The Monday Report

Array
(
    [0] => Array
        (
            [0] => ((WBC))
            [1] => ((NAB))
            [2] => ((DXS))
            [3] => ((NWS))
            [4] => ((FOX))
            [5] => ((JBH))
            [6] => ((SIP))
            [7] => ((AMP))
            [8] => ((GPT))
            [9] => ((RIO))
            [10] => ((AWC))
        )

    [1] => Array
        (
            [0] => WBC
            [1] => NAB
            [2] => DXS
            [3] => NWS
            [4] => FOX
            [5] => JBH
            [6] => SIP
            [7] => AMP
            [8] => GPT
            [9] => RIO
            [10] => AWC
        )

)

This story features WESTPAC BANKING CORPORATION, and other companies.
For more info SHARE ANALYSIS: WBC
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The US posted its best non-farm payroll number in two years on Friday night, adding 288,000 jobs. The employment rate plunged to 6.3% from 6.7% to mark the biggest one-month drop in 31 years. So far in 2014, new jobs have been added at the rate of 214,000 per month, up from 2013’s average of 194,000.

It all looks very rosy, and offers further proof of the US economy having been hampered over the winter months, but the devil was in the detail.

The big drop in the unemployment rate was assisted by a huge drop in the participation rate, to 62.8% from 63.2%. It doesn’t seem like much, but this rate rarely moves more than 0.1% each month, and at 62.8% the percentage of Americans looking for work is at a 35-year low. Fast-declining labour force participation has sparked heated debate in the US as to what exactly is the cause. Structural decline due to baby boomer retirement is one factor, but arguably not enough to cause such a sharp drop. The unemployment rate falls not only when those looking for work find it, but when those looking for work give up.

One clue is in the average wage growth element of the non-farm payrolls report. The average wage was unchanged to April from March, and is rising at an annual rate of only 1.9%. This weak growth backs up the argument of more job-seekers giving up than finding employment. It also means the good news of new jobs being created is tarnished by the lack of consumer spending capacity being generated as a result.

Wall Street initially responded positively to the jobs number, pushing the Dow up 62 points into fresh blue sky, before the sellers moved in. Between the questionable strength of the overall report, a new all-time high, and escalating violence in the Ukraine, traders decided it was safer to take profits ahead of the weekend. The Dow finished down 45 points or 0.3%, below its previous closing high, while the S&P lost 0.1% to 1881 and the Nasdaq fell 0.2%. All three indices nevertheless posted 1% gains for the week.

Ukraine-Russian tensions have provided an uneasy backdrop for international markets over the past couple of months, but not prevented new highs in the US stock market. The VIX volatility index is sitting just under 13, suggesting few investors have sought put option protection against any negative ramifications and see little risk. However the situation took a turn for the worse over the weekend when Ukraine forces allowed 40 pro-Russian separatists to perish in a burning building.

This will do little to bolster the global support the Ukraine has enjoyed outside Russia to date. And while stock markets remain relatively sanguine, Friday night saw the US ten-year bond yield close down 2 basis points to 2.59% having initially jumped 7 basis points to 2.68% on the jobs number. Gold fell initially to 1280 before rebounding sharply to US$1300.60/oz, up US$16.30 on the session.

The US jobs number did nevertheless provide a boost to base metal prices on the LME, with copper, tin and zinc all rising 1%. But trading on the exchange was thin on Friday with China on holidays, it will be closed tonight for Labour Day in the UK, and Japan is also on holiday today and tomorrow. Iron ore rose by US60c a tonne or 0.6% to US$106.00 a tonne. Over the week iron ore fell by US$5.00 a tonne.

Oil prices closed higher on Friday night, which is to be expected given the threat to global oil trade from any step-up in Russian sanctions. Were it not for recent reports indicating excess US crude inventories, the oil price would likely be a lot higher still. Russia has called the United Nations Security Council together for a meeting to discuss the serious escalation in violence in the Ukraine and global oil supply implications.

President Obama and Germany’s Chancellor Merkel jointly announced on Friday that any step-up in sanctions against Russia will be held off until after the May 25 election in the Ukraine. Meanwhile, others are calling on the Ukraine to postpone what is a rather pointless election at this stage lest it simply become a catalyst for further fatalities.

The SPI Overnight has once again put on an optimistic display, rising 6 points on Friday night.

Australia’s week will open to Ukraine concerns and ongoing fear and loathing with regard the federal budget due next week. One does get the feeling Joe the Axeman is playing the old game of preparing everyone for the worse and then delivering something a lot milder. But we’ll have to wait and see. Ahead of the budget, there are a lot of important local data releases due.

Today sees the ANZ job ads series, the TD Securities inflation gauge, building approvals and the service sector PMI. Tomorrow the trade balance will be released and the RBA will hold a policy meeting, with no change to the status quo expected. Wednesday it’s retail sales, both for March and the March quarter, and the construction PMI. On Thursday the local jobs numbers are due. On Friday the RBA will release its June quarter Statement on Monetary Policy.

China is back in business this week and today HSBC will release its manufacturing PMI, delayed due to last week’s two-day break. Over the weekend, Beijing released its official service sector PMI which showed an increase to 54.8 from 54.5. HSBC will post its own service sector equivalent on Wednesday, while the April trade balance is due on Thursday and inflation data on Friday.

The UK is closed tonight, the UK and eurozone will both release service sector PMIs tomorrow and both the ECB and Bank of England will hold policy meetings on Thursday.

The economic week in the US sees the services PMI tonight, trade balance tomorrow, March quarter productivity on Wednesday (another weather impact indicator), chain store sales on Thursday and wholesale trade on Friday. The earnings results season has now moved into its long-tail second half.

Things are nevertheless hotting up on the Australian corporate calendar, as quarterly updates run into the bank earnings season and a round of AGMs for calendar year reporting companies.

Westpac ((WBC)) will release its interim result today and National Bank ((NAB)) on Thursday. Dexus ((DXS)) offers a quarterly report on Wednesday, News Corp ((NWS)) and the departing 21^st Century Fox ((FOX)) will report quarterly earnings on Thursday, and JB Hi-Fi ((JBH)) will provide an update on Friday.

Among the AGM highlights this week are Sigma Pharmaceutical ((SIP)) on Wednesday, AMP ((AMP)), GPT Group ((GPT)) and Rio Tinto ((RIO)) on Thursday, and Alumina ((AWC)) on Friday.

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

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.

Click to view our Glossary of Financial Terms