The Monday Report

This story features INCITEC PIVOT LIMITED, and other companies. For more info SHARE ANALYSIS: IPL

By Greg Peel

After a couple of sessions of indecision, Bridge Street headed firmly north on Friday following new highs on Wall Street. It was a Buy Australia trade, featuring strength across most sectors and particularly those in which the big caps lie. Materials actually led the charge, despite a new five-year low in the iron ore price, while energy, healthcare, the telco and the banks (net of ex-divs) chimed in.

The Aussie was up 0.8% at US$0.8636 on Saturday morning, on a combination of strength during Friday’s session and a kicker from a lower US dollar on Friday night.

The US dollar index lost 0.5% to 87.59 on a weaker than expected US jobs number. The October non-farm payrolls report noted 214,000 new jobs added, missing forecasts of 243,000.

The Dow initially fell 63 points on the release, before traders took the time to actually look through the report and decide it was pretty positive after all. For starters, the two previous months’ results were revised up by a net 31,000 jobs, which takes care of the October shortfall. The unemployment rate fell to 5.8% from 5.9% in September even as the participation rate edged up to 62.8% from 62.7%. The US has now added 200,000-plus jobs for nine consecutive months, a feat not achieved since 1994. Mind you, this has to be taken in the context of 20 years of additional population growth.

Had the number fallen short of 200k, Wall Street may have realistically seen a decent fall. Had it well exceeded the 243k forecast, Wall Street may also have headed for the hills over fear of a fast-tracked Fed rate rise. So the report, in its entirety, was a bit of a Goldilocks. There was one cloud inside the silver lining however, with wages growing by an anaemic 0.1% in October for a 2.0% annual rate.

This lack of wages growth reflects that which keeps Fed chair Janet Yellen in a more dovish mode than might otherwise be expected. Yellen continues to point to excess slack in the US labour market, which clearly needs to be filled before any pressure on wages emerges, providing for healthy inflation and the need for tighter monetary policy.

By late morning Wall Street was back at the flatline, before stumbling through the afternoon session to finish with mild gains. The Dow closed up 19 points or 0.1% while the S&P was less than one point higher at 2031 and the Nasdaq lost 0.1%. The Dow and S&P marked new, albeit incremental, all-time highs.

While US jobs numbers always take centre stage, it should be noted that Germany posted some more positive numbers, for once, prior to the open on Wall Street. After a shocker in August, German industrial production rose 1.4% in October. Unfortunately this was still short of 2.0% forecasts but better news was to come from Germany’s trade data, which showed sharp improvement to a 5.5% increase in exports and a 5.4% increase in imports.

The combination of slightly better data in Europe and the jobs “miss’ in the US was responsible for the US dollar retreat, while the US ten-year bond yield also lost a full 6 basis points to 2.31% after spending all of last week grafting higher.

The miss also provided relief for the gold bulls, with gold seeing a sharp short-covering rally of US$25.70 to US$1169.80/oz after a tough week.

Just when it looked like tensions between Russia and Ukraine were easing, unconfirmed reports hit the wires on Friday night that a military convoy of Russian tanks, cannon and troops had crossed the broker. We’ve heard nothing since, but West Texas crude decided to rise US44c to US$78.45/bbl in response while Brent managed only US17c to 82.97/bbl.

It was all ups and downs on the LME on Friday night without any major moves. Copper was up 0.8% while aluminium was down 0.7%.

Iron ore fell a further US10c to US$75.50/t.

The SPI Overnight closed down 3 points on Saturday morning.

After posting more encouraging trade numbers in September, China once more disappointed on Saturday with a weaker set of October trade numbers. Exports fell to 11.6% year on year growth, down from 15.3% in September, and imports fell to 4.6%, down from 7.0%.

The PBoC has indicated that while it will continue to pump liquidity into China’s economy in targeted parcels, no significant stimulus package is being considered. Beijing’s 2014 GDP growth target of 7.5% appears under threat following the September quarter’s 7.3% annualised growth and a lack of notable rebound thereafter, but Chinese authorities are seemingly unconcerned.

Chinese inflation numbers are due out today, and Thursday sees a data dump of October industrial production, retail sales and fixed asset investment numbers.

Japanese data releases this week include consumer confidence and the trade balance tomorrow and industrial production on Thursday.

It should be a quiet start to the week in the US with Wall Street sitting at new highs. There is little in the way of US data to consider until week’s end, when retail sales, business inventories and consumer sentiment numbers are released, and Tuesday is Memorial Day, equivalent to Armistice Day here. It’s one of half-holidays in the US for which banks and the bond market are closed while stock and commodity markets remain open, but are typically quiet.

Europe will see eurozone industrial production on Wednesday, a flash estimate of German CPI for October posted on Thursday followed by the equivalent eurozone number on Friday, along with the first estimate of eurozone September quarter GDP. Economists are forecasting 0.6% growth, down from 0.7% in June.

Glenn Stevens will be on the edge of his seat as Australian housing finance and investment lending data are released today. Tomorrow sees the monthly NAB business confidence survey along with a September quarter house price index, while Wednesday brings the Westpac consumer confidence survey along with September quarter wage growth.

Incitec Pivot ((IPL)) will release FY14 earnings on Tuesday followed by DuluxGroup ((DLX)) on Wednesday and Graincorp ((GNC)) on Thursday. Stockland ((SGP)) will hold an investor day on Wednesday and Paladin Energy ((PDN)) will provide a late season quarterly production report. There will once again be a swathe of corporate AGMs held across the week.

Rudi will appear on Sky Business on Wednesday at 5.30pm and 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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