The Monday Report

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By Greg Peel

Local Resilience

If Friday’s trade on Bridge Street is any indication, the buyers are lined up ready for any slight drop in the index so they can pick up the stocks they missed in this year’s rally to date. The ASX200 was down 34 points late in the morning, but by the close was down a mere 5.

Healthcare led the resilience in a session that saw materials and energy once again hit on lower commodity prices. But it will likely be a different story in today’s trade. The clue lies in the Aussie dollar, which had fallen 0.7% to US$0.7719 by Saturday morning.

It’s Raining Jobs

The US non-farm payrolls report, released on Friday night, showed 295,000 jobs added. Not only had consensus suggested a mere 238,000, but Wall Street had prepared itself for disappointment given heavy snow in February in many parts. This was a blow-out.

The unemployment rate dropped to 5.5% from 5.7% to mark its lowest level since May 2008. This result was tempered by the fact the participation rate fell slightly to 62.8%, and that year on year wages growth fell back to a mediocre 2.0% from 2.2% in January. But the big jobs addition was enough to jolt Wall Street. Suddenly we’re back to the old “good news is bad news” theme.

The Dow fell 278 points or 1.5% to be back under 18,000. The S&P fell 1.4% to 2071 to leave 2100 behind. The Nasdaq fell 1.1% to leave 5000 well behind.

The US dollar index soared 1.3% to 97.66, which is why the Aussie took a dive. The US ten-year bond yield leapt 13 basis points to 2.24%. Before Friday there were those on Wall Street believing the Fed was still on track for a rate rise mid-year, but others who argued the first hike would not come until 2016. Now everyone is assuming the Fed will be moving sooner rather than later. The word “patient” will be removed from the next FOMC statement and the countdown will be on.

There may yet be some timing respite offered by low wages growth and low inflation. But on Friday night, Wall Street was not hanging around to debate the issue. Suddenly US yield stocks aren’t looking as attractive as they were. Hence, neither are Australian yield stocks.

China Surplus

As is the case every year, the Chinese New Year holiday has led to a distortion of Chinese economic data. Over the weekend Beijing reported a year on year rise in the value of Chinese exports of no less than 48.3% in February, along with a 20.5% fall in exports. China’s trade surplus rose to a record US$60.6bn.

The fall in value of exports is accounted for by weaker commodity prices but the rise in exports is likely the result of the usual pre-holiday rush to get orders filled and goods ships before the entire country shuts down for a week. Over the next couple of months we should see a reversal to more realistic numbers.

Dollar Pressure

The big jump in the US dollar only serves to apply further mathematical pressure on dollar-denominated commodity prices. The clear loser on Friday night was gold, which fell US$34.10 to US$1165.30/oz.

Base metals nevertheless saw mixed results. Copper was hit by 1.5%, and aluminium 1%, but nickel rose 1.5%. Spot iron ore fell US$1.10 to US$58.20/t.

The oils could not fight off dollar pressure. West Texas fell US$1.21 to US$49.60/bbl and Brent fell US86c to US$59.79/bbl.

The Week Ahead

It’s not looking like a good start for the local market today. The SPI Overnight closed down 64 points or 1.1% on Saturday morning. The lower Aussie is nice, but plunges in commodity prices will only serve to exacerbate the exit expected from yield stock favourites, most of which analysts called overvalued during reporting season.

Will the buyers be lined up this time? To rub salt into the wound, Victoria, South Australia, Tasmania and the ACT are all on holiday today for Labour Day, so markets could be a little thinner.

Our own jobs numbers are out on Thursday, and no one is expecting the sort of positive numbers seen in the US. Ahead of that we’ll see the ANZ job ads series today, followed by the NAB business confidence survey tomorrow and Westpac consumer confidence survey on Wednesday. Wednesday also brings housing finance numbers – the counter to RBA rate cut designs.

China will release February inflation data tomorrow and industrial production, retail sales and fixed asset investment numbers on Wednesday.

The economic week begins quietly in the US up until Thursday, when retail sales and inventory numbers are due. On Friday it’s the PPI, and Wall Street will be paying very close attention to inflation indicators.

On the local stock front, it’s another week in which the index will begin each day with the handicap of several ex-dividends. Not much today, but BHP Billiton ((BHP)) will give things a jolt on Wednesday, and there are plenty more across the week.

This week Rudi will appear on Sky Business only on Wednesday at 5.30pm to be followed by a presentation to members of the local chapter of AIA in Chatswood, 7-9pm.
 

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

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