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Overnight: And They're Off

The Dow closed up 187 points or 0.8% while the S&P gained 0.8% to 2585 and the Nasdaq rose 1.3%.

On the Job

It’s not often that economists will forecast jobs growth of 18,800 in Australia for the month, down from 26,600 the month before, see a result of only 3,700 and still be excited. But that’s what happened with the October numbers.

It might have been a “miss” but rarely are economists even close to monthly jobs results, and it does represent the thirteenth straight month of job increases – the longest run since the country was pulling itself out of Keating’s recession in 1994. And importantly, 3,700 represented a balance of 24,300 full-time jobs gained and -20,700 part-time jobs lost. Hours worked are now up 3.2% year on year.

The unemployment rate fell to 5.4% from 5.5%. Yet despite an average of 29,300 jobs per month being added over the past six, this week’s wages growth data showed there remains plenty of spare capacity in the labour market – underemployment – as the RBA continues to note. And no sign of a rate rise.

The ASX200 initially dropped on the release of the jobs numbers but only briefly. The index had opened -18 points lower as the futures had suggested but quickly began to track a steady path back to close up 9, still a little shy of 5950.

Two individual stock stories dominated the session.

Tuesday saw institutions madly dumping out of energy stocks in particular and any large cap in general to make room in their portfolios for a share of the large stake in Woodside Petroleum ((WPL)) Shell was exiting. Santos ((STO)) was a natural victim as positions in that energy stock were reduced. Then yesterday the market learned the company had turned down a takeover offer back in August.

Santos shares jumped 13% yesterday. It would have been traders piling into that one, rather than instos.

Shares in Fairfax Media ((FXJ)) plunged -30% but only because Domain was officially spun off; no actual net loss for shareholders.

On yesterday’s sector break-down, energy stood out with a 1.9% gain while most other sectors closed modestly in the green. The exceptions were utilities (-0.2%) and consumer staples (-0.6%), the latter following Wesfarmers’ ((WES)) AGM. Woolworths also fell on the day, suggesting trouble in supermarket town.

Base metals prices were on the slide again last night and oil slightly lower once more, but it likely means little for today’s session. A big tax-related rally on Wall Street sees the local futures up 42 points this morning. If accurate, we’ll be heading back towards 6000.

Step One

In the US Congress, the House last night passed a Republican-sponsored tax bill. Wall Street was already in a positive frame of mind as it set to follow a turnaround in European stocks early in the session, and the tax news ensured all major indices shot up from the open.

The problem, of course, is that the bill still has to pass through the Senate and Republican senators have proposed their own bill, which differs from the House bill. A lot of the differences come down to disagreement over the “pay fors” but the big stumbling block is the Senate’s desire to delay the tax cut for one year.

Still, the fact the House bill passed on first attempt is reassuring, given previous attempts to agree on a healthcare bill saw various efforts blocked at every turn. To an extent, tax reform has passed step one.

Now the Senate will have a go, and there’s no guarantee that bill will pass. If eventually the Senate does agree on a bill, then the two houses have to come together and nut out a compromise. Still plenty of late nights ahead.

The past few sessions have seen Wall Street gradually slipping away on growing concerns tax reform might end up being as much of a pipedream as replacing Obamacare. The Russell small cap index had borne the brunt of the weakness, given smaller businesses are the greater winners from a tax cut.

Last night the Russell jumped 1.6%.

In other news, US industrial production rose 0.9% in October when 0.6% was forecast.

It was a positive day on Wall Street all round – a sigh of relief toward the end of a soggy week. But the games have only just begun.


The US tax news did little to inspire base metal traders in London, who remain concerned over a slowing of the Chinese economy. Aluminium and copper fell -0.5%, lead -1.5% and nickel -2.5%.

The US dollar index rose but only by 0.1% to 93.94 as it competed with a stronger euro.

Gold is steady at US$1278.00/oz.

West Texas crude has slipped another -US16c to US$55.13/bbl.

The Aussie is up 0.1% at US$0.7590.


The SPI Overnight closed up 42 points or 0.7%.

There’s not much in the way of economic data around today or tonight.

On the local stock front, MYOB ((MYB)) will host an investor day.

Capilano Honey ((CZZ)), Lend Lease ((LLC)) and ResMed ((RMD)) are among those holding AGMs today.

Rudi will connect with Sky Business around 11.15am this morning to discuss broker views and updates.

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