Despite last week’s 2% rally in the ASX and the market charged towards its all-time November 2007 high, don’t expect a repeat of that performance, at least today.
Watch for reaction to the solid June jobs report from the US and the sell-off in iron ore prices on Thursday and especially Friday that saw the price of the key commodity slide 9% last week.
That will hit the shares of BHP, Rio Tinto, and Fortescue, while a weaker gold price on Friday won’t give any support to gold stocks.
But it will be the better than expected June labour force report for the US that will hold most of the attention today for local investors, making them a bit jumpy about the future direction of US interest rates.
The big surprise in the US report was the 244,000 new jobs created (between 150,000 and 170,000 was expected), along with an uptick in the jobless rate to 3.7%, but steady wage costs.
That has all but ended those silly hopes by many US and other investors for a half a percent cut from the Fed when it meets later this month on July 30-31.
There may still be a trim of 0.25%, but even that is now in doubt following the jobs report. The US labour market is signaling there is no need for a cut, and with fed chair Jay Powell due to appear before Congress this week, investors will be cautious until they see what he says.
That caution is why Wall Street fell on Friday (but still rose solidly over the holiday-shortened week (see separate stories).
The S&P 500 fell 0.2% on Friday and the Stoxx 600 in Europe lost 0.6%. That, in turn, saw the ASX 200 futures market to dip 12 points overnight Friday, meaning a softish start to trade today.
AMP Chief Economist, Dr. Shane Oliver says the Australian share market as measured by the All Ords index is now just 0.3% below its resources boom high reached on 1 November 2007.
“Basically, the share market is looking through short term uncertainties around the economy and focussing on lower interest rates and bond yields making shares relatively cheaper and the likelihood that monetary and fiscal stimulus will ultimately boost economic growth.
“While US shares made it back to their 2007 high in 2013, Australian shares took longer because of much tighter monetary policy after the GFC, the high $A until recent years, the collapse in commodity prices and the fact that the 2007 high was a much higher high for Australian shares than it was for global shares.
“Of course, once dividends are allowed for, as they should be given the higher dividend yields paid by Australian companies, the Australian share market surpassed its 2007 record high, way back in 2013,” he pointed out.
The ASX 200 Index rose 132.5 points, or 2%, to 6751.3 on Friday, closing 77.4 points off its record high in late 2007. The broader All Ordinaries added 132.6 points, or 2% to end the week at 6831.8, finishing just 21.8 points shy of its all-time close.
The Aussie dollar ended local trading on Friday just above 70 US cents, a few hours later and it ended the week in offshore dealings around 69.80 as the US dollar rose to a two week high.
The US 10 year bond yield rose back above 2% on Friday in the wake of the jobs report and the rise in the US dollar but the yield on Australian 10-year bonds ended down at 1.28%, very close to the all-time low.
