The Monday Report

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By Greg Peel

Madness

Utilities were down 2.0% on the ASX on Friday. They were up 2.3% on Thursday. The telcos were down 1.7%, having been up 1.9%. The banks were down 1.5%, after being up 1.8%. The ASX200 fell 60 points having rallied 90.

If someone could explain to me exactly what changed between Thursday and Friday, I’d love to hear it.

Perhaps the computers have taken over the asylum. It is typical to see volatility in a consolidation phase following a 20% correction and ups and downs can be explained by uncertainty over whether we’ve put in a bottom or are just bracing for the next leg down. But these 1-2% moves every day, in opposite directions, is the stuff of madness and really should be avoided by longer term investors.

Squaring up ahead of Friday night’s US jobs report? Who knows.

Shocker

Wall Street expected 200,000 jobs to have been added in the US in September. The number was 142,000. August’s 173,000 was bad enough, and that was revised down by 59,000. The unemployment rate remained steady at 5.1%, but only because the participation rate fell. Wage growth in the month was a big fat zero.

Suddenly Janet Yellen looks like a gifted seer.

The response from economists was that we can definitely rule out an October Fed rate rise. Goldman Sachs, who had insisted on a December call ahead of the September meeting, is sticking with that call, as is JP Morgan, albeit “with less conviction”. Others say January. Others say “well into 2016”.

Others are simply exasperated that the debate is now set to go on, and on.

The Dow plunged 259 points on the open on the news, as one might expect from a market now seeing bad news as bad news and desperately wanting to end policy uncertainty. But there was no volume to speak of – no conviction or panic. As the Dow neared 16,000 the S&P500 fell under 1900. These levels are merely psychological, but they’re technically important on that basis anyway.

When traders realised there was no momentum in the sell-off, they knew the weakness wouldn’t last. Those looking to buy the dips saw an opportunity. And no doubt there remain those in the market who see “lower for longer” interest rates as a positive.

The Dow closed up 200 points, or 1.2%. This 450 point down to up reversal is the biggest on Wall Street in four years. The S&P closed up 1.4% at 1951 and the Nasdaq leapt 1.7%.

The Nasdaq jumped because everyone saw an opportunity to go piling back in to beaten down biotechs. Elsewhere, big US multinationals were being highly sought at the bottom, given the US dollar plunged a full percent on the jobs report release. But when Wall Street rallied back, so did the dollar, to be down only 0.3% at 95.91.

The US ten-year yield fell from 2.04% to 1.91% before it, too, recovered, to be down 5 basis points on the day at 1.99%.

Gold is up US$25.80 to US$1139.30/oz, having held its gains through to the end of the session. Silver jumped a whopping 5%.

And what is the end result of it all? Nothing. We’re no closer to knowing whether the market wants to go up or down, or to knowing what the Fed is going to do. 

Commodities

Base metal traders were torn between the weak economic signal provided by the US jobs report, and the fall in the US dollar. In the end, all metals closed slightly higher, with only copper posting a gain of greater than 1%.

Iron ore fell US50c to US$54.00/t.

The oils were slightly stronger, with West Texas up US64c to US$45.66/bbl and Brent up US32c to US$48.27/bbl.

The Aussie dollar rose to match the US dollar’s fall, by 0.4% to US$0.7053.

And the SPI Overnight closed up 67 points, or 1.3%, on Saturday morning. So wouldn’t you know, we’ll be heading up again today.

The Week Ahead

The only impediment is the fact most of the country is enjoying a long weekend today. Volumes will thus be thin, so it will come down to just how many people actually want to play.

ANZ will release its job ads series today and TD Securities its monthly inflation gauge. We’ll also see the local service sector PMI, as we will for Japan, the eurozone, UK and US.

Tomorrow it’s the trade balance, and an RBA meeting at which nothing much will happen. Wednesday it’s the construction PMI, Thursday it’s our own jobs report, and Friday sees housing finance data.

The Bank of Japan will hold a policy meeting on Wednesday and the Bank of England on Thursday.

China remains closed until Thursday.

A quieter data week in the US sees the services PMI tonight, trade balance tomorrow, consumer credit on Wednesday and chain store sales on Thursday. Thursday also brings the release of the minutes of the last Fed meeting, although they have probably now been rendered redundant by the weak jobs report.

Wall Street is preparing for the September quarter earnings season about to begin.

On the local stock front, we’re in a bit of a lull this week before AGM season really starts to ramp up next week, and resource sector production reports start to flow. Ansell ((ANN)) will hold its AGM on Wednesday and Aurizon ((AZJ)) will hold an investor day, while Bank of Queensland ((BOQ)) reports its FY15 result on Thursday.

Most broker analyst desks are closed today and only skeletons are manning the phones. Today’s FNArena service will be abbreviated as a result.

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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