The Monday Report

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This story features WOOLWORTHS GROUP LIMITED.
For more info SHARE ANALYSIS: WOW
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Wall Street began last week on a familiar sour note, resulting in the benchmark S&P 500 index breaching its August intraday low early in Tuesday's session and threatening another downward phase clearly into bear market territory. However anticipation that European leaders might just be about to do something sensible still prevailed, and hence when they were seen to be finally heading towards a more definitive solution of bank recapitalisation the resultant bounce was somewhat spectacular – 8% to the close on Thursday.

On that basis, there was always a good chance Friday would see some profit-taking, particularly given Monday's US bank holiday provided the potential for a long weekend (although stock markets will remain open tonight).

The US session nevertheless started well yet again on Friday, following an announced addition of 103,000 jobs in September compared to expectations of only 54,000. It was another small tick in the box that suggests the US will not actually fall into recession as many have feared amidst the European turmoil.

Perhaps the credit ratings agencies have been suffering from a bit of attention deficit disorder this past week or two given focus has turned to potentially good news out of Europe, so the “We're still here” banner was waved on Friday night as Fitch downgraded Italy's sovereign debt by one notch and Spain's by two, while Moody's announced it had put Belgium on negative watch.

Global markets have become less reactive over the past few months to what are often “stating the bleeding obvious” moves from the ratings agencies, but we can probably assume the news was as good a reason to start taking profits as any. Italy's downgrade surprised no one and it is hard to see why a country without a government – Belgium – can maintain a top rating. Spain's double-downgrade raised some eyebrows but realistically if Wall Street was as worried now about European downgrades as it was earlier in the year then we would have seen a much bigger move down in US stocks on Friday. As it was the Dow turned a 90 point rally into a 70 point loss, then recovered before last minute squaring affected a slightly lower close on the day.

Volatility in other markets also eased somewhat on Friday. The US dollar index fell 0.2% to 78.74 and the Aussie rose 0.2% to US$0.9781. The US ten-year bond yield continued its recovery from its lows below 1.70% to rise eight basis points to 2.06%. Gold slipped back US$10.90 to US$1637.50/oz.

Tin and zinc were up 2% in London but other moves were mixed and sub 1%. Brent oil rose US15c to US$105.88/bbl and West Texas was up US28c to US$82.87/bbl.

The SPI Overnight fell 26 points or 0.6%, consolidating after a solid few sessions.

As we enter the new week global markets will be looking for a bit more stability and perhaps a little less volatility as we now await ratification of Europe's new policy direction. Barring negative newsflow alerting us to more internal bickering amongst EU leaders, positive results are expected from the EU summit scheduled for October 17 and/or the G20 meeting beginning on November 3. Over the weekend Merkel and Sarkozy met and announced they'd come up with a plan for greater eurozone economic coordination, but no detail was provided. That will be saved for the appropriate forum.

If the European influence can remain on hold until such time, Wall Street can turn its focus squarely towards the September quarter corporate earnings season beginning on Tuesday. While expectations remain positive for reported earnings, there is some fear forecasts will prove too optimistic and that fourth quarter and ongoing guidance from managements might be decidedly dour. Either way, Wall Street would dearly love to be able to simply assess its own economic fortunes without the overhanging issues from across the pond.

As noted, Monday's US bank holiday does not close the stock or commodity markets but it does close bond markets and can lead to thin trading. Aside from Alcoa's earnings result on Tuesday, the Fed will release the minutes of its last policy meeting, although given Operation Twist has now begun and Bernanke has hinted QE3 would be rolled out were Europe to tumble, those minutes are likely mostly redundant.

The US trade balance and Treasury budget will be released on Thursday ahead of retails sales and fortnightly consumer sentiment on Friday. During the week the Treasury will auction three and ten-year notes and thirty-year bonds.

Trade balance data will also be forthcoming from Germany tonight, Japan on Tuesday, the UK and China on Thursday and the eurozone on Friday. It appears China has now moved away from what was once its monthly “data dump”, preferring to spread its releases around a little more. Thus Friday is scheduled to see Chinese inflation data.

Australia's economic week kicks off with the ANZ job ads series today followed by the NAB business confidence survey tomorrow. On Wednesday it's housing finance and investment lending along with the Westpac consumer confidence survey.

With RBA rate policy now supposedly hanging in the balance, economists will be closely watching Australia's employment report on Thursday.

Australia's Annual General Meeting season is beginning to hot up although won't start to become crowded until next week, while this week sees the first of the September quarter production reports from the resources sector. Woolworths ((WOW)) will provide a quarterly sales report on Tuesday and Bank of Queensland ((BOQ)) delivers its full-year earnings on Thursday.

FNArena's regular Market Insight show on the BRR network will next be broadcast this Thursday at 4.30pm, ahead of which Rudi will be appearing on Sky Business at noon Thursday.

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

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