The Monday Report

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            [1] => ((HVN))
            [2] => ((SIG))
            [3] => ((WHC))
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            [1] => HVN
            [2] => SIG
            [3] => WHC
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This story features WESFARMERS LIMITED, and other companies.
For more info SHARE ANALYSIS: WES
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Uncertain Times

On Thursday, the futures had suggested a 9 point gain but the ASX200 opened up 40 points in the morning before closing up 28 points. On Friday the index suggested down -27 but closed up 9. Perhaps there was a hiccup in the time and space continuum.

The computers appeared to want to slap down the local market from the open on Friday, perhaps assuming we, too, would get swept up in rising US interest rates, but that attempted sell-off lasted all of five minutes. The index recovered by late morning ahead of a typical Friday afternoon drift.

We should note it is school holidays in some states and thus volumes are a bit thinner, as will be the case again this week.

You know it must be Friday when the best performing sector in the index is consumer staples, up 0.5%.

Wesfarmers ((WES)) announced some details with regard the planned Coles demerger, which included provisions to be taken for the closure of old distribution centres, the job losses resulting, and the construction of new automated centres in order to catch up technologically with its main rival. Wesfarmers shares rose 0.3% and those of the man rival rose 1.6%.

August retail sales data were out on Friday, and they impressed. Growth of 0.3% in the month exceeded 0.2% expectation and the flat result in July, which had economists fearing the impact of falling house prices and rising fuel costs was starting to bite. Resilience is the key word, for now.

Yet consumer discretionary fell -0.3%.

The banks put in another positive session in rising 0.3%, following US banks as they strangely always seem to do (unless impacted by the RC). Rising US rates mean rising banks funding costs. The RBA is not budging, meaning no chance of “in-cycle” lending rate rises. The banks all repriced their lending rates last month citing rising funding costs.

For how long can the banks continue to implement “out of cycle” repricing amidst falling house prices and negligible wage growth without tipping their borrowers over the edge?

Elsewhere there wasn’t much going on among sectors, and for once the resources sectors closed as good as flat. The ever lower Aussie is propping up these sectors, and others with US exposure. This is the trade-off for higher US rates, and the impact that may have for the rest-of-world economy, particularly emerging markets.

At present the local market appears undecided.

A Different Tune

The US added 134,000 new jobs in September when 168,000 were forecast. Once upon a time this would have been disappointing, but now it’s somewhat of a relief. Wall Street does not want the labour market to run too hot. The unemployment rate nevertheless fell to 3.7% on increased participation, to mark its lowest level in 49 years.

It is also assumed Hurricane Florence was responsible for the “miss” on headline jobs, hence that will reverse down the track.

The main focus is on inflation, and in this case wage growth which fell back to 2.8% year on year from 2.9% in September. I suggested on Friday a “hot” number here might trigger a more substantial sell-off. But realistically, this was another Goldilocks jobs report.

But the Dow fell -325 points through to lunchtime. Goldilocks is usually a buyer.

In the run of Goldilocks jobs reports all year, the US ten-year yield has not budged. On Friday night that yield, having broken out technically, rose another 3 basis points to 3.23% to mark its highest level in seven years.

Is this a bad thing, given the current strength of the US economy? In the afternoon the buyers pushed the Dow back up to a close of down -180. This had been the pattern of the week — plunge early on rising rates and then recover somewhat towards the close. Interestingly, while rising rates are engendering a fear of the end of the equity bull market, the US yield curve steepened last week.

So recession talk has gone quiet.

The trend of profit-taking in tech and small caps continued on Friday, with the big industrials and other cyclicals continuing to be the go-to. The best performing sector for the week was financials, coming off notable year to date underperformance as the yield curve flattened. But rising rates, and a subsequently rising greenback, are not seen as positive for equities in general going forward.

So the debate rages on. Does the yield breakout signal the beginning of the end of the bull market, or is the US economy so strong that Wall Street can take rising rates in its stride?

Watch this space.

Commodities

On Friday night the Brazilian government backed down on the environmental dispute which had forced the indefinite closure of the Norwegian-owned Alunorte alumina smelter and the prospective lay-off of workers. Previously rejected approvals were granted and Alunorte should be able to restart to 50% capacity.

Aluminium fell -3%. Other base metal prices were mixed.

The US dollar index dipped -0.2% on the jobs report, allowing a little relief for gold, but still 1200 is the metals’ sanctuary.

Despite the dip in the greenback, the Aussie continued to track lower, falling another -0.3% to US$0.7051. With the Fed raising and the RBA unmoved, a number beginning with six cannot be far off.

The SPI Overnight closed down -27 points or -0.5%, but the futures have not been reliable indicators of late.

The Week Ahead

China is back in business as of today. Japan is closed today.

Tonight in the US is Columbus Day, which closes US banks and the bond markets but not stock markets. What will Wall Street do tonight without a bond market?

There are no major US economic releases tonight, but inflation will again be in the frame with the release of the September PPI on Wednesday and CPI on Thursday.

In Australia we’ll see the ANZ job ads series today, the NAB business confidence survey tomorrow, and the Westpac consumer confidence survey on Wednesday. Friday brings housing finance data and the RBA’s biannual Financial Stability Review.

China releases trade numbers on Friday, with tariffs now making their mark.

On the local stock front, ex-divs are now but a trickle, although Harvey Norman ((HVN)) and Sigma Healthcare ((SIG)) are two notables on this week’s list.

As ex-divs ebb, resource sector production reports and quarterly updates from non-resource companies will soon begin to flow. Whitehaven Coal ((WHC)) kicks us off on Thursday.

A reminder that as summer time began in Australia on the weekend, the NYSE will close at 7am Sydney time from tomorrow.

Rudi will appear on Sky Business on Tuesday via Skype around 11.15am; again on Thursday from 1pm 'til 2pm; and again on Friday via Skype, probably around 11am.

The Australian share market over the past thirty days…

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