The Monday Report

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This story features BRAMBLES LIMITED, and other companies.
For more info SHARE ANALYSIS: BXB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The US non-farm payrolls data released on Friday night suggested that 169,000 jobs were added in August, a tad under the 173,000 expected, and that the unemployment rate fell to a four and a half year low of 7.3% from July’s 7.4%. On the other hand, July’s original figure of 162,000 was cut to 104,000 and the August participation rate fell to 63.2%, the lowest rate since 1978, as 312,000 people gave up looking for a job.

That last number suggests that the Fed’s unemployment rate target of 6.5% remains some distance away, given any acceleration in the US economic recovery from here would bring job-seekers back into the data and provide upward pressure on the unemployment rate.

So how does one interpret the result vis a vis Fed tapering? Well, the Dow plunged 148 points from the opening bell, bounced to be up 20 points at 2pm, and closed down 14 points or 0.1%. The 2pm high took the Dow just above 15,000. The more relevant S&P 500 closed flat at 1655 and the Nasdaq closed up 0.1%. Perhaps the answer is: who knows?

If we ignore the initial plunge, which would have been mindlessly computer driven, we might conclude that the view remains the same – the Fed will announce next week that it will begin tapering, but the initial reduction will be less than first assumed, perhaps US$75bn down from US$85bn instead of US$65bn. If anything, the issue has become yet more clouded.

The reaction in other markets suggests a view tapering is now less likely to begin at all in September. The US dollar index fell 0.5% to 82.15, the US ten-year bond yield fell 4bps to 2.94%, and gold shot up US$20.30 to US$1388.80/oz. We could talk about it till we’re blue in the face, or wait till next week.

On the commodity front, base metals closed slightly higher for the most part although tin reacted to the possibility of Indonesian export cuts and jumped nearly 4%. When it comes to oil, we have to look at a Syrian situation that is escalating into a major international confrontation by the day.

The G20 leaders are split down the middle. Russia said at the G20 meeting it would continue to provide aid to Syria even if it were attacked and Russian ships are sitting in the Mediterranean staring down US ships. Iran’s Ayatollah said the US would pay the price for Syrian intervention and the US has intercepted a message from Iran ordering Shiite militia to attack US interests in Iraq if Syria is attacked.  Cue Louis Armstrong: And I think to myself…

Suffice to say, Brent crude rose US80c to US$116.06/bbl on Friday and West Texas rose US$1.86 to US$110.23/bbl.

Spot iron ore fell US$3.00 to US$134.10/t.

The Aussie is up 0.7% at US$0.9187 and the SPI Overnight closed up 12 points or 0.2%.

Beijing released China’s August trade balance data yesterday, showing a flip to a better than expected US$28.5bn trade surplus from July’s US$17.8bn deficit. Economists had expected a US$20.4bn surplus. Exports rose to 7.2% year on year growth in August, up from July’s 5.1% and ahead of 6.0% expectation. Imports rose by only 7.0%, well below 11.7% expectation. Hence the deficit-surplus flip.

The export numbers were assisted by a jump in trade to the US, while exports to Europe remain sluggish. The weaker import numbers suggests ongoing sluggish domestic demand, but between the two numbers, signs the Chinese economy has now troughed are more clear. The good news for Australia is that despite the weaker net imports number, imports of raw materials and energy remain around record volumes.

And Australia has a new government. No great surprise there, just blessed relief that it’s all over. The interesting result has nevertheless been the more unpredictable Senate, which has seen the Greens lose the sole balance of power only to be replaced by a mix of mostly single-issue parties. The Senate now looks like a bottle of shiraz accompanied by a bowl of mixed nuts. If anything, the Christians, car fans and sports fans (along with the Brick With Eyes) that make up the balance with the Greens is more right-leaning on net basis, so from an apolitical perspective at least we shouldn’t suffer the same legislative gridlock of the last six years. We’ve seen what that does to the US.

Joe Hockey’s first job this week will be to comment on today’s ANZ job ads data, tomorrow’s NAB business confidence survey and Wednesday’s consumer confidence survey. Today also sees housing finance and investment lending data and on Thursday it’s the jobs numbers. It’s pretty easy at this point – if the numbers look bad you blame the outgoing government and if they look good you start-up the told-you-so mantra.

The Chinese data role on this week, with inflation numbers due today and industrial production, retail sales and fixed asset investment tomorrow.

The US economic week begins quietly before a flurry on Friday with retail sales, business inventory and PPI data along with fortnightly consumer sentiment.

We may have been in for a week in which markets go quiet ahead of the following week’s Fed policy decision, but then we have Syria to worry about. Uncertainty reigns on that front. There will also be another election, this time German, at the end of next week.

On the local stock front, today sees quite a few stocks going ex-div including Brambles ((BXB)), CSL ((CSL)) and Woolworths ((WOW)), while on Thursday Myer ((MYR)) and Sigma Pharmaceutical will release their full-year results.

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

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