The Monday Report

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Greg Peel

Support

While September is historically the weakest month for stock markets, October is the month for crashes. Just not every year. This year saw the ASX200 break above what had been stiff resistance at 5200 early in the month, before falling back to bounce off 5200 again, before rallying to 5350.

Since then it’s been all downhill back towards 5200 again, and indeed on Friday the index opened in the same mood it had closed on Thursday and promptly fell 62 points, but only made it as far as 5204 before bouncing to a less significant fall for the day. The supermarkets, iron ore miners, banks and the telco all saw ongoing selling but on the last trading day of the month, traders moved into industrials and healthcare.

Technically it’s been text book stuff – a break-out of a well-established range, a sharp rally, and fall back to that breakout level which, having previously been resistance, is now support. The market is consolidating, preparing for whatever it wants to do next. If next is a rally into Christmas, technically the signals are favourable.

September private sector credit data were released on Friday, and the good news is that the result of 0.8% growth represents the strongest month since the GFC. The better news is that it was not all about investor mortgages. Lending for housing was flat in September at an annual rate of 7.5% but business lending grew 1.2% to an annual rate of 6.3%.

The bad news is these data are a major setback for those convinced the RBA will cut tomorrow. Forex traders now appear less convinced. The Aussie was up 0.9% to US$0.7136 on Saturday morning.

The big news globally on Friday was no news at all. The Bank of Japan surprised markets by not only announcing no change to its existing QE program, but by not even hinting that an increase might be contemplated. Many assumed the BoJ would simply have no choice but to counter Chinese rates cuts and a QE extension from the ECB at the end of the year if its own program was to remain supportive.

Perhaps the BoJ is banking on a Fed rate hike in December. Either way, the Japanese stock market didn’t seem to mind, as it rose 0.8%

Early Santa?

As noted, October is typically the scariest month of any year, if not actually the weakest on average. Oh the horror, the horror. But despite falls on Wall Street on Friday night, the S&P500 posted a rally in excess of 8% in the month, which, funnily enough, was its best month since October 2011.

On Friday night the Dow closed down 92 points or 0.5% while the S&P lost 0.5% to 2079 and the Nasdaq dropped 0.4%.

The major indices are now back to where they were before the big August sell-off. Except for the small cap Russell 2000 index which has lagged behind. This has worried many a trader who would like to see all the ducks line up in a row, and has them nervous maybe the rally is not sustainable.

And then there is the issue that December is typically the best month of the year, and November right up there too, to provide for a frequently seen Santa Rally. But Santa Rallies typically follow weak September-Octobers. This time we’ve seen a strong October. Have we already seen the Santa Rally?

Before you ask, October 2011 was indeed followed by a rally.

US data releases on Friday included September personal income & spending, which each rose 0.1%. For incomes it was the slowest month of growth since March, and for consumer spending the lowest month of growth since January. The personal consumption and expenditure (PCE) measure of core inflation also rose only 0.1%, to be up 1.3%.

This is the number the Fed wants to see moving towards 2% before it considers a rate hike. You wouldn’t be backing December on these data.

And Michigan Uni’s fortnightly index of consumer sentiment fell to 90.0 from a previous 92.1 when 92.5 was expected. The number corroborates the Conference Board’s monthly confidence index released earlier in the week which also saw an unexpected drop, just as the world’s biggest consumer economy heads into Christmas.

The only good economic news on Friday was that the Chicago PMI rocketed back into expansion at 56.2 from a contractionary 48.7 last month.

But neither the data nor the day’s earnings reports seemed to make much difference to Wall Street as a whole on Friday. The indices bungled along through the session before late selling came in at the close, likely representing profit-taking on the last day of a very strong month.

Commodities

It was another largely dreary session on the LME, where moves were again mixed. Nickel took a 2.7% tumble while copper was 0.3% lower, and aluminium rose 0.7%.

Iron ore rose US50c to US$49.50/t, representing the first gain in about two weeks.

A drop in the weekly US rig count helped the oils quietly continue their rebound. West Texas rose US66c to US$46.44/bbl and Brent rose US91c to US$49.51/bbl.

The US dollar index was 0.3% weaker at 96.97 and gold lost US$2.90 to US$1141.70/oz.

The SPI Overnight closed down 25 points or 0.5% on Saturday morning.

China

Beijing released China’s official October PMIs yesterday. Manufacturing came in at 49.8, unchanged from September. Given all the government has thrown at the economy, it was a disappointing result, representing the third straight month of sub-50 results. Economists had forecast 50.0.

But at least it wasn’t a worse result. The services PMI came in at 53.1, down from 53.4, but at least remained in expansion.

The Week Ahead

The rest of the world will release manufacturing PMIs today, including Australia, Japan, the eurozone, UK and US, along with Caixin’s take on China’s PMI. Then it’s same again on Wednesday for service sector PMIs.

The US will also see construction spending tonight, factory orders and vehicle sales tomorrow, the trade balance and ADP private sector jobs report on Wednesday, and chain store sales and productivity on Thursday. On Friday it’s the big one – non-farm payrolls.

The Bank of England will hold a policy meeting on Thursday. Japan has a public holiday today.

It is a busy week all up for Australian data.

We start with the manufacturing PMI, building approvals, house prices and the TD Securities inflation gauge today. Tomorrow televisions will be switched on in every household and office across the land to watch the RBA not announce a rate cut.

That’s my tip anyway.

Wednesday sees the local services PMI, trade balance and retail sales, Thursday RBA governor Glenn Stevens will make a speech in Melbourne, and Friday the RBA will release its quarterly Statement on Monetary Policy. The construction PMI is also due.

Westpac ((WBC)) will release its full-year result today and Commonwealth Bank ((CBA)) will provide a quarterly update on Thursday. CSR ((CSR)) will release its interim result on Wednesday, and the AGM season rolls on.

Rudi will appear on Sky Business on Thursday at noon and again between 7-8pm for the Switzer Report.
 

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. www.fnarena.com

Click to view our Glossary of Financial Terms