Unemployment and unquestionable good value in stocks
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Thursday’s 1.4% rise of the S&P/ASX 200 was good to see. Although the lack of a convincing follow up on Friday was a tad disappointing, in many ways, it reflects the uncertainty around our economic recovery and the reliability of the jobs data.
Unquestionably, doubts remain over the pace of our economic recovery, with even AMP’s economist Shane Oliver (who’s more in the optimists’ camp) suggesting that a rate cut at the August meeting was a 50/50 bet. He wouldn’t be saying that if he was totally on board with a stronger than expected comeback for economic growth over the financial year ahead.
However, he railed against unnecessary pessimists, arguing that: “The May jobs data supports the view that the economy is nowhere near as weak as the doomsayers would have it.”
This week we saw a nice bounce in NAB’s Business Confidence reading to a 9-month high and unemployment fell from 6.2% to 6% after 42,000 jobs showed up in May, compared to an expected 11,000.
The big disappointment has been the reversal of the Westpac Consumer Sentiment reading. I think this reflects the media’s impact on consumers, among other things, but I’m at a loss to come up with many other things!
We have house prices rising, our super funds doing well, interest rates are lower than I could ever believe and we’ve made money out of stocks since 2009. Against that, there’s job market uncertainty and wages have been increasing at an historically slow pace but the relative price of borrowed money should be helping the economy. I suspect the fears around the GFC haven’t been put to bed and our Government instability since 2008 hasn’t helped either.
That said, if the run of data points to a more believable economic recovery and the media actually tells Australian consumers and business owners about this, then stock prices will reflect it. Right now, these share prices are indicating that market-driving share players are uncertain.
Against this, what was good to see was the S&P/ASX 200 index hitting a one-week high after the jobs data. And the better our economic story going forward, the better the rise of the stock market. In fact, those job numbers led to our best stock market gain in seven weeks. Of course, not helping was the foreign exchange reaction to our better than expected jobs numbers, with the dollar spiking to 77.77 US cents.
Later this year, I expect to see the Yanks raising interest rates, taking the greenback up and our dollar down. This hopefully will happen as our economic recovery looks more believable. These combined forces should help power our stock market upwards.
What I liked
The job numbers but I liked this aspect, which goes under-reported: over the past seven months, almost 200,000 jobs have been created. Jobs are being created, more hours are being worked by existing workers and more people are finding work. If only everyone could read all about it!
Business confidence at a 9-month high and with a reading of 7.4 in May, it was above the long-term average of 4.5.
Iron ore prices going over $US65 a tonne and oil prices heading higher, despite OPEC not changing its oversupply stance.
The central bank boss in NZ cutting interest rates to help the whole economy, despite the very hot Auckland property market. Only six out of 16 economists in a Reuters survey could see this one coming! Does this sound like a story you’ve heard somewhere else?
Good US economic data, with retail sales up nicely for the third month in a row. “With three positive retail sales numbers, the trend is starting to improve,” said Robin Anderson, senior economist at Principal Global Investors. (CNBC)
Positive news on Greek debt bailout negotiations on Wednesday!
Ahead of next week’s Fed meeting on interest rates, the consensus view is that the first rise will be in September.
Reports that Rupert Murdoch at 84 years of age is expected to step down as CEO for his son James to take over. That looks like a sensible decision, though I suspect Rupert will still have a big input into the big decisions affecting News.
The RBA Governor Glenn Stevens delivering this in a speech this week: “We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth”.
Charlie Aitken seeing the good value in buying the big banks when they’re sold off – good on you Charlie! NAB was over $39 in early May and now is $32.17. If you believe our economy will improve and that NAB’s new CEO will have a positive effect, then is now a good bet with a 5% plus dividend (which is over 7% if you take into account tax credits)?
[1]Source: yahoo.com
The UK government announcing the selling of its shares in the Royal Bank of Scotland, which were acquired in the GFC. A lot of pessimists criticised Government bailouts but they were wrong.
Perpetual’s Matt Sherwood’s view that “the US share market has been quite resilient to the significant back up in US bond yields…”, which I think augurs well for stocks when rates do actually rise. I expect a stocks sell off when the first US rate rise looks imminent or when it happens but it will run ahead of a big bounce back for the stock market. That’s my best guess.
What I didn’t like
Negative news on Greek debt bailout negotiations on Thursday! And it got worse on Friday. Those Greeks!
The Greek Finance Minister not being available for a possible interview while I was in Athens, though I do suspect he had more important things on his mind. Let’s hope so and we should find out as the end of June deadline approaches.
Those damn Westpac consumer confidence numbers that fell from May’s 16-month high back below the 100-level, where pessimists outnumber optimists. I blame my media mates for excessive negative reporting. Remember the big bounce in last month’s consumer confidence numbers didn’t make the front pages of key newspapers but a story of one economist predicting a recession did! What the #*%#?
Reports that ATMs in Greece one day in June could say: “Computer says no!” Greeks have been drawing money out of Greek banks with these debt drama negotiations. Fortunately, we are travelling with Greeks and we all know they’re walking, talking, cash carrying machines in their own right.
The conclusion for the week
When the economic story is unreservedly positive for the Oz economy, stocks will take off. We’re looking at a current situation of unquestionably good value when it comes to the share market.
Fact of the Week
A record 74,100 Aussie tourists visited Greece over the past year. That’s a 21.3% surge. Could the Greeks be in for an Aussie-led recovery? They need that and some more, unfortunately, but at least it’s a start. It’s now over to the Greek Government and European negotiators to ensure there’s no Grexit and associated stock market convulsions. I hope these guys can pull it off.
The NAB business confidence index increased to 6.6 points[10] in May from 4.4 points in April. Business conditions rose to a 9-month high of 7.4 points from 3.4 points.
While businesses were more confident, consumers were less so[11] with the Westpac consumer confidence index dropping 6.9% to 95.3.
Australia
Monday June 15 – Speech by RBA official
Tuesday June 16 – Speech by RBA official
Tuesday June 16 – Minutes of RBA Board meeting
Tuesday June 16 – New vehicle sales (May)
Thursday June 18 – Reserve Bank Bulletin
Thursday June 18 – Detailed job data (May)
Thursday June 18 – Imports of goods (May)
Overseas
Monday June 15 – US Industrial production (May)
Monday June 15 – US NAHB index (June)
Monday June 15 – US Capital flows (April)
Tuesday June 16 – US Housing starts (May)
Wednesday June 17 – US Federal Reserve meeting
Thursday June 18 – US Consumer prices (May)
Thursday June 18 – US Leading index (May)
Thursday June 18 – US Philadelphia Fed survey (June)
Calls of the week
(click the blue text to read more):
Charlie Aitken[5] says the earth has almost reached full penetration of mobile phones and to look at Telstra.
Joe Hockey caused some controversy[13] with his advice to first homebuyers that they should “get a good job that pays good money”.
Then Reserve Bank Governor Glenn Stevens said at a Q&A Session in Brisbane[14] that he’s “very concerned” about the Sydney property market and thinks “some of what’s happening is crazy”.
Political commentator David Speers, and Switzer Daily contributor, also called on our politicians to learn a few lessons about crisis management[15] from FFA chief Frank Lowy, after he grilled him on air for 40 minutes.
Food for thought
Don’t find fault, find a remedy.
– Henry Ford
Last week’s TV roundup
Paul Rickard and Geoff Wilson caught up for this month’s Switzer Super Report webinar to discuss investment opportunities[16] coming up in the new financial year.
And in this week’s Super Session, Paul Rickard and I discussed the five essential SMSF tasks[20] you should think about doing before the end of the financial year.
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.
Metcash has had the biggest increase over the week, with the percentage of its shares shorted rising from 18.24% to 19.30%.
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Source: ASIC
My favourite charts:
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Switzer regular, Lance Lai from Accountancy Invest, joined Marty Switzer on the show earlier this week to explain what the charts are telling us[18] about market direction. This chart shows the market is trying to find some kind of a bottom (at the S mark).
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Source: Bloomberg, AMP Capital
We saw great job numbers this week with employment up 42,000 for May. It has risen 19 months in a row in trend terms. Plus, over the past seven months, almost 200,000 jobs have been created. The chart above is a nice comparison with the US and shows it’s very much steady as she goes when it comes to local jobs. AMP Capital’s chief economist Shane Oliver said this: “The May jobs data support the view that the economy is nowhere near as weak as the doomsayers would have it.”
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.
[1]Source: yahoo.com
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