The Monday Report

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            [3] => ((WHC))
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This story features BLUESCOPE STEEL LIMITED, and other companies.
For more info SHARE ANALYSIS: BSL
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Rebound

Well I did say on Friday that the fact the SPI futures were up 35 points ahead of the open, breaking a long streak of gains in the teens which had all been proven misleading, meant this time it could be different. And it was.

As to why, exactly, investors decided to push the ASX200 up 50 points on Friday is unclear. One thing that is clear is that the buying was largely market-wide. Only three sectors failed to join in a rise of a roughly uniform 1%, being the consumer sectors and utilities. The latter was the only sector to actually fall.

We could say it was all about a strong session on Wall Street on Thursday night, driven by the passage of the budget bill which opens the way for tax reform to proceed. But then Wall Street spent all last week marking consecutive new highs, while the ASX200 fell a hundred points over the week before rebounding on Friday.

We could say it was a bounce off technical support, which no doubt was a contributor, as we’ve seen numerous bounces off support since we entered the entrenched trading range in May. But whereas previously we bounced off 5680, now we’re bouncing off 5650. And where previously we’d then head back to 5800, now it’s a struggle to get to 5750.

Volume was again light on Friday, reflecting school holidays but also, one would suggest, a lack of conviction. The holidays are now over so it will be interesting to see whether stronger volumes make a difference to sentiment.

It’s not like there’s nothing to be a little concerned or uncertain about. How will the Catalonia story end? Is North Korea gearing up for another missile test? Will there be a change of leadership in Britain? Does any of this matter to markets?

Or locally, is the RBA going to hike rates soon or not? Certainly the yield play that so dominated recent years is now waning in popularity.

The futures closed down -6 points on Saturday morning after a flat session on Wall Street. It’s the first time in a couple of weeks they’ve closed down. As to what this implies, well, probably nothing.

Blown Away

Economist forecasts with regard the US September jobs report, released on Friday night, were for 150,000 jobs to have been added less 75,000 jobs lost due to the hurricanes, for a net 75,000 gain. The result was -33,000 jobs lost, to mark the first fall in jobs in seven years.

At any other time, Wall Street would have been shocked. Such a result may have led to a stock market plunge (slowing economy) or a surge (less chance of a Fed hike) depending on the mood at the time. But instead, the Dow closed down -1 point, the S&P lost -0.1% to 2546 and the Nasdaq gained less than 0.1%.

The jobs number was immediately dismissed by all and sundry. We say “jobs” but this is the non-farm payrolls report, meaning it counts who got paid in the month, not who actually found or lost a job. The hurricanes meant a lot of people did not get paid, but it didn’t necessarily mean they lost their jobs.

The market thus looked straight through the headline number and onto the background data. The unemployment rate fell to 4.2% from 4.4%. Most importantly, after months and months of stagnant growth, wages jumped 0.5%. Annual wage growth rose to 2.9% from 2.7% in August.

This number has further cemented expectations of a Fed rate rise in December, when one might have expected a negative jobs number would do the opposite. On the release of the report, the US ten-year yield jumped 5 basis points to 2.40%.

Then someone from Russia worth listening to suggested North Korea might just be preparing for another missile test. That yield fell back to 2.35%, before settling at 2.37%.

Wall Street no longer panics on such news but between heightened tension, and the uncertainty being generated by Catalonia, and the fact the third quarter earnings season begins later in the week, and the fact the S&P had posted six consecutive new all-time highs for the first time in twenty years, meant it was time to take a breather.

No one would have been surprised if the indices had dropped for once, but rather we saw a flat close. The way Wall Street has been travelling lately, a flat close is almost a correction.

On the subject of earnings, consensus forecasts had been for a net 6% growth rate for the S&P500 in the quarter but that has now been pulled back to 2%. The difference is insurance companies, in the wake of the storms. For the second quarter the market said 6% and the result was 10%, and much the same was seen in the first quarter.

As is the case with this September jobs number, all other data related to the third quarter will be assessed in the context of hurricane “noise”.

And that means Hurricanes Harvey and Irma. Right now, Hurricane Nate may have been downgraded to a storm but it has still slammed into the Gulf coast where a lot of oil refineries are located. So just as refineries in Texas are reopening, refineries further along the coast are shutting down.

Which means a drop in demand for crude oil and thus, at least in the meantime, a drop in the price of crude oil. WTI fell -3% on Friday night.

Commodities

This puts West Texas once again below the line-in-the-sand price of 50, but the circumstances are temporary. A -US$1.51 fall took WTI to US$49.22/bbl.

Volatility is heating up again on the LME, providing a lot of to-ing and fro-ing in price. On Friday night aluminium fell -1%, zinc -1.5% and lead -2%.

Iron ore rose US50c to US$61.70/t.

The US dollar index fell -0.2% to 93.8 which helped gold up US$7.90 to US$1276.10/oz, with probably a bit of North Korea and maybe even Catalonia reflected in that gain as well.

The Aussie is down -0.4% at US$0.7764.

The SPI Overnight closed down -6 points on Saturday morning.

The Week Ahead

It’s a bank holiday in the US tonight, which means banks and the bond market will be closed but stock markets will be open. It is typically a quiet session.

The minutes of the September Fed meeting are out on Wednesday night ahead of the PPI on Thursday and the CPI, retail sales and fortnightly consumer sentiment on Friday.

Japan is closed today.

China is back today from its week-long break and Caixin will release its September services PMI today ahead of official September trade numbers on Friday.

The NAB business confidence survey will be released tomorrow locally followed by the Westpac consumer survey on Wednesday. Thursday it’s housing finance and on Friday the RBA releases a Financial Stability Report.

On the local stock front, the run of ex-divs is now starting to dwindle but the AGM season is beginning to quietly ramp up. This week’s meetings include those of BlueScope Steel ((BSL)) tomorrow and Magellan Financial ((MFG)) and Transurban ((TCL)) on Thursday.

We are also now entering a quarterly reporting period for the resource sectors, with Whitehaven Coal ((WHC)) on the blocks on Thursday.

Rudi will connect with Sky Business via Skype on Tuesday morning, 11.15am, to discuss broker calls. He'll appear in the studio on Thursday, probably noon-2pm, and repeat the Skype connection on Friday, probably around 11.15am.
 

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