The Overnight Report: Respite

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By Greg Peel

The Dow closed up 82 points or 0.5% while the S&P gained 0.2% to 2052 and the Nasdaq added 0.4%.

Good News is Bad News

Economists were bracing themselves yesterday for a weak local jobs report. Not because they believe Australia’s economy is in trouble and unemployment is mounting – indeed, quite the opposite – but simply because when last month’s report suggested 56,100 new jobs were added, they all fell about in hysterics.

As if!

While suspicion has been mounting for some time that the ABS dart board had well and truly fallen off its hook, economists were at least prepared to be polite last month and suggest the October result probably was a case of statistical noise. The series is volatile, they acknowledged, and hence the November numbers would probably see a correction back to a more realistic result, while maintaining an underlying positive trend.

Yesterday’s number suggested 71,400 new jobs added.

This time there were just looks of exasperation. Struggling to remain polite, CBA’s economists summed up the mood in saying “There will be many doubters”. Still, various other employment indicators have been quite positive, CBA admits, such as the ANZ job ads series, and the underlying trend is a more believable 25,000 new jobs per month.

The November result, fantasy or not, was not well received by the stock market yesterday. In a week dominated by ever-falling commodity prices, for once it was not the resource sectors that led the index down. Energy fell 0.4% but materials was up 0.7%, while the banks fell 1.5%, the telco 1.1% and utilities 0.8%. If the October jobs report suggested the possibility the RBA would not be cutting its cash rate any further, the November report has killed off any thought of another cut altogether. As the Fed prepares to raise, goodbye yield.

The ASX200 was down around 40 points in the morning yesterday on further commodity price and Wall Street weakness, and when the jobs number came out, fell another 40. That took us, for about the umpteenth time this year, back down through 5000. Then the technical trade came into play, and late buyers pushed the index back to a more respectable loss of 42 points on the day, well clear of the 5000 mark.

Forex traders have given up all hope of another RBA cut, as is evident in a 0.9% rally in the Aussie to US$0.7291 despite the US dollar index being up 0.6% at 97.93, but they could well change their minds again tomorrow.

Love That Bottom

WTI crude fell again last night, by another 1.7%, and now Brent has joined the sub-40 club. Crude prices themselves have thus yet not quite bottomed but Wall Street clearly believes a bottom is in sight. For the second session in a row, energy stocks were most sought after. The S&P energy sector rose 1.2% last night following Wednesday night’s 1.3% gain, and after four down-days in a row, Wall Street finally managed a rally all round.

Despite those four down-days, Wall Street’s bounce off the September lows has meant the 50-day moving average on the S&P500 is now very close to crossing over the 200-day, which is called a “Golden Cross” and signals peace, love, harmony and bullishness for all evermore thereafter.

It’s all a complete load of crap of course, but some people do like to hold onto to these little fantasies. Don’t they Santa?

The Golden Cross will be triggered, it is assumed, next week when the Fed announces a rate hike and Wall Street takes off. Tonight sees the release of PPI and retail sales data, and next week sees CPI and housing sentiment ahead of the Fed meeting, but the market is convinced the Fed has already made its decision. As to being convinced the market will then rally is another matter, because everyone is assuming that will be the case.

Indeed, the Dow was actually up 200 points around 3pm before fading quickly away at the close.

Commodities

West Texas crude is down US64c to US$36.73/bbl and Brent is down US64c to US$39.74/bbl.

The pickers were out in the local materials sector yesterday, it would seem by the aforementioned 0.7% rally against the general index trend. But iron ore is down another US80c overnight to US$37.50/t.

Aluminium producer China Hongqiao yesterday announced the immediate curtailment of 250,000t of production, but still couldn’t manage to ignite the aluminium price on the LME, which closed flat. All base metals closed flat except for nickel which fell 1.5%. It seems in the run-up to year-end, nothing is going to excite world weary metals traders at the moment. We can only hope China Hongqiao’s capitulation is a sign of more to come from China.

The rally in the US dollar helped gold down US$4.50 to US$1072.30/oz.

Today

Despite a rally on Wall Street, the SPI Overnight closed down 11 points or 0.2%.

US November retail sales data will be the hot topic of conversation tonight, given the numbers will account for the Thanksgiving weekend shopping spree. The PPI and consumer sentiment numbers are also due.

Tomorrow brings China’s data dump for November, featuring industrial production, retail sales and fixed asset investment numbers.

Westpac ((WBC)) will hold its AGM today.
 

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