The Monday Report

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

By Greg Peel

Round and round and round it goes, where it stops nobody knows. Such is the chocolate wheel known as US non-farm payrolls.

Having taken a sample of 60,000 US households in a population north of 300 million, the US Bureau of Labor Statistics declared on Friday that 168,000 new jobs were created in the US in April and that the unemployment rate has fallen to 7.5% from 7.6%, which does not include the millions of Americans not registered for unemployment benefits. The same survey in March indicated 88,000 new jobs, and in February 236,000.

Having conducted its more extensive review of actual business payrolls, sampling 557,000 businesses, the BLS declared on Friday that it appears 138,000 jobs were created in March and 332,000 in February, not 88,000 and 246,000 as the initial sample suggests. That’s 114,000 more jobs. Economists were expecting 140,000 new jobs in April, but the initial number suggests 168,000. As to what any later revision of the April number might reveal is anyone’s guess.

The unemployment rate is not revised, but rather is taken as read from the initial household survey. This is the number the Fed is targeting in setting its QE exit goal. One presumes the Fed uses more extensive measurements than just this stab in the dark.

The US service sector PMI for April fell to 53.1 from 54.4 in March and factory orders fell 4% in March, but who cares? Look at those jobs numbers!

For the record, China’s official service sector PMI fell to 54.5 from 55.6, the UK equivalent saw a welcome rise to 52.9 from 52.4, and in the saddest economy of them all, Australia’s number fell to 44.1 from 49.6. That’s a 5.5 point drop for services following a 7.7 drop in manufacturing in the month. The construction sector number is out tomorrow.

Many on Wall Street are shaking their heads over the Fed’s new QE infinity model, which implies topping up or easing of QE as the ongoing data dictate, into what might be eternity. Previously all talk was only of as to when QE3 might be withdrawn, and on that basis these big job additions might have actually had the QE fans worried. But the new model allows for the market to feel good about strong jobs numbers, so on Friday Wall Street marked history when the S&P 500 crossed over the 1600 mark. The S&P gained 1.1% to 1614, while a 142 point rally in the Dow took that average almost to the also never before seen 15,000 mark (daily close). The Nasdaq added 1.1%, but while at 12-year highs is nowhere near its dotcom bubble peak.

The big “beat” on US jobs, along with the big revisions, caused heart attacks for net short commodity traders. The subsequent short-covering scramble saw LME spot copper up 6.3%, with lead up 5%, aluminium 4% and nickel, tin and zinc 3%. Brent oil rose US$1.25 to US$104.10/bbl and West Texas jumped US$1.62 to US$95.61/bbl.

The big bounce in copper now has the tea-leaf readers suggesting a technical bottom is in place.

On the other side of the coin, traders fled the safe haven of US bonds. The US ten-year yield had been ticking down steadily on weak recent US data releases, but the jobs number is the Daddy of all US data. The ten-year yield thus spiked 12 basis points on Friday to 1.75%.

The jobs data invoked a 1% rise in the greenback against the yen, but given a rising tide (of Americans with wages in their pocket to spend) floats all international boats, the US dollar index actually fell slightly to 82.10. Short-covering in commodities sent the Aussie up 0.6% to US$1.0317. A flight from the safe haven of gold might also have been expected on the jobs data, but given gold’s substantial de-rating of late, the bruised precious metal held its own with a US$3.10 rise to US$1470.70/oz.

Chinese spot iron ore is an insular market, and the price fell another US$1.30 to US$128.10/t on Friday.

As Australia’s non-mining economy sinks slowly into the mire, and the mining sector shifts from a growth phase to a production phase, the ASX 200 ploughs onward, ever upward, albeit not without some nervous volatility. Last week was Yield Week, as the banks further defied gravity and Telstra reacquainted itself with a $5.00 share price. The commodity price bounce, with copper the accepted bellwether, was all about short-covering yet chartists are now frothing at the mouth. The Big Miners were both up around 4% in London on Friday night. Might this week be Switch Week? The SPI Overnight surged 1.1%, or 56 points.

Which brings us to the matter of the RBA. Australian house prices and stock prices are on the rise. A cut in the cash rate would add more fuel. Yet outside of asset price inflation, economic data are screaming Rate Cut. What will the RBA do tomorrow following its policy meeting? Wait until June to make a decision, by which time all of the March quarter economic data will be in?

In terms of this week’s data points, today sees the monthly ANZ job ads series and TD Securities inflation gauge along with retail sales. Tomorrow it’s the construction PMI, first quarter house prices and the March trade balance. Our own unemployment numbers are due on Thursday.

HSBC will provide its reading of China’s service sector today, while the government will release the April trade balance on Wednesday, inflation data on Thursday and loan growth numbers on Friday.

The US will have a quiet week in the wake of the jobs party, with Thursday’s chain store sales and wholesale trade numbers the highlights.

UK markets are closed tonight, which includes the London Metals Exchange.

On the local stock front, Orica ((ORI)) will release its interim results today and National Bank ((NAB)) will follow suit on Thursday. There will be plenty of AGMs this week, including Rio Tinto ((RIO)) and Santos ((STO)) on Thursday.

Rudi will appear on Sky Business today at 11.15am, tomorrow evening at 5.30pm, Thursday at noon and again at 7pm for the Switzer Report.
 

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

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