As I crawled out of bed this morning (I’m on a fitness campaign and every bone in my body is aching, explaining why most of us are rationally unfit), I wanted to see the job numbers from the USA.
The first indicator I saw was the Nasdaq up 55 points, then the S&P 500 popped up and was 16 points, or nearly 1%, higher. And finally, the Dow was 118 points in the black!
A good day on Wall Street, at least at 5.30am but there was still two and half hours before the closing bell, though I half-expected the stock price jump was linked to good job numbers. After all, for most of the week, economic data had determined the rise and fall of stocks. But true to inexplicable form, which is typical of stock markets, the jobs number was disappointing!
So, what gives?
In case you have a life, you might have missed that economists were tipping 185,000 jobs should have turned up for January but only 113,000 were actually created over the month. On the plus side, there was a positive psychological boost from unemployment falling from 6.7% to 6.6%, while at the same time the participation rate (those looking for work) actually rose. People actually looking for work is generally seen as a good economic omen, as it says something about confidence – that the economy could actually have work for the jobless.
By the way, retail (which is coping with the internet challenge) and the government (which is in deficit-reduction mode) were the big problems for these weaker than expected numbers.
This is now the second month in a row where jobs have let economists down. The December number, expecting to be close to 200,000, came in at only 74,000, though it was revised up by an extra thousand.
Goldman Sachs’ chief economist, Jan Hatzius, thinks this number is less cold weather related and more that inventories have built up. So the fast pace of US growth could be slowing a little. However, he is guessing. If he’s right, then the Fed will slow down tapering and that thought could be helping stocks.
So, are we out of correction or pullback mode? Probably not on these numbers. But if they were over 200,000, I would have imagined another huge day for stocks on Wall Street, which would have rolled over to our market on Monday.
As a consequence, I suspect we’ll see more volatility but it will need really bad news from left field to get the spooks happening again. As technical expert Lance Lai pointed out last week on my TV show, there looks to be a downward trend for the stock market. These job numbers have done nothing to change that expectation. So this means that buying opportunities should prevail.
What I liked this week
Here’s the good stuff that keeps me believing that stocks will do well this year:
- AMP’s Shane Oliver has a 5,800 call for our S&P/ASX 200 and believes my ‘Aussie economy is getting better’ story, which should push earnings up then drive stock prices higher.
- The Sydney Morning Herald’s Ross Gittins is also counselling Treasurer Joe Hockey not to go for a horror budget this year, like yours truly, to ensure this developing economic recovery is not KO’d by good politics, which says get the bad news out of the way first then use the next two years to win friends and influence voters. I want Jo to leave the horror budget until 2015, when the economy and companies are flying higher.
- Charlie Aitken putting his weight behind NAB and ST Wong (from Prime Value) agreeing with me that banks might not shoot the lights out this year but could still be an 8-10% returning investment this year – easily! (CBA’s report next week should be a nail biter but Switzer Super Report’s Paul Rickard is getting ready for another damn good bottom line for the bank.)
- Paul Howse thinking outside the square to come up with an Accord-like suggestion called a “grand compact” between business, government and unions. Let’s not be cynical and see it for what it’s worth – a step in a better IR direction.
- Economic data watch showed that retail was up for the eighth month in a row, rising 0.5% in December to be 5.7% higher for the year. That’s a four-year high. Do you remember those doomsday merchants who told us the Aussie consumer would not come back and start spending again?
- Our exports to China hit a record $94.5 billion for the year, creating a record trade surplus of $47.2 billion.
- Better still, the Performance of Services Index (PSI), which measures the health of the biggest employer – the services sector – rose 3.2 to 49.3, which means it is nearly in expansion territory. Any number over 50 simply means the sector is growing, after being in contraction mode since January 2012. But even better, inside the PSI is a reading or index for new orders and sales, which jumped 10.6 points to 53.6 – that’s nice evidence of expansion.
But wait there’s more.
- The NAB’s quarterly look at business confidence rose 3 points to 8, which is a solid plus for optimism. Even more impressive was the one-year out expectations number, which went to a huge 24. Also, home prices were up 1.2% in January and 9.8% for the year, while inflation went up by only 0.1% in January.
All the above are great for building my snowball of confidence.
What I didn’t like
- Our Performance of Manufacturing index (PMI) fell by 0.9 points to 46.7 in January. Any reading below 50 suggests manufacturing is contracting.
- The dollar going up to 89 US cents plus, but it was not helped by the RBA’s reference to the Aussie dollar no longer being “uncomfortably high”. The following from the Bank was not helpful for keeping the dollar low: “The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy.”
- The China PMI for manufacturing came in at 50.5, down from 51 in December, but it’s not wrist-cutting stuff, though the stock market behaved like it was!
- Learning that we have to cut our production costs of a Camry by $3,800 to stop the car being made in Kentucky rather than Altona. Globalisation is forcing us to get real about how we do things in this country and that’s why the Howse views should not be scoffed at, unless you are an ostrich.
- LogiCamms coming out with a “we won’t do as well as we thought” announcement but there was a gross market overreaction. I’ll check with Roger Montgomery’s team, who argued the company’s intrinsic value was greater than its share price. It was seen as a good company and so it could be a good contrarian buy. For me, it is a long-term speculator but I would have preferred my timing to be better! By the way, I’m tracking down the company’s CEO.
Revelation of the week
The consumer spend on the Super Bowl was tipped to be US$12 billion, up 36% since 2010 and Dominoes in the USA was expecting to sell 11 million slices of pizza on game day. The local firm, which reports this week, was also expecting a Monday surge – footie always leads to great food choices!
Top stocks – how they fared
Numbers that moved the market
The big number of the week was 2.5% – that is, the cash rate [1] we saw from the RBA on Tuesday. While this didn’t come as a huge surprise, it is still interesting to note that this is the longest period without a rate change in seven years. The RBA decision saw the AUD jump to 88.94 US cents on Tuesday afternoon – more than a whole cent above the Monday figure of 87.48c.
Another significant mover was US ISM manufacturing data [2]. The figures show that the PMI sunk from 56.5 in December to 51.3 in January, causing the Dow Jones to tumble more than 2% on Monday, with some US economists dubbing this as the “beginning of the correction we’ve been waiting for”. The Australian market followed suit, with $28billion (1.75%) wiped off the ASX on Tuesday – the worst losses we’ve seen in six months.
And back on the home front, international trade data [3] released on Thursday showed Australia recorded a trade surplus of $468m in December. This caused the AUD to soar to almost 90 US cents, while stocks rose 1.2% after three straight days of losses.
The week ahead
Australia
February 11 Housing finance (December)
February 11 Residential property indexes (Dec quarter)
February 11 NAB Business survey (January)
February 12 Consumer sentiment (February)
February 12 Tourist arrivals (December)
February 12 Credit & debit card lending (December)
February 13 Employment/unemployment (January)
February 14 Lending finance (December)
Overseas
February 12 China Exports & imports (January)
February 13 US Retail sales (January)
February 14 China Inflation (January)
February 14 US Industrial production (January)
February 14 US Consumer sentiment (February)
It will be another interesting week in economic data for Aussie investors, starting with the release of the NAB business survey on Tuesday. After the December results showed conditions were at near three-year highs, investors will be curious to see if the confidence is still afloat. This is closely followed by the Westpac/Melbourne Institute’s monthly consumer confidence survey, with previous data showing consumers are a little bewildered at present.
Later in the week the ABS releases the jobs data for January, with economists predicting a 20,000 job increase and a stable participation rate and unemployment rate of 5.8%. To end the week, the ABS will release lending finance data on Friday.
Overseas we can also expect a raft of economic data, with Chinese trade and inflation figures released on Wednesday and Friday respectively. And in the US, expect a slight lift in retail sales on Thursday and industrial production on Friday. Meanwhile US consumer sentiment figures are expected to decrease on account of stock market anxiety and poor weather conditions.
Calls of the week
One of the most interesting calls I came across this week came from Hong Kong property investor, Jason Sze [4] who came on the Switzer TV program on Tuesday night. He says that Chinese markets will be inspired by this year’s zodiac animal, the horse, which has to be “held back a bit, ahead of a blazing finish”. After a slow start to 2014, let’s hope the same holds true for the Aussie markets!
My second call of the week goes to Charlie Aitken [5], who says the current market slump is just a textbook correction – but also, a good time to invest in banks. As you might’ve seen in my Monday article [6], I reckon holding banks makes sense – they might not be the best buys of the year, but they’ll offer solid returns.
And looking to the sporting world, a big talking point of the week was the English cricket team’s call to sack embroiled batsman Kevin Pietersen [7]. Regardless of what you thought of him, this was a call that definitely got tongues wagging!
Random fact of the week
Has anyone else noticed the striking resemblance between controversial union leader Paul Howes and Sideways and Private Parts actor Paul Giamatti? I know, it’s hard to tell who is who…
Last week’s TV roundup
Following up from his fantastic article [8] published in last week’s Switzer Super Report, I spoke with James Dunn [9] about his forecasts for commodities in 2014. James says we’re on a “super cycle” – so what does that mean for the big dogs like BHP, Rio and Fortescue? And the dark horses like OzMinerals?
After the ASX’s worst day in six months, Switzer’s resident charts man Lance Lai [4] comes on the program to shed a bit of light on what is happening in the markets at home and abroad. He’s joined by Chinese property developer Jason Sze.
For some market analysis, I spoke with Mike Kendall [10] from JB Were. Mike talks us through investor sentiment, sector outlooks and which companies we should be keeping an eye on.
And I welcomed editor of FN Arena and stock-wizz, Rudi Filapek-Vandyck [11] to the program to discuss the stocks he likes and the ones he’s avoiding. We discuss how far this current market correction will go and how global economic data might affect the market flow.
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.
We saw a few big movements this week, with JB Hi-Fi (JBH) topping the leader board with a 2.89% decrease. This was followed by Transfield Services (TSE) who dropped 1.81%. Meanwhile, Fairfax Media (FXJ) stayed flat of 10.69%.
My favourite charts
Lance Lai came on the Switzer TV program this week which meant one thing: a fresh batch of fantastic charts! The chart below shows the movement of the ASX200 index between November 2012 and now. The little ‘s’ to the far-right indicates where the index has fallen to this week – a slump of 3.9% since Lance was last on the show in early January. In the worst case scenario, Lance predicts we’ll hit the big ‘S’ to the right later in the year – at a low of 4,864. Crossing the 5000 barrier is a scary thought – but I’m sticking to my guns on that 6000 call!
Source: Accountancy Invest
Top five clicked on stories of the week
Peter Switzer: Why it’s still ok to hold banks [6]
Charlie Aitken: Bank on it! [5]
Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [12]
Penny Pryor: Shortlisted [13]
Paul Rickard: Switzer Super Report portfolios slightly outperform index in January [14]
Last week’s Switzer Super Reports
Monday, 3 February 2014: Hold on tight [15]
Thursday, 6 February 2014: Timing is everything [16]