The Monday Report

This story features MYER HOLDINGS LIMITED. For more info SHARE ANALYSIS: MYR

By Greg Peel

Wall Street was disappointed on Friday when once again a solid private sector jobs report, released on Thursday, did not follow through to a similarly positive result for non-farm payrolls. The addition of 96,000 jobs fell short of the 125,000 plus expected, while the fall in the unemployment rate to 8.1% from 8.3% was all about unemployed workers giving up and dropping off the list.

The numbers represented a quandary for Barrack Obama, campaign fuel for Mitt Romney and no reason for Wall Street to either buy or sell. The argument on Wall Street last week was that the Fed would announce fresh stimulus this Thursday even if the jobs numbers were good, which they weren't, thus only cementing expectation that some form of QE3 is a given. So there was no reason to sell. However, such expectation has been building in US stock market for the past month, so there's little reason to buy it further just yet. We have to get through Wednesday's German court ruling before feeling safe.

The Dow closed up 14 points or 0.1% while the S&P gained 0.4% to 1437 and the Nasdaq was flat.

The other news of importance on Friday was an unscheduled announcement from Beijing during the Asian session of an additional US$134bn in fiscal stimulus. The package is all about the construction of railways, roads, airports and other infrastructure. It represents about a quarter of the value of that delivered in 2008, but no one was expecting another injection to 2008's shock and awe level. The world has, nevertheless, been waiting impatiently for something to be announced from Beijing on the stimulus front, whether fiscal, monetary, or both. The timing was, as always, interesting, as yesterday saw China's monthly data dump. It was not pretty.

CPI inflation rose to an annual rate of 2.0% in China in August, up from 1.8% in July. The increase was all to do with a big jump in food inflation. Industrial production came in at a weaker than expected 8.9% – the lowest rate of annual growth in three years – while fixed asset investment also disappointed at 20.2%. Retail sales growth of 13.2% was as forecast. On these numbers China is heading towards a September quarter GDP result below June's 7.6%.

The stimulus announcement on the Friday was well received locally nevertheless, with a sad and sorry Shanghai stock market posting a welcomed 4% bounce. The London Metals Exchange also took the stimulus package on board, as well as the weak US jobs report and its implications for Fed action, pushing base metal prices up 2-3%. Oil was also stronger, with Brent rising US$1.25 to US$114.25/bbl and West Texas up US76c to US$96.29/bbl.

The big winner was gold, however, crashing up through the 1700 mark with a US$36.60 gain to US$1736.90/oz. The gold market had not followed global stock markets in pricing in stimulus hopes up until last week, with two big overnight surges now affected as we finally get closer to what are anticipated to be positive decisions. (Positive, that is, if you are a fan of more stimulus.) Silver has also been on a bit of a tear since last week, with Friday marking another 3% gain to US$33.69/oz.

The flipside is of course the US dollar, and it fell a solid 1.1% on its index on Friday night to 80.21 on the weak jobs numbers. The weak numbers work both ways for a lower currency given they imply both a weak economy and the likelihood of more money printing in response. The Aussie mirrored the greenback, with a 1.1% rise to US$1.0396.

The SPI Overnight was up 18 points or 0.4%.

We have finally reached the week that really matters, after an agonisingly long month of northern summer holidays, minimal volumes, and questionable speculation. The ECB outlined its stimulus program last week, but it will mean nothing if the German constitutional court does not rule against the challenge to the European Stability Mechanism on Wednesday night. The court ruling is expected to be favourable, but if it's not, Draghi's plans to coordinate the ECB purchase of distressed eurozone debt in the secondary market in concert with ESM purchases in the primary market will supposedly be shot to pieces. Markets would not take it well.

There's always a chance the ruling could again be postponed, as it has been once already, but one can only hope the German lawyers appreciate the gravity of their decision and its timing.

Assuming the ESM is ratified, then it's over to Uncle Ben on Thursday night. Based on Jackson Hole rhetoric, it seems very unlikely now the Fed will stall any further. Bernanke will be very aware of the impact of such a decision on Wall Street. We could thus see a double-whammy of positive stimulus news this week, or a double negative, or some combination. We can once again only wait, noting that a lot of anticipation has already been priced into stock markets. But that's not to say we won't be off to the races again on the right combination.

China will release its August trade balance today, which will provide the Australian market with more to consider. Locally, we'll see housing finance and investment lending data today and June quarter dwelling starts on Wednesday. Tomorrow brings the ABARES crop report and the NAB monthly business confidence survey. Wednesday sees the Westpac monthly consumer confidence survey.

It's relatively quiet on the economic front for the US until we get to Thursday. Aside from the highly anticipated Fed statement release, it is a quarterly meeting so that means updated economic forecasts from the Fed as well as a press conference post-release from Ben Bernanke. The US then has a bit of a “data dump” of its own on Friday, with CPI, industrial production, retail sales, inventory and consumer sentiment numbers all due.

On the local stock front, today sees a big chunk of ex-divs that then thin out over the rest of the week. We'll also see some straggler results on Thursday, with Myer ((MYR)) posting its full-year and Sigma Pharmaceutical ((SIP)) its interim.

Rudi will appear on Switzer TV on Wednesday, 7-8pm, and on Thursday on Lunch Money between 12-1pm. Both programs are on Sky Business.

I'm off on assignment in China this week, so I'll be leaving the Overnight Report in the capable hands of Rudi, who gets to report on everything I've been waiting interminably for over the last month. I'll be back on deck next week.

Be good. 

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

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