(MONDAY 11TH JULY - 07.51 - JAMES GERRISH)...On Friday the DOW JONES lost -62pts, the S&P 500 was down 0.70% and our market added +49pts to close strong on the week. For the week, the S&P 500 was steady, the All Ords added +1.5% (outperforming the US for once!) while Gold was up a massive 3.7%. The AUD lost 0.5% against the Greenback.
Whatever way you slice and dice the employment data out of the US on Friday, you come up with the same conclusion - woeful! Headline number was a complete shock to the market with just 18,000 jobs added in June a downward revision to May figures. This was against expectations of +100,000 and average gain of 215,000 between Feb & April. The unemployment rate also ticked higher (9.2% from 9.1%). The private sector added +57,000 jobs while 39,000 jobs were cut from Government Departments. (More detail on the numbers below for those that are interested).
Obviously this is what prompted the selling of equities however the market proved to be surprisingly resilient once again to drop just -62 pts. I watched the US Futures when the number was released drop -120pts in the blink of eye and this is where the equity markets came online. As the intra-day chart shows, traders were happy to buy into the weakness and bid the market higher throughout the session.
Although the number was no doubt a disappointment, it could have positive ramifications for the US reporting reason which kicks off this week. As Alan Kohler in the Eureka Report rightly points out, the main reason not to get too gloomy about the US, and especially the sharemarket, is that the corporate sector remains in good health, partly because they're not hiring but focusing on profits instead. We'll get a pretty good understanding if this is the case in the next few weeks however looking looking at the strong recovery in the US market (since the most recent correction), traders seem happy to back the likelihood of strong earnings growth coming from States.
RESILIENCE
We've spoken about this theme a number of times over the past week or so with the market seemingly well supported despite a number of events that could have easily prompted another round of selling. This was the case on Friday and it was particularly significant given the importance of the employment data that came out. The market had been focussed on this number all week, commentators (me included) had been ramping it up as a key signal that the recent weakness in data had just been a temporary soft patch. I'd argued that a good number on Friday would all but negate those calling for a double dip or more protracted pullback in the stock market. We didn't get the number we were looking for so It seems the jury is still out whether data will improve (I still think it will and it seems investors in the US are of the same opinion).
When the market can move higher on disappointing news, its an incredibly bullish scenario. Although the US market fell on Friday, the afternoon session was encouraging. If we see any type of buying support in our market today (after what will be a weak open) , take that as a real positive.
CARBON TAX
We'll have a chance to digest what this means for the market in the coming days and we'll update you through these notes, however in the meantime, a good overview can be found here
BRADKEN (BKN)
Had a great end to the week after announcing some important acquisitions. Some clients took the opportunity here to lock in some profit (which is always wise in this market), however we have retained the position in the EMERGING GROWTH PORTFOLIO.
The strategy of using a high Aussie Dollar, cheap US funding and depressed asset prices to add growth to their business is a great one. Strategically, the transactions were in line with the company's focus on growing its consumables businesses.
Financially, the acquisitions weren't cheap, however, they are EPS accretive given the associated debt funding nature and increasing synergies over time.
We remain fairly optimistic on the stocks longer term outlook and we're happy to hold in the portfolio for now. For those that have sold into the spike on Friday, we'll look to re-enter in the event we see a pullback.
MORE INFO ABOUT FRIDAYS JOBS NUMBER
From Warren Buffet...(Taken from Bloomberg)...."It means that we're still a ways off from getting to where we should be. How fast the recovery will come, I don't know. I see nothing that indicates any kind of a double dip," or relapse into a recession. "I would bet very heavily against that," he said.
From Trading Economics (www.tradingeconomics.com)
U.S. Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate rose to 9.2% from 9.1% in May. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down. The number of unemployed persons (14.1 million) and the unemployment rate (9.2 percent) were essentially unchanged over the month. Since March, the number of unemployed persons has increased by 545,000, and the unemployment rate has risen by 0.4 percentage point. The labor force, at 153.4 million, changed little over the month.
Among the major worker groups, the unemployment rates for adult men (9.1 percent), adult women (8.0 percent), teenagers (24.5 percent), whites (8.1 percent), blacks (16.2 percent), and Hispanics (11.6 percent) showed little or no change in June. The jobless rate for Asians was 6.8 percent, not seasonally adjusted.
The number of persons unemployed for less than 5 weeks increased by 412,000 in June. The number of long-term unemployed (those jobless for 27 weeks and over) was essentially unchanged over the month, at 6.3 million, and accounted for 44.4 percent of the unemployed.
Total nonfarm payroll employment was essentially unchanged in June (+18,000). Following gains averaging 215,000 per month from February through April, employment has been essentially flat for the past 2 months.
Within professional and business services, employment in professional and technical services increased in June (+24,000). Health care employment continued to trend up in June (+14,000), with the largest gain in ambulatory health care services. Employment in mining rose by 8,000, with most of the gain occurring in support activities for mining. Employment in leisure and hospitality edged up (+34,000) in June and has grown by 279,000 since a recent low in January 2010. Manufacturing and Construction employment changed little in June.
Employment in government continued to trend down over the month (-39,000). Federal employment declined by 14,000 in June. Employment in both state government and local government continued to trend down over the month and has been falling since the second half of 2008. The change in total nonfarm payroll employment for April was revised from +232,000 to +217,000, and the change for May was revised from +54,000 to +25,000.
DIVIDENDS TODAY
NFK, TTA
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.60 to US$17.33, equivalent to A$16.17, A$0.60 below its last close on the ASX.
ResMed fell by US$0.34 to US$30.64, equivalent to A$2.86, A$0.01 above its last close on the ASX.
In London, Rio Tinto fell 93.5 pence to £45.02, A$1.40 lower in Australian currency terms.
BHP-Billiton fell 67.5 pence to £24.54, A$1.01 lower in Australian currency terms.
Henderson Group Plc fell 3.5 pence to £1.57, A$0.05 lower in Australian currency terms
