly sales report from Myer ((MYR)). Thursday sees a quarterly from Sing Tel ((SGT)) and an interim from James Hardie ((JHX)) while Bank of Queensland ((BOQ)) provides a strategy update.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon.
 

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

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