The Overnight Report: Hanging In There

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By Greg Peel

The Dow closed up 35 points or 0.2% while the S&P gained 0.5% to 2187 and the Nasdaq rose 0.7%.

All Yield

Yesterday’s local jobs data showed the unemployment rate remained steady at 5.6% in October, offering a smokescreen for the weak underlying employment trend. There were 9,800 new jobs added, which exactly matched the 9,800 lost in September, except that the ABS revised down that September number to 29,000 lost. Over three months, an average of 8,600 jobs per month were lost.

Over the ten months to October, an average 4,300 jobs per months have been added. “These figures are poor,” say the CBA economists. That number breaks down to 136,900 part-time jobs added and 34,700 full-time jobs lost. That is why wage growth, as underscored by Wednesday’s release of the September quarter wage price index, is at a record low.

And that is why economists have steeled their resolve that the RBA will be forced to cut its cash rate further in 2017.

If the coal price tips over, a rate cut will become a given, one presumes. Iron ore is still causing heads to be scratched and oil is vulnerable to an OPEC stand-off. The “marked change” in Australia’s terms of trade noted by the RBA may yet prove fleeting. If that’s the case, where does one put one’s money?

Yesterday the telcos sector led the rebound from another one of those computer-driven, overcooked opening sell-offs in rising 2.3%. Utilities, much maligned for months now, got the silver with a 2.0% gain.

Healthcare also recovered from Wednesday’s weakness, which was driven by the poor wage growth number, in rising 1.0%. There was some counterbalancing from the resource sectors but the obvious theme of the day was “yield is back!”

The lowlight of the day was provided by media intelligence (is that an oxymoron?) SaaS provider iSentia Group ((ISD)), which became the latest in a string of “new world” companies to find out that if you’re priced by the market on a hope and a dream, don’t issue a profit warning. iSentia shares fell 27%.

Bring it on

Last night Janet Yellen told a Congressional committee a Fed rate hike could come “relatively soon”. Read: next month. While few on Wall Street doubted this was the case, many had assumed a Trump election win would keep the Fed on hold.

But that was on the basis that, as also assumed, the stock market was going to fall 10%. Quite the opposite has proven true and a rate hike has been all but fully baked in by the market, but it is comforting to hear it from the horse’s mouth. Rate rise confirmed.

Any more confirmation required? The US headline CPI jumped 0.4% in October – the fastest rate of growth in six months – and the core rate jumped 0.1%. The core is running at 2.1% annual. The Fed prefers the PCE measure of inflation, which has not quite hit 2%, but one presumes it must soon.

I don’t normally highlight weekly data as they can be misleadingly volatile, but last night’s weekly new jobless claim number in the US was the lowest in 43 years. And US housing starts jumped 25.5% last month.

All this is pre-Trump.

The big caps that have led the post-Trump charge since day one continued to back off last night, leaving mid and smaller caps to take the baton. Thus the Dow was up only 0.2% while the S&P rose 0.5% and the Nasdaq 0.7%, as it continued its comeback. Drawing much attention at present is the Russell small cap index, which has absolutely soared post-Trump. Did someone say a corporate tax rate cut to 15% from 35%?

The small cap index has spent all year grafting its way back from the 25% plunge it suffered back in February.  That month was a tumultuous one in which all indices tanked on the oil price and European bank concerns, and when you're bailing out, the first thing you throw overboard is your small caps. Just as the votes were being counted, the Russell index had squared up for the year.

Trump provided the technical break-up.

Commodities

Speaking on television last night, the Saudi oil minister said he is optimistic OPEC will indeed reach an agreement on a production freeze. Oil prices shot up. Then the weekly US inventory data came out. Oil prices shot down again.

West Texas crude is down US51c at US$44.98/bbl.

Behind the scenes, the US dollar continues to climb. Having now technically broken out, the dollar index rose another 0.6% last night to 100.93.

So far commodity prices have ignored the surging dollar given the promise of US infrastructure spend. That is unless they would have been that much higher were it not for the greenback drag.

Last night base metals again swapped up and downs, but no move exceeded 1%.

Iron ore rose US50c to US$72.70/t.

US dollar gold cannot ignore the US dollar. Gold is down US$12.80 at US$1213.00/oz.

And the Aussie, too, must bow to the greenback, but a further 0.9% fall to US$0.7412 also smacks of RBA rate cut expectations.

Today

The SPI Overnight closed up 19 points or 0.4%.

Chinese property prices are out today.

It’s another busy day locally for AGMs with the most shorted stock on the market – Myer ((MYR)) – in focus.

AusNet ((AST)) will release its earnings report.

Rudi will link up with Sky Business this morning, around 11.05am through Skype, to discuss broker calls.
 

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