Another Trump win with a good jobs report!

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Trumpomania has had to contend with some real world issues this week – the OPEC meeting, the US jobs report and on Sunday, it’s the Italian referendum.

In case you missed it, OPEC followed the optimist’s script, coming up with a production limitation agreement and oil is now a tad over $US51 a barrel, which is a good outcome for stocks now and rolling into 2017.

On the employment front, the US economy added 178,000 jobs last month, taking the unemployment rate to 4.6%. A Reuters poll pointed to an expected gain of 175,000, with the unemployment rate remaining at 4.9%

So it’s two down and the positivity around the President-elect has not been trumped, as we wait for the third horseman – the Italian referendum. I hope that this is not an apocalyptic experience for financial markets.

Interestingly, for the first time this week, US business websites started focusing on the Italian referendum, suggesting markets were hesitant ahead of the vote that could see the Italian Prime Minister, Matteo Renzi, quit if the ‘No’ vote gets up.

The polls say this will happen and, understandably, markets are not ignoring the possible impacts on the euro with the referendum’s result bound to raise questions about the likelihood of Italy remaining in the European Union.

Grexit and Brexit were not ignored by global stock markets and if the Italians create havoc with their voting, our stock market could be the first to react or quite possibly – overreact!

In Europe, stocks had their biggest drop in a month, with political curve balls aplenty. On top of the Italian vote, Austrians go to the polls on Sunday and the EU’s first far-right politician looks set to take power. And the French President Francois Hollande announced he wouldn’t run for a second term, with an election due in April and May. Why two months? Well, if no candidate wins an outright majority in the April poll, then the top two go head-to-head on May 7.

On the local front, next week we get our September economic growth numbers and a slower result seems likely after seeing figures for construction and business investment. AMP’s Shane Oliver is tipping a 0.2% figure for the quarter, which will bring annual growth down under 3%, but some economists have suggested that it could be a negative number!

If a negative result happens, then another RBA rate cut will be put back on the table by some economists, many of whom have been telling us that more cuts are coming. The RBA’s new boss, Dr Phil Lowe, clearly would prefer no more cuts but he won’t ignore a surprisingly low growth reading.

And next week he gets a pretty good run of economic data to make a judgment call. On Monday, we see the latest business indicators and job ads, which have been at a four-year high. Tuesday brings the RBA board meeting, the balance of payments and Government finances. These numbers culminate into the economic growth figure on Wednesday and I reckon the Oz dollar will be a key reactor to what the Statistician produces.

Things have been running so well it only seems likely that something has to go wrong sooner or later and some kind of profit-taking brings stocks down a peg. Since the US election, the S&P 500 has been up 4% and the Russell 2000 for small caps has been 10% higher! Our market is up 3.6% but we still can’t beat the 5500 level. Therefore between Sunday and Wednesday, there could be enough news to take us down lower or make another assault on that cap on the overall index.

What I liked

The OPEC deal – who would have thought?
The US economy grew at a 3.2% annual rate in the September quarter, while the forecast was 3%.
The ADP employment survey showed that 216,000 jobs were created in November in the US, while the forecast was 165,000!
The ISM Manufacturing Activity index in the US rose from 51.9 to 53.2 in November – suggesting the pace of expansion was accelerating.
The Dallas Federal Reserve survey recorded a lift in activity. The General Business Activity index rose from -1.5 to 10.2 in November – that’s a big jump – probably a Texan Trump jump!
The Italian bank index also rose by 3%, adding to the gains across Europe. I hope this is a good omen for Sunday.
Australian retail rose by 0.5% in October, taking the annual number to 3.5%, which was a five-month high. It made CommSec tell us that this was the “Strongest discretionary spending in 2 years.”
The ANZ/Roy Morgan consumer confidence rating eased by 0.1% to 115.4 in the week to November 27. Since 2014, confidence remains above the average of 112.9.
The latest business investment news wasn’t good but CommSec’s Craig James saw something positive: “The main good news or rather glimmer of hope was the lift in expected investment plans compared with last quarter. The fourth estimate for 2016/17 is $106.9 billion, up 1.7 per cent on the third estimate (June quarter). In addition, investment plans have lifted substantially in the past six months, up by 17 per cent.”
The Performance of Manufacturing index here rose by 3.3 points to 54.2 in November. A reading above 50.0 indicates that the sector is expanding.
The CoreLogic Home Value Index of capital city home rose by 0.2% in November and was up 9.3% over the year. Prices rose in all capital cities except Melbourne (-1.5%) and Canberra (unchanged). Regional prices were only up 1.4% in the year to October (latest data). Price moderation is a positive sign.
In China, the purchasing managers index for manufacturing rose from 51.2 to 51.7 in November; the services gauge rose from 54.0 to 54.7 in November.

What I didn’t like

New business spending on buildings and equipment fell by 4% in the September quarter. Spending on buildings fell by 5.7% in the quarter, while spending on equipment fell by 1.9%. Investment is down 13.7% over the year.
New dwelling approvals fell by 12.6% in October – the fifth fall in the past six months.
Data released yesterday showed that new home sales were 8.5% lower in October than the previous month and 5% down on October 2015.

By the way

Some of my expert colleagues think I might be too concerned about the Italian election but a Reuters story this week shows I’m not alone on this subject, with Reuters reporting “that the European Central Bank stands ready to buy more Italian bonds if a referendum on Prime Minister Matteo Renzi’s constitutional reform this weekend rocks markets.”

That said, the Yanks aren’t too worried, with the VIX or fear index at a low reading of 14.19 and US stocks hovering between positive and negative territory overnight. You have to admire those positive Yanks, even if they can be weird at times.

Top stocks – how they fared

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The week in review

If you have time on your side, I explained why it makes a lot of sense to be a contrarian with quality companies.
Paul Rickard revealed exactly what you need to know (and do) before the super laws change in seven months.
James Dunn pondered whether or not investors should look at owning AMP.
Our Super Stock Selectors liked SEEK, but Regis and Cochlear were on the dislikes list.
Mirvac and Alacer Gold were among the upgrades this week while Simonds Group was downgraded.
Charlie Aitken said it might be time to consider taking profits in cyclical equities. Find out why.
Tony Featherstone revealed three A-REITs to put on your watch list.
Mark Ellem explained why it’s important to review your cash flows now before the new super rules take effect in July 2017.
In our second broker report, Westfield and JB Hi-Fi were upgraded while Metcash was downgraded.
Sunny Bangia said there’s value to be found in ING Groep.

What moved the market?

OPEC played nice and agreed on an output cut for the first time in eight years!

Calls of the week

The OPEC agreement – take that doomsday merchants!
After a long slog, the Senate passed the Coalition’s industrial relations bill to re-establish the construction industry watchdog – the ABCC.
In case you missed it, in this week’s SSR, Charlie Aitken said it’s time to take some profits in cyclical equities, but keep buying Aristocrat!
The Organisation for Economic Co-Operation and Development (OECD) has urged the RBA to raise the cash rate in late 2017.
And ANZ boss Shayne Elliot ‘grinched’ Christmas this year after cutting the staff bonus!

The week ahead

Australia

Monday December 5 – Business indicators (September quarter)
Monday December 5 – Job advertisements (November)
Tuesday December 6 – Reserve Bank Board meeting
Tuesday December 6 – Balance of payments (September quarter)
Tuesday December 6 – Government finance (September quarter)
Wednesday December 7 – Economic growth (September quarter)
Thursday December 8 – International trade (October)
Friday December 9 – Housing finance (October)

Overseas

Monday December 5 – US ISM services (November)
Tuesday December 6 – US International trade (October)
Tuesday December 6 – US Factory orders (October)
Wednesday December 7 – US JOLTS job openings (October)
Wednesday December 7 – US Consumer credit (October)
Thursday December 8 – China Trade (November)
Friday December 9 – China Inflation (November)
Friday December 9 – US Consumer sentiment (December)
Friday December 9 – US Wholesale sales (October)

Food for thought

“Amateurs sit and wait for inspiration, the rest of us just get up and go to work.”

– Stephen King

Last week’s TV roundup

Paul Rickard analyses the new super changes and explains what you need to do before June 30 next year.
Kosec’s Michael Wayne joins Super TV to share his views on the market and the stocks he thinks are good value right now.
Has the recent battering of iSentia changed Roger Montgomery’s views on the company? He reveals all on Switzer TV.
How vulnerable are Australia’s banks to an apartment oversupply problem? To answer this and more, David Murray, who headed the Financial System Inquiry, joins the show.

Stocks shorted

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.

This week the biggest mover was Syrah resources, with its short position increasing 1 percentage point to 9.77%.

Source: ASIC

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