[table “208” not found /]
What fear took away on Friday, complacency might restore to our stock market on Monday. Yep, the 0.8% or 43-point sell off for the S&P/ASX 200 was linked to a really good US jobs number but it came in as only an OK result. As a consequence, Wall Street has put the September rate rise to bed.
So what did August bring for the US labour market?
Economists had guessed a 180,000 number but reality, as defined by the US statistician, was only 151,000. Stocks went up and you can bet your sweet bippy that if the figure was 200,000, I’d be reporting a stocks slide.
In many ways, this only OK employment story in the US comes at the right time for our market, after we’ve racked up six down days out of the past seven trading sessions.
So what do we make of this number? Well, few people know this but the August non-farm payroll figure is regularly revised upwards. The past five figures have been ‘tweaked’ by around an average 71,000! Now that deserved an exclamation mark!
Despite that little fact, the market has a 12% chance of a September rate rise.
Predictably, the greenback fell and the Oz dollar picked up, so commodity prices headed up. That should help our market on Monday.
For the pessimists who want to seize upon a worse than expected number, a 151,000 gain for the job market is pretty good because the Yanks are at, or close to, what economists think is ‘full employment’.
Unemployment is still 4.9% but this is the kind of level that’s expected to encourage inflation in the US. That’s why rate-rise talk is so popular nowadays. In fact, Barclays still thinks the September hike is on but we’d need to see really hot economic data to see them get that right.
Chris Molumphy, chief investment officer at Franklin Templeton’s Fixed Income Group, put the job data into sensible perspective.
“Even though we’re in year eight of this recovery, the jobs market is still improving,” he said. “We think September is still absolutely on the table, though it’s not a most likely scenario.”
By the way, the Yanks have pulled off a record 71 months of job gains and it came with a 1.9% rise in factory orders in July, when 2% was tipped. However, it’s another good number to throw at a case for a September rise, which a fair number of economists think remains a chance. But at 12%, the money market’s “computer says no.”
Back home and despite a pretty good reporting season (if you ignore BHP’s profit disaster), our market is down around 4.4% since our July highs of around 5600. This news about a December rate rise by the Fed is more likely to turn around local sentiment but it does suggest that Janet Yellen could ruin December and my hopes for the S&P/ASX 200 index having a second crack at the 6000 level. Recall December is the Santa Claus rally month so coping with a rate rise and looking at how the market reacts to any chance of higher interest rates makes me fear the short-term reaction to an actual cut.
Against that, there’s always the old cliché: “Sell the rumour, buy the fact” and then there could be a “Donald Trump is not our president” relief rally weighing against that possible negativity.
My take on our earnings season (which I’ll look at more deeply on Monday) is due to the fact that our collective company earnings were down 8% or so. The forecast for the next six months of profit is plus 8%. In my books, that looks like a 16% turnaround in company profits, which should be heralded by those people in Canberra, who have a job to do to build business and consumer confidence.
Whatever the market is doing right now, it has been behaving really well since mid-February, rising some 14%, so we need to keep a lot of the recent negativity (markets-wise) in perspective.
What’s next? It’s a big week for economic data, just when data is crucial to what happens to interest rates in the US and here. The spotlight for me is on the Aussie economy.
Locally, we get the stuff I love to see: job ads on Monday, balance of payments and the RBA rates meeting on Tuesday. The biggie – economic growth – on Wednesday. And housing finance on Friday.
Overseas, the China PMI for services is important. So too is the ISM Services for the US. The Fed’s Beige Book wraps up the economic picture in regions and is always insightful. And other Chinese numbers could excite or de-vibe the market.
What I liked
- This by AMP’s Shane Oliver on manufacturing weakness: “While there were significant falls in the US and Australia, India and the UK saw good gains and nearly 75% of countries have PMIs in so called expansion territory (that is, above 50).”
- The CoreLogic Home Value Index of capital city home prices rose by 1.1% in August and was up by 7% over the year. Prices rose in all capital cities, except Adelaide and Hobart in August.
- This from CommSec: “All but 16 of the 139 companies produced a profit for the year to June. That is, almost 90% of companies made money. Excluding BHP Billiton, aggregate profits lifted by almost 7%.”
- The private sector payrolls in the US rose by 177,000 in August, according to the ADP survey (forecast: 175,000).
- In Australia, business borrowings continue to lift and are holding at record highs!
- In the US, the Conference Board Consumer Confidence index rose by 4.4 points to 101.1 – the highest reading since September 2015. Households were more positive about the job market, while consumer spending rose by 0.3% in July, marking the fourth consecutive month of gains.
- Dwelling approvals in Australia rose by 11.3% in July, after falling by 4.7% in June. In trend terms, approvals rose by 0.2% in July.
What I didn’t like
- The CLSA report giving housing a thumbs down: “Our base case has the crisis starting with cheap apartments and later spreading to other flats in close proximity.” I hope there is someone in Government not ignoring this, especially when it has been reported that CLSA says: “The shift by big banks to tighten lending standards is likely to cause a “correction” and “crisis” in cheap apartments which will spread, leading to defaults among smaller developers and a sharp contraction in construction.” (SMH 2/9/2016)
- The Performance of Manufacturing index fell 9.5 points to 46.9 in August. A reading above 50 indicates the sector is expanding. The index has been above 50 for 13 months – the longest period of expansion since September 2006.
- Oil prices stabilise but are still down 8% this week, their biggest drop since early 2016.
- The Chicago purchasing managers index eased from 55.8 to 51.5 in August (forecast 54.0).
- Estia Health losing 36%. When the founder exits the board and sells his entire $55 million stake in the company, it’s hard to ignore!
- The ISM manufacturing index in the US fell from 52.6 to 49.4 in August – the first contraction in six months.
A Really Big Like
Guy Debelle has been appointed the new RBA deputy, replacing Philip Lowe, who becomes our next central bank boss. Guy is not only smart but he has a huge personality! An RBA Governor who doesn’t send you to sleep? That’s something worth waiting for. Congrats, Guy!
Top stocks – how they fared
[table “207” not found /]The week in review
- This week, I explained where I think stocks are headed [1].
- Paul Rickard [2] revealed whether he’s buying Woolies, Wesfarmers, or neither!
- Charlie Aitken expects Star Group [3] to shine from the rise in Chinese tourism.
- Tony Featherstone [4] added a gold producer and personal care and tissues manufacturer to the takeover portfolio.
- James Dunn gave us a rundown on earnings season. Find out [5] who were the winners and losers.
- Our resident chartist, Gary Stone, explains what the charts are saying [6] about the ASX200, Woolies and Wesfarmers.
- The brokers [7] put Metcash in the good books but Santos was out of favour. Our second broker report [8] placed Coca-Cola in the good books and CBA in the not-so-good books.
- And our Super Stock Selectors [9] liked Blackmores but disliked Qantas.
What moved the market?
- Investors treaded cautiously this week ahead of the latest US employment data.
- The materials and energy sectors lost ground after oil prices fell.
- And some final earnings reports released this week saw the likes of Ramsay Health Care and Harvey Norman rewarded by the market.
Calls of the week
- Former foes Tony Abbott and Pauline Hanson sat down to a cup of coffee this week – and the evidence was posted on Facebook! [10]
- Apple was served with a 13-billion euro tax demand by the European Commission this week after Ireland was accused of giving the tech giant an unfair tax advantage over other companies.
- Tony Featherstone’s takeover target portfolio [4] is back! He’s added Asaleo Care and Perseus Mining to the mix.
The week ahead
Australia
- Monday September 5 – Inflation gauge (August)
- Monday September 5 – Business indicators (June quarter)
- Monday September 5 – Job advertisements (August)
- Tuesday September 6 – Balance of payments (June quarter)
- Tuesday September 6 – Reserve Bank Board meeting
- Wednesday September 7 – Economic Growth (December quarter)
- Thursday September 8 – International trade (July)
- Thursday September 8 – Speech by Reserve Bank official
- Friday September 9 – Housing finance (July)
Overseas
- Monday September 5 – China PMI Services index (August)
- Tuesday September 6 – US ISM Services index (August)
- Wednesday September 7 – US Federal Reserve Beige Book
- Thursday September 8 – US Consumer credit (July)
- Thursday September 8 – China Trade (August)
- Friday September 9 – US Wholesale inventories (July)
- Friday September 9 – China Inflation (August)
Food for thought
If a business does well, the stock eventually follows.
– Warren Buffett
Last week’s TV roundup
- Coca-Cola Amatil chief executive, Alison Watkins [11], talks about the company’s improved results and game plan for the future.
- CEO of Bellamy’s Laura McBain [12] joins the show to talk about the company’s history and the outlook for profits.
- South32 has been attracting fans in the analyst community. To discuss the business [13], CEO Graham Kerr joins Super TV.
- For his views on companies like Telstra, the banks and a whole lot more, Charlie Aitken from Aitken Investment Management joins the show [14].
- Don’t miss the new episodes in our International Investing Masterclass series. Paul Rickard caught up with Rob Failla [15] from Lazard Asset Management and Steve Johnson [16] of Forager for their offshore picks.
- Plus, in our Listed Investment Companies Masterclass series, Sebastian Evans of NAOS Asset Management talks to Paul about his views on the market and how he’s investing right now [17].
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 Monadelphous Group with its short position increasing 1.47 percentage points on last week to 10.88%.
[18]Chart of the week
Keep calm – there’s plenty to be optimistic about!
[19]ABS, AMP Capital
This week, Shane Oliver of AMP Capital was singing the right tune as he revealed seven reasons to be optimistic on the Aussie economy. One of his reasons included how the economy has rebalanced post mining boom, with a pick-up in services exports and a lift in resource export volumes.
Dividend dazzlers
[20]CommSec’s wrap on earnings season revealed that 92% of companies (or 128 of 139 that reported profits) paid a dividend. That’s got to keep shareholders happy!
Top 5 most clicked on stories
- Paul Rickard: Woolies or Wesfarmers? [2]
- Peter Switzer: Can we go higher from here? [1]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [7]
- Charlie Aitken: Star Group continues to shine [21]
- Gary Stone: WES, WOW and the ASX200 – what the charts say [6]
Recent Switzer Super Reports
- Thursday 1 September: Takeover target update [22]
- Monday 29 September: Market Outlook [23]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.