As a great believer in the old saying (apparently attributed to legendary Labor politician Fred Daly) that you’re a rooster one day, a feather duster the next, I won’t excessively crow about the past week’s run of US and China economic data. That said, any of my loyal subscribers not suffering a post-Friday drinks short-term memory loss challenge, will recall that I have been a huge US recovery believer and a cautiously positive supporter that China can disappoint the doomsday merchants, who always want to talk down our most important trading partner.
Reliving the past
Baby boomers like yours truly often get accused of living in the past but I really do want to relive last week, just to reinforce two things. First, how right I was! (Oh, I think I’m gloating but I might have got away with it.) And second, to see what it means for our stocks going forward.
Here are the big, positive hits of the week that all bulls want to savour:
- The University of Michigan final reading on consumer sentiment rose from 81.9 to 82.5 in June.
- Pending US home sales increased by 6.1% in May to an eight-month high.
- The RP Data–Rismark Home Value Index of local capital city home prices rose by 1.4% in June. Home prices are up 10.1% over the year.
- China’s factory growth rose to a six-month high in June on improving domestic and foreign demand, adding to signs that the economy is regaining strength after an unsteady start to 2014. The official Purchasing Managers’ Index (PMI) stood at 51 in June, quickening from May’s reading of 50.8 and in line with market expectations.
- Mining shares rallied after the encouraging economic data above and the STOXX 600 resources index rose 2.6%. Australia’s major miners finished higher in London trade after the Chinese data, with shares in BHP Billiton up by 2.9%, while Rio Tinto rose by 3.0% in one day.
- The ISM Manufacturing index in the US eased from 55.4 to 55.3 in June but more importantly, the sub-index of new orders hit a six-month high, which is a good sign for business capital spending.
- The Markit US Manufacturing PMI rose to 57.3 in June – the highest since May 2010.
- ADP Private Payrolls lifted by 281,000 in June, marking the biggest increase since late 2012 and well ahead of the 200,000 jobs that had been expected.
- US non-farm payrolls lifted by 288,000 in June. while unemployment fell from 6.3% to 6.1% – the lowest level since September 2008. Data for April and May was revised to show a total of 29,000 more jobs than previously reported. The service sector drove the job gains, while manufacturing and construction jobs also recorded a healthy lift.
- Over the first half of 2014, US jobs growth has now averaged 231,000 jobs per month, the best start to a calendar year since 2006.
What gives with all the highlighting?
I have purposely highlighted the info above that shows how significant these readings are. They reinforce my long-held view that the US has a fair dinkum economic recovery on its hands and eventually they will have to raise interest rates. That’s when our stock market will get the overdue burst upwards, helped by a lower dollar as the greenback strengthens.
Last Saturday I stuck my neck out to run with “a recovery with rockets on it”, which was advanced by Donald Luskin of the US firm Trend Macrolytics. Given what we saw this week, his November takeoff, which will power at least two strong years of economic and stock market growth, got (what looks like) an early start, with the Dow roaring through the 17,000-mark for the first time ever. Go America, you good thing!
What I liked this week
First, it was great to see all the data above show up.
Second, the fact that a huge jobs report story actually pushed stocks up was a top outcome! Recall I believe when the Yanks have to contemplate their first rate rise, which has come closer after that jobs creation result, there could be a short-term sell-off. However, I believe that the positive from the stronger US economy will more than counter the negativity from the first rate rise and stocks will resume their march higher.
Third, the RBA boss Glenn Stevens giving it to the forex smarties with his carefully crafted words in his Tassie speech last Thursday that it might be unwise to think rates have to go up next. That was a really cool piece of central banking.
Fourth, Glenn reminded us that budgets often spook consumers but it seldom lasts long.
Fifth, the CBA economics team actually showing the link between consumer confidence and retail sales is a really weak one, despite the 0.5% drop in shop sales in May. The Budget was a part of the explanation but the damn global warming effect was as well, which has hurt the demand for woollens and overcoats.
Sixth, the 80-point gain on the S&P/ASX 200 index to 5225 and Michael Heffernan of Lonsec supporting my 6000-call on the index by year’s end.
Seventh, a run of experts on my TV show liking both CSL and Flight Centre, especially on the basis that a lower dollar, which will come, will make them even better buys for the long-term investor.
Best investor revelation of the week
When jetting back from Paris on Monday, I read a great piece in the FT by Peter Elston of Aberdeen Asset Management Asia. He showed if you want alpha in your portfolio, then you should be into companies that are good for dividend yield and renowned for corporate governance, which brings a media halo effect and translates to good stock price gains. Those two factors have been relevant for CBA, until this week I guess! (I will look at this in more detail on Monday.)
One last confession
Recently I had supportive subscribers ask questions and pass comments and they have thrown in a respectful observation that I am “always a bull” or “forever bullish”.
Now I know I nearly always concentrate on the positive but I often argue that I do this because most of my journalist colleagues nearly always search for the negative – they seem programmed to do this.
However, let me assure you, when I think this bull market has gone on too long I will become a bear. I’ve been a bull since around December 2008 and was only worried for about three months, when in March 2009 the rebound started.
That’s a long time to be a bull and to be right, so my next big challenge will be to pick when to tell you “that there is a bear in there!” That’s ABC for what someone like me has to do but I could go early as I’m not a thrill-seeker, just a long-term investor.
Top Stocks – how they fared
Numbers that moved the market:
Employment in the US [1] smashed expectations – increasing by 288,000 in June! The rate of unemployment decreased by 0.2% to 6.1%.
China’s manufacturing PMI [2] increased to 51% in June, from 50.8% in May.
Dwelling approvals [3] jumped by nearly 10% in May, and remain a strong point for the Aussie economy.
The week ahead:
Australia:
Monday July 7 – ANZ Job Advertisements (June)
Monday July 7 – Tourist Arrivals (May)
Tuesday July 8 – NAB Business Survey (June)
Wednesday July 9 – Consumer Confidence (July)
Wednesday July 9 – RBA Speech – Mark Manning
Thursday July 10 – Employment/unemployment (June)
Friday July 11 – Housing Finance (May)
Overseas:
Tuesday July 8 – US Consumer Credit (May)
Wednesday July 9 – US FOMC Minutes (June)
Wednesday July 9 – China CPI/PPI (June)
Thursday July 10 – China Trade Balance (June)
Thursday July 10 – US Wholesale Inventories (May)
Friday July 11 – US Federal Budget Statement (June)
Next week, the most important data due out in Australia is June employment figures –hopefully on the increase from prior months! Earlier on in the week, the NAB Business Survey will be released for June. On Wednesday, consumer confidence data is released, and Mark Manning, the Deputy Head of Payments Policy for the RBA, will deliver a speech. On Friday, housing finance figures will be published.
And looking to the international scene – US Consumer credit numbers for May will kick off the week, but the most important information will be the minutes from the Federal Reserve’s June meeting which will be released on Wednesday night. Earlier on Wednesday will see China’s inflation data for June, with trade figures on Thursday. Data on US Wholesale Inventories for May, and the US Federal Budget Statement for June will close the week.
Calls of the week:
In a speech held in Tassie [4] on Thursday, RBA Governor Glen Stevens warned investors “are under-estimating the likelihood of a significant fall in the Australian dollar at some point” and that our “exchange rate remains high by historical standards”.
John McEnroe gave some of his normal enthusiastic commentary [5] from the Wimbledon Box as he watched Nick Kyrgios defeat Rafael Nadal – “we are watching a boy become a man”.
In case you missed it, Tony Featherstone gave our readers a ‘get mega rich quick tip’ [6] by stating it’s time to take a closer look at your portfolio when the filthy rich start selling. But since they haven’t been selling, he thinks the medium term outlook for Aussie share market is ‘’healthy.’’
CBA CEO, Ian Narev made the call to apologise [7] over the company’s highly publicised financial planning scandal.
Food for thought
Strive not to be a success, but rather to be of value – Albert Einstein.
Last week’s TV roundup
The ATO has introduced a new, and more efficient system to improve how superannuation is paid. This system is called SuperStream, and employers are now being asked to sign up. To explain exactly what SuperStream involves, and its benefits, Philip Hind from the ATO [8] visited Super TV.
What factors are going to help drive our market higher in 2014? To tell us what is happening in the global and local markets, and how he is investing right now, Switzer Super Report contributor George Boubouras joins Marty Switzer. [9]
The 2014/15 financial year has begun! But what do you need to do to ensure you meet your obligations as a trustee [10], and maximise your super? Nick Ali, the head of technical services and education at Super Concepts, joins Marty Switzer on Super TV.
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 Atlas Iron (AGO) who had its short position increase by 0.73%.
Source: ASIC
My Favourite charts:
Have a look at that boost in the Aussie share market since this time last year. Including dividends, 17.43% for the financial year!
Source: Yahoo charts
Top five clicked on stories
- Penny Pryor – Shortlisted – the perfect yield portfolio [11]
- Ron Bewley – Setting up a yield portfolio [12]
- Peter Switzer – Uncomfortable market optimism [13]
- Tony Featherstone – How to get rich like the super rich [6]
- Rudi-Filapek Vandyk – Buy, Sell,Hold – what the brokers say [14]
Recent Switzer Super Reports
- Thursday, 3 July 2014: Beat the chill [15]
- Monday, 30 June 2014: The power of 300 [16]
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.