The Overnight Report: Waiting For Jobs

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By Greg Peel

The Dow closed up 9 points while the S&P was flat at 2050 and the Nasdaq lost 0.2%.

Meandering

As the dust settled over the RBA rate cut, federal budget and BHP’s larger than expected fine, the local market seemed at a loss as to what to do next yesterday. We opened down over 20 points, rallied back to be up over 20 points, and then faded away at the close. One thing is clear nevertheless – we’re not following Wall Street around like a faithful pet.

Yesterday’s data releases were on the positive side.

Retail sales rose 0.4% in March when 0.3% was expected, to a 3.6% annual growth rate. That’s below the ten-year average rate of 4.5%, but that average will continue to recede and eventually step down once the pre-GFC years roll off. We just don’t spend like we used to.

Retail spending represents around 30% of household spending and 55% of GDP. But again we have to consider such metrics to be going out of date. Commonwealth Bank’s economists note Australians are now spending less on traditional retail items, of which some 80% is “goods”, and more on non-traditional items we can call “experiences”. The savings rate, at near 9%, is historically high.

New home sales rose 8.9% in March, having fallen 5.3% in February. While many an analyst is warning of a cooling housing market, that cooling process is not a linear one. The home sales growth trend is still waning, but March sales and building approvals data and April house prices all showed a pop.

Australia’s trade deficit was $2.1bn in March when $2.9bn was expected. We can put the “beat” down to the commodity price bounce and weaker currency. Exports rose 4.3% and imports rose 0.7%. The export revival story continues for tourism, which posted a record surplus.

But none of the above seemed to make much difference yesterday. The yield stocks and offshore earners which had jumped sharply on the rate cut eased back. The banks were positive thanks to no dividend cut from National Bank ((NAB)), energy rose and materials fell. On a 0.3% gain, consumer discretionary couldn’t get too excited about the retail sales numbers.

Caixin’s measure of China’s service sector PMI fell to 51.8 in April from 52.2 in March, largely consistent with Beijing’s earlier result.

The local market may not be so ambivalent today, it appears. Base metal prices were slapped overnight and iron ore has fallen back through the psychological 60 mark. The SPI Overnight is showing down 0.9%.

Looking to June

The Dow was up over 80 points early in last night’s session but drifted back and wandered around before a flat close.

There had been a spike in oil prices early on, as wildfires in Alberta forced the closure of Canadian oil sands production, but a later report suggested production had resumed and oil fell back again.

Data releases on the day were not promising. April chain store sales posted a big miss, and left analysts scratching their heads and wondering just what’s going on with the American consumer. But as I suggested above, developed economies such of those of Australia and the US need to start adjusting their thinking away from traditional metrics that have been set in concrete for so long.

Or in bricks & mortar. US chain store sales have surprised to the downside. Last week, Amazon’s March quarter earnings release showed a much stronger than expected sales number. Perhaps there’s a clue here.

Traders were happy to square up last night ahead of tonight’s non-farm payrolls report. It’s the first of two that will be released before the June Fed meeting, but this one is not shaping up so well. The market is still tipping 200,000, but Wednesday’s ADP report fell well short of expectation and last night’s weekly new jobless claims number showed a surprise jump.

A weak non-farm payrolls number may further kill off thoughts of a June rate hike. But as to how Wall Street reacts is never easy to predict these days.

Commodities

After rising and falling back on oil sands news, West Texas is up US46c at US$44.51/bbl and Brent is up US47c at US$45.19/bbl.

Selling in base metals has intensified. This has been put down mostly to the rebound in the US dollar and the fact it was speculators and commodity funds, not end-users, that pushed prices up recently and now they are all bailing. Last night LME inventory data mostly showed lower numbers yet nickel was trashed 5%, while all of aluminium, copper, lead and zinc fell around 1.5%.

Iron ore fell US$1.50 to US$59.50/t. The US$60/t mark is considered important psychological support, hence it is feared the breach might open the floodgates to the downside. Mind you, it’s exactly what analysts have been expecting, if that is the case.

The US dollar index is up 0.5% at 93.75. Gold is nevertheless steady at US$1277.60/oz while the Aussie, having already taken a bath this week, is steady at US$0.7465.

Today

The SPI Overnight closed down 47 points or 0.9%.

There will be close attention paid to the RBA’s quarterly Statement on Monetary Policy, due for release today. Of most interest will be just how far the board has wound back its inflation forecasts.

Australia’s construction PMI is out today, while over the weekend Beijing will release China’s April trade numbers.

In between is the US jobs report.

On the local stock front, Macquarie Group ((MQG)) reports full-year earnings today and REA Group ((REA)) issues quarterly numbers.

Rudi will Skype-link with Sky Business, probably around 11.05am, to discuss broker calls.
 

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