Wall Street and the local market were up on weaker than expected US economic data, ahead of the Fed’s interest rate decision next week. However, the Yanks couldn’t remain positive on Friday with the Trump factor not helping market sentiment, as Donald closes in on Hillary in the popularity stakes.
Let’s check out the data that gave our S&P/ASX200 a 1% jump on Friday. However, for the week, we lost 0.8% and can only blame Eric Rosengren, the Fed voting member who implied a rate rise was close and the market assumed September 21 was live for the first hike of 2017.
Consensus is now doubting it, thanks to the following data:
- Industrial output fell by 0.4% in August (forecasts -0.3%) after rising by 0.7% in July.
- Retail sales fell by 0.3% in August (forecast -0.1%) after a flat result in July.
- Producer prices were flat in August, with the core rate (excluding food and energy) up by 0.1%.
- And new claims for unemployment insurance rose by 1,000 to 260,000 in the latest week.
But it wasn’t all bad, with the Philadelphia Federal Reserve index rising from 2 to 12.8 in September, against a forecast of 1.
This relatively important index of manufacturing is watched by economic forecasters and the result made monkeys out of the subdued forecasts of economists.
“Firms remain optimistic about growth over the next six months and were more positive about increasing employment,” said the official press release for the Philly Fed Index, as it’s called.
Adding in inflation concerns, which were an important part of Rosengren’s story last week, the producer prices coming in flat helps the case for delaying the rate rise for the Fed but consumer prices for August overnight came in up 0.2% (or 1.1% for the year) after being up 0.8% in July. Jobs tell them they should raise but inflation is saying “watch out!”
The latest market calls on a rate rise on Thursday from Fed watcher CME Group is 15%, up from 12%.
August wasn’t a solid month for the US economy, with consumer retail sales up only 0.1% when 0.3% was tipped. And until the Philly Fed survey, manufacturing was looking weak in places like the state of New York. The Empire State manufacturing index was at -2, though it was up from August’s -4.2 and the ISM factory index fell to 49.4% in August from 52.6% in the prior month. Any reading below 50% indicates contraction and the index was below that level for the first time since February.
Throw in the 151,000 jobs in August, which was 30,000 shy of forecasts and you can see why the Fed should squib it next week.
What I liked
- The Oz dollar at 74.91 US cents this morning, as a lower dollar is good for economic growth and many currency-sensitive stocks.
- The bounce backs of the CBA when it went under $70 and Telstra under $5, as it shows how over-reactive this market can be.
- Mining and energy stocks finished the week substantially higher and this reinforces a theme of many of my expert buddies, who like resources after going through a shocker in 2015.
- Coal doubters have had to cope with Whitehaven Coal’s comeback and the SMH says it “was the best performing stock on Friday, closing 7.8 per cent higher to $2.48. Supply disruptions, falling Chinese output and increased demand have seen coking coal prices rise above $US200 a tonne.”
- The psychological impact of unemployment falling from 5.7% to 5.6%.
- The Westpac/Melbourne Institute survey of consumer sentiment rose by 0.3% in September to 101.4. The confidence index is up 8% on a year ago.
- The NAB business confidence index rose from +4.2 points to +6.5 points (long-term average +5.7 points) but the business conditions index eased from +8.9 points to +6.5 points in August, though the long-term average is lower at +4.8 points.
- China’s good news, with retail sales rising at a 10.6 % annual rate in the year to August, with production up 6.3% and investment (year to August) up by 8.1%
- The Reserve Bank Assistant Governor, Christopher Kent, delivered an upbeat assessment on the economy, so I’m not alone! Kent could become my pin up central banker, though I have to say the RBA has been more optimistic and right on the economy than a lot of doomsday investment banking economists. I have forgotten their names because I know how hard the forecasting caper is but many have had shockers but they still show up and make negative forecasts! One day they will be right – we all know even a broken clock is right twice a day!
- Yields on US, Japanese, German and Australian bonds surged this week, which I hope is a step to more sensible central bank policies around the world and an admission that the global economy is not as bad as has been thought by bond players for years!
- The super changes from Scott Morrison, and Bill Shorten being wise enough to pass the $6 billion of savings in the so-called omnibus bill. Adults in Canberra doing wise things? Who would have thought!
What I didn’t like
- Loose lips from Fed officials took 2 trillion dollars off global stock markets on first reaction!
- Forecasts that iron ore could fall below $US50 a tonne because of supply increases ahead. The current price is $US55.97 a tonne. (These forecasts are often self-serving and come from those who might benefit from their forecasts coming true!)
- Employment fell by 3,900 in August, following a downwardly revised 25,300 increase in July and the participation rate fell but it is only one month’s figures.
One last like…
Malcolm Turnbull and Scott Morrison seem to be starting to learn how to be more effective PM and Treasurer. These are two jobs that have founded out a lot of politicians and I especially liked Malcolm praising Tony Abbott for his work on border protection and sticking it to ISIS.
This country and economy has suffered because of leadership frailties and in-fighting over leadership, so the better MT and ScoMo become, the better our political and economic outlook will be.
Top stocks
[table “211” not found /]The week in review
- I told you what dividend stocks to buy if they get dumped in the coming months. I do like a buying opportunity! [1]
- Paul Rickard shared everything you need to know about the IAG buyback and whether it makes sense to accept [2].
- With the gold price rising in 2016 on the back of global economic uncertainty, James Dunn revealed how the miners are faring [3].
- The brokers upgraded Aurizon Holdings, while Sigma Pharmaceuticals received both an upgrade and downgrade [4]! In our second report [5], brokers upgraded JB Hi-Fi following its acquisition of The Good Guys.
- Our Super Stock Selectors [6] liked Ardent Leisure and Coca-Cola Amatil but Regis Healthcare was out of favour.
- Charlie Aitken [7] explained why the bonds bubble could be about to burst.
- Tony Featherstone outlined how investors can cash in on a lower Australian dollar [8].
- This week’s Professional’s Pick by Julian Beaumont explained why jewellery retailer Michael Hill International [9] has some sparkle.
What moved the market?
- Contrasting comments by US Fed officials on the next rate hike caused volatility on global markets.
- Talk of the Fed raising rates and unusual central bank mutterings led to lower bond prices and higher yields.
- And an upbeat assessment from Reserve Bank (RBA) governor Chris Kent drove down expectations of another rate cut.
Calls of the week
- The federal government scrapped the $500,000 lifetime super cap on non-concessional contributions. Read my rundown of the proposed changes here [10].
- Both sides of government successfully negotiated a $6 billion omnibus bill dedicated to Budget savings.
- JB Hi-Fi will buy The Good Guys for $870 million, increasing JB Hi-Fi’s hold on the home appliances market to almost one-third.
The week ahead
Australia
- Tuesday September 20 – CommBank Business Sales (Aug)
- Tuesday September 20 – Reserve Bank Board minutes
- Tuesday September 20 – Residential prices (June quarter)
- Wednesday September 21 – Speech by Reserve Bank official
- Thursday September 22 – Population data (March quarter)
- Thursday September 22 – Employment by industry (August)
Overseas
- Monday September 19 – China house prices (August)
- Monday September 19 – US NAHB housing market index (Aug)
- Tuesday September 20 – US Housing starts (August)
- September 20-21 – US Federal Reserve meeting
- Thursday September 22 – US FHFA monthly home price (July)
- Thursday September 22 – US Existing home sales (August)
- Thursday September 22 – US Leading index (August)
- Friday September 23 – Flash purchasing manager’s index
Food for thought
“Once you replace negative thoughts with positive ones, you’ll start having positive results.” Willie Nelson – American musician
Last week’s TV roundup
- CEO Real Estate Securities at APN Property Group, Michael Doble [11], joins the show to discuss the outlook for A-REITs.
- Catapult Group International executive chairman, Adir Shiffman [12], joins the show to talk about the company’s history and impressive performance.
- Chairman and chief investment officer at PM Capital, Paul Moore, talks to Paul Rickard about the value of buying LICs at bargain prices [13].
- Charlie Aitken joins Super TV to discuss how we should play the market right now, while Steven Ciobo, Minister for Trade, Tourism and Investment discusses the outlook for trade in Australia [14].
- And is the hunt for yield over? To discuss, Morgans’ Raymond Chan joins the show [15].
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 Metcash with its short position increasing by 1.55 percentage points to 12.39%.
Charts of the week
Unemployment rate falls to three-year low
The unemployment rate edged lower to 5.6% in August, the lowest rate recorded for three years.
Consumers continue to be upbeat!
The Melbourne Institute Index of Consumer Confidence appears to be on a steady climb higher. It increased by 0.3% to 101.4 in September from 101.0 in August.
Top 5 most clicked on stories
- Peter Switzer: Dividend stocks could be beaten up. Here’s what to buy! [1]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [4]
- Charlie Aitken: Bonds…the bubble is bursting [7]
- James Dunn: Mining gold’s rise [3]
- Staff Reporter: Super Stock Selectors – Coca-Cola Amatil and AGL [6]
Recent Switzer Super Reports
- Thursday 15 September: Bond market [16]
- Monday 12 September: Dividend vs growth stocks [17]
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.