The Monday Report

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By Greg Peel

Bridge Street ended the week on yet another soggy note on Friday as the local market struggles to find an impetus to buy other than into new listings, which require selling elsewhere. The index fell around 2.7% for the week and is down 5% from the post-GFC high set in October.

Weakness on Wall Street did not help the local market’s cause, but that all changed on Friday night on the release of the November non-farm payrolls number. A solid jobs report saw the Dow jump 198 points or 1.3% to 16020, the S&P rise 1.1% to 1805 and the Nasdaq add 0.7% to 4062. After the longest down-run since September up to Friday, the S&P actually closed square for the week. All three indices are back over their respective psychological big figures.

The market had expected 185,000 jobs to be added in the US in November but the result came out at 203,000, following an October result that was revised down to 200,000 from 204,000 and a September result revised up to 175,000 from 163,000. The unemployment rate fell from 7.3% in October to a five-year low 7.0%. The good news is that for once, the participation rate actually rose – to 63.0 from 62.8. However it remained below September’s 63.2.

It was an interesting response from Wall Street. All last week it appeared the market was in “good news is bad news” mode with positive data implying tapering sooner rather than later. The week began with a strong manufacturing PMI which sent stocks tumbling and bond yields rising. On the strength of that reaction, one might have expected a good jobs result to mean a weak market response as well. But Wall Street did not hesitate. As soon as the number hit the screens the indices leapt, and they continued to gradually trend higher through the session. Good news, it seems, is still good news.

Does this imply Wall Street has now become comfortable with, or at least resigned to, tapering commencing as early as this month (the next Fed meeting is on the 18^th)? There are those who suggest the recent jobs trend and the fall in the unemployment rate are enough to kick the Fed into gear, while others point to the weak participation rate as every reason not to taper. There was also some debate on Friday on the impact of government workers returning to their jobs after having been laid off for two weeks in October.

The bottom line is: who knows? Wall Street’s basically calling it a fifty-fifty. The bond market has been quietly positioning itself, with the ten-year yield gradually ticking up. It rose another 2bps on Friday to 2.88%. The Fed has been at pains to point out that tapering does not imply the first increase in interest rates is around the corner. The stock market appears to have come to terms with that idea, maybe, but anything could happen on the day.

We’ll just have to wait until December 18. Buy hey, why don’t we spend every day discussing it until then?

The US dollar did not provide any definitive direction on Friday, remaining steady on its index at 80.28. Despite the implications of tapering on the Aussie, the local currency finished higher on Saturday morning by 0.4% to US$0.9100 and is trading at US$0.9125 this morning. Gold has been fickle of late but has mostly set itself for early tapering, and was little changed on Friday at US$1229.20/oz.

Base metals posted a positive response to the US jobs numbers, but timidly so. Prices are all up but by less than 1%. Brent crude rose US56c to US$111.61/bbl and West Texas rose by US27c or 0.3% to US$97.65 a barrel.

Spot iron ore fell US30c to US$139.20/t.

The SPI Overnight rose 25 points or 0.5%.

It’s a quiet week this week in the US data-wise, with no real action due until Thursday’s retail sales and business inventories numbers and the PPI on Friday. Wall Street may go into wait-mode ahead of next week’s FOMC meeting, but with the indices back over their big figures again you never know.

Yesterday’s news from Beijing was a stronger than expected jump in Chinese exports in November, rising 12.7% year on year against a forecast 7.0%. The bulk of the increase represented exports to the US and Europe. Imports increased by 5.3%.

The release comes ahead of today’s inflation data out of China and tomorrow’s monthly data dump of industrial production, retail sales and fixed asset investment numbers.

The economic week is a little busier in Australia, beginning with the ANZ job ads series today. Tomorrow sees the monthly NAB business confidence survey along with housing finance and investment lending, while Wednesday brings the monthly Westpac consumer sentiment survey. On Thursday it’s the local jobs numbers.

It’s also a busy week for corporate Australia. Amcor ((AMC)) will hold a shareholders meeting today to discuss the Orrora spin-off while Brambles ((BXB)) will hold a market briefing ahead of tomorrow’s spin off of Recall ((REC)). Billabong ((BBG)) will hold its AGM tomorrow and Westpac ((WBC)) on Friday, while Macquarie Group ((MQG)) will hold an EGM on Thursday.

Following on from last week’s star listings, there are five IPOs due this week for lesser-lights.

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

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