(MONDAY 5TH SEPTEMBER- 08:36 - JAMES GERRISH)...The MKT fell on Friday after the US jobs report missed the mark printing a quite concerning 'donut'... that's zero jobs created in the US in aggregate last month and we also saw downward revisions in the previous numbers. The unemployment rate held at 9.1% however it was a disappointing print non-the-less. (MKT expected +60,000).
The DOW JONES dropped -253pts while the S&P 500 fell -2.53%. Locally, SPI FUTURES are matching down -63pts. The US MKT fell on the open then flat lined for the rest of the session.
For the week, the All Ords were up +1.2%, the S&P 500 was down -0.25%, Gold was up 0.8% and the AUD was up 0.7% against the USD.
STIMULUS
We wrote on Friday..."The interesting conundrum here is that if we do get a poor jobs number, that suggests a higher chance that Benanke will act to initiate stimulus but if we print higher than expectations, then it shows that fears of a US recession may be being overstated (and too aggressively priced into equities). So I'll go out on a limb and say the MKT reaction to tonight's number might be a little bit confused and this suggests we'll see some big intra session swings but not a lot of change in aggregate".
Clearly, we were wrong and the mkt had a negative reaction to a poor print even though it increases the chance that we'll get some type of stimulus. With regard to stimulus, we don't actually think that it will come in the form of quantitative easing as we've seen in the past.
Previously, the Fed has printed money and bought bonds issued by the US Treasury. The Fed is now holding $2.3 trillion worth of Treasuries with 70% of their exposure maturing in the next 5 years. This is an incredibly short dated profile when you look at the average of other OECD nations that hold about 34% of debt maturing in that time frame. So this suggests that the first move by the Fed is likely to look at extending the maturities of its holdings by selling short dated bonds and reinvesting into longer dated bonds.
The main reason we think we're unlikely to get money printing and asset purchases is inflation both in the US but more importantly in Emerging Markets.
Firstly in the US, inflation has ticked higher and is about twice the rate it was (3.6% annually) than it was back when the first rounds of Quantitative Easing were rolled out.
Secondly, we think that policy makers in emerging markets would be applying some type of pressure to the US NOT to initiate further QE given it would have an inflationary impact outside the US.
After the first rounds of QE we've seen a lot of the liquidity heading off shore into markets like China. Clearly, capital tends to find its way to growth and yield, two things the US lacks but emerging markets such as China/India etc have spades of.
Inflation has been an issue in China however it does appear that tightening measures (RRR Increases + Interest rate hikes etc) have been effective in slowing the rate of price pressures in recent times however another injection of liquidity in the US would certainly be a negative for China.
We do get Chinese inflation data out this week. Very important.
THIS WEEK
We get a significant amount of economic data out + the US are on holidays tonight.
Monday - Quarterly Business indicators publication from the ABS.
In the US - MKTS closed for Labour Day
Tuesday - RBA decision on interest rates. Analysts expect no hike while the Futures markets are pricing a 22% chance of a cut.
In the US - ISM services index released - expectations for 51.3
Wednesday - ABS releases June quarter national accounts including economic growth figures. MKT expecting GDP of +1.2% however there are lower expectations such as NAB with +0.9%
In the US - Beige Book of economic conditions
Thursday - August employment data
In the US - Jobless claims
MODEL PORTFOLIO STOCKS
BHP, AMP ex-divi today (+ a heap of other companies)
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.52 to US$16.56, equivalent to A$15.63, A$0.28 below its last close on the ASX.
ResMed fell by US$1.03 to US$30.04, equivalent to A$2.84, A$0.01 below its last close on the ASX.
In London, Rio Tinto fell 94.5 pence to £36.74, A$1.44 lower in Australian currency terms.
BHP-Billiton fell 74.0 pence to £20.32, A$1.13 lower in Australian currency terms.
Henderson Group Plc was unchanged at £1.29.
