The Monday Report – 11 October 2021

This story features EML PAYMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: EML

The company is included in ALL-ORDS and ALL-TECH

World Overnight
SPI Overnight	7273.00	– 4.00	– 0.05%
S&P ASX 200	7320.10	+ 63.40	0.87%
S&P500	4391.34	– 8.42	– 0.19%
Nasdaq Comp	14579.54	– 74.48	– 0.51%
DJIA	34746.25	– 8.69	– 0.03%
S&P500 VIX	18.77	– 0.77	– 3.94%
US 10-year yield	1.61	+ 0.03	2.16%
USD Index	94.07	– 0.13	– 0.14%
FTSE100	7095.55	+ 17.51	0.25%
DAX30	15206.13	– 44.73	– 0.29%

By Greg Peel

Back with a vengeance

The futures had suggested up 33 points but in the first ten minutes the ASX200 was up 66 on Friday, following Wall Street strength, before tumbling to be up only 11 points late morning.

After a volatile week, in which the index eventually recovered all losses from the end of September, it seemed investors were happy to square up ahead of Friday night’s US jobs report.

That is until Caixin released its September PMIs – a week late due to the holiday. The Chinese services sector PMI swung to 53.4 from 46.7 in August, and the composite PMI, blending in manufacturing, rose to 51.4 from 47.2. These are independent numbers.

Rumours of China’s death have clearly been exaggerated. This was also evident in an unleashing of iron ore demand, pent up over the week off, with the spot price ultimately jumping 6%.

The materials sector unsurprisingly made a comeback on Friday with a winning 1.8% gain.

 Energy’s long-winded comeback shows no sign of abating (+1.0%), IT rose 1.3% on overnight strength in the Nasdaq and Square in particular, and telcos chimed in with 1.0%.

The banks also had another strong session, with the Aussie ten-year bond yield shooting up another 6 basis points to 1.64%, on China’s turnaround and probably Sydney’s reopening today as well.

The jump in yields did not upset the yield-paying sectors – telcos being one – but property (+0.1%) and industrials (+0.2%) did lag. Utilities (+0.6%) is too tied to energy to be indicative and staples (+0.5%) did okay.

All sectors closed in the green, but by mixed amounts.

The top five individual stock winners’ board was made up of miners and non-bank financials, while on the losing side, train wreck of the day was EML Payments ((EML)), which dropped -14.6%.

It seems hopes that the Irish Central Bank issue wouldn’t amount to much were optimistic.

On Friday night we saw an absolute Barry Crocker of a US jobs report, but Wall Street was not quite sure what to do with the information. Hence we begin this week with our futures down an exciting -4 points, despite some solid gains in base metal prices.

Stunned Rabbits

By Thursday night some on Wall Street were suggesting a consensus forecast of 500,000 new jobs in September was probably conservative, given the end of covid support during the month. So when the number came out at 194,000, a lot of jaws hit the floor.

At any time since the GFC, such a whopping miss could be seen as “bad”, implying a weak economy, or “good” because it implies the Fed will need to provide more support. But on Friday night Wall Street really didn’t know how to respond, and no one suggested the result would change the Fed’s mind about tapering.

The US ten-year bond yield nevertheless rose 3 basis points to 1.61%, which seems counterintuitive. But as usual, one must look more closely at the numbers.

Firstly, the unemployment rate dropped sharply to a covid-low 4.8% from 5.2%. Secondly, the education segment saw a very big fall, dragging down the net result.

Economists blame this on the seasonal adjustment mechanism, with September the back-to-school after summer month. Normally this would mean teachers being hired, but in 2021, teachers are bailing. And for polarised reasons.

In some states, full vaccination is mandatory for teachers, and not all teachers agree with that. While in other states, mask-wearing is banned, and not all teachers agree with that.

It is also notable that hours worked rose to a level greater than ever seen pre-pandemic. This suggests those with a job are happy to work longer hours, precluding the need for extra employees. The size of the labour force fell by -183,000 jobs, driving the drop in unemployment, and implying today’s industries don’t need as many humans as previously.

Average weekly wage growth jumped up to 4.6% annual from 4.0% in August. This number most clearly informed the bond market. It is estimated there are currently 1.3 jobs available for very worker wanting one, so wages are not going to fall, and that means inflation.

And to wrap up the reasons behind the surprise 194,000, September was still suffering from delta, particularly in the South, Hurricane Ida had an impact, and supply chain delays would have kept some companies from hiring.

Wall Street thus couldn’t find anything to be startled about, but nor was the result encouraging. Hence the S&P500 lost only -0.2% and the Dow was flat, while bond yields helped the Nasdaq down -0.5%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1757.10	+ 2.50	0.14%
Silver (oz)	22.65	+ 0.08	0.35%
Copper (lb)	4.20	+ 0.04	1.01%
Aluminium (lb)	1.31	– 0.01	– 1.10%
Lead (lb)	1.01	+ 0.01	0.69%
Nickel (lb)	8.49	+ 0.31	3.73%
Zinc (lb)	1.41	+ 0.03	2.38%
West Texas Crude	79.35	+ 0.48	0.61%
Brent Crude	82.39	– 0.08	– 0.10%
Iron Ore (t)	125.05	+ 7.25	6.15%

It appears it was not just iron ore the Chinese were missing while on holiday. There are also issues around copper supply, with protesters in Peru blockading the major road into and out of the country’s copper mines.

Meanwhile, the smelting of other metals has been significantly curtailed in China.

WTI crude briefly traded over US$80/bbl on Friday night, for the first time in seven years.

The Aussie is steady at US$0.7311.

The SPI Overnight closed down -4 points on Saturday morning.

The Week Ahead

With jobs numbers out of the way, the next big challenge for Wall Street will be the September CPI on Wednesday, and PPI on Thursday. And then there’s retail sales on Friday.

The minutes of the Fed meeting that flagged tapering are out on Wednesday.

China also reports inflation numbers this week, as well as September trade.

In Australia, our jobs numbers are out on Thursday, following the NAB business confidence survey tomorrow and Westpac consumer confidence on Wednesday.

On the ASX, ex-dividends are now thin on the ground from here on, but AGM season begins to ramp up, joined by quarterly update season.

Notable AGMs this week are those of CSL ((CSL)) and Telstra ((TLS)) tomorrow and Commonwealth Bank ((CBA)) on Wednesday.

Bank of Queensland ((BOQ)) reports full-year earnings on Wednesday.

Viva Energy ((VEA)) holds an EGM today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL Energy	Upgrade to Equal-weight from Underweight	Morgan Stanley
BBN	Baby Bunting	Upgrade to Add from Hold	Morgans
FBU	Fletcher Building	Upgrade to Buy from Neutral	UBS
HMC	HomeCo	Downgrade to Lighten from Hold	Ord Minnett
MFG	Magellan Financial	Upgrade to Outperform from Neutral	Macquarie
SGM	Sims	Upgrade to Buy from Neutral	Citi
SUL	Super Retail	Upgrade to Buy from Neutral	UBS

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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