CMC Markets Weekly Report
Stocks in the U.S. squeezed out small gains on Friday after trading in a tight range all day as investors were disappointed by the government jobs report, but expectations that the Federal Reserve may launch another round of quantitative easing helped limit losses.
Stocks in the U.S. squeezed out small gains on Friday after trading in a tight range all day as investors were disappointed by the government jobs report, but expectations that the Federal Reserve may launch another round of quantitative easing helped limit losses.
The Dow Jones Industrial Average rose 14.64 points, or 0.11 percent, to close at 13,36.64. The S&P500 climbed 5.80 points, or 0.40 percent, to end at 1,437.92 whilst the Nasdaq eked out a gain of 0.61 points, or 0.02 percent, to finish at 3,136.42.
Non-farm payrolls gained only 96,000 in August, missing expectations for an increase of 125,000, according to the Labor Department. The unemployment rate declined to 8.1 percent from 8.3 percent, but the drop was largely attributed to people giving up looking for work.
The dismal report helps set the stage for Fed policymakers to provide additional stimulus to boost the struggling economy when they meet next week. The latest figures were also a blow to President Obama as he seeks re-election in November.
Also, China gave the green light for 60 infrastructure projects worth more than $150 billion, or nearly 2 percent of the nation's economy, to boost growth.
CPI inflation rose to an annual rate of 2.0% in China in August, up from 1.8% in July. The increase was all to do with a big jump in food inflation. Industrial production came in at a weaker than expected 8.9%, the lowest rate of annual growth in three years. Fixed asset investment also disappointed at 20.2%. Retail sales growth of 13.2% was as forecast.
The stimulus announcement on Friday was well received locally nevertheless, with the Shanghai stock market posting a welcomed 4% bounce. The London Metals Exchange also took the stimulus package on board, as well as the weak US jobs report and its implications for Fed action, pushing base metal prices up 2-3 percent. Oil was also stronger, with Brent rising US$1.25 to US$114.25/bbl and West Texas up US76c to US$96.29/bbl.
The big winner was gold, however, charging through the 1700 mark with a US$36.60 gain to US$1736.90/oz. Silver has also been on a bit of a tear since last week, with Friday marking another 3 percent gain to US$33.69/oz.
The flipside is of course the US dollar, falling a solid 1.1% on its index on Friday night to 80.21 on the weak jobs numbers. The Aussie mirrored the greenback, with a 1.1 percent rise to US$1.0396.
The ECB outlined its stimulus program last week, but it will mean nothing if the German constitutional court does not rule against the challenge to the European Stability Mechanism on Wednesday night.
China will release its August trade balance today, which will provide the Australian market with more to consider. Locally, we'll see housing finance and investment lending data today and June quarter dwelling starts on Wednesday. Tomorrow brings the ABARES crop report and the NAB monthly business confidence survey. Wednesday sees the Westpac monthly consumer confidence survey.
It's relatively quiet on the economic front for the US until we get to Thursday. Aside from the highly anticipated Fed statement release, there is a quarterly meeting so that means updated economic forecasts from the Fed as well as a press conference post-release from Ben Bernanke. The US then has a bit of a “data dump” of its own on Friday, with CPI, industrial production, retail sales, inventory and consumer sentiment numbers all due.
Frequently Asked Questions about this Article…
The Labor Department reported non‑farm payrolls rose by 96,000 in August, missing expectations of about 125,000. The unemployment rate fell to 8.1% from 8.3%, but the drop was largely attributed to people leaving the labour force. The weaker‑than‑expected jobs data increased expectations that the Federal Reserve might provide additional stimulus, which helped limit market losses even as equity trading stayed in a tight range.
The weak jobs numbers strengthened the case for further Fed stimulus, including the possibility of another round of quantitative easing. Investors were focused on the Fed meeting the following week, when the Fed would release updated economic forecasts and Chair Ben Bernanke would hold a press conference explaining the policy outlook.
China approved 60 infrastructure projects worth more than US$150 billion—about 2% of GDP—to boost growth. The stimulus announcement was well received locally, with the Shanghai stock market bouncing about 4% on the news.
Commodities saw notable gains: gold jumped about US$36.60 to US$1,736.90/oz, silver gained around 3% to US$33.69/oz, Brent crude rose roughly US$1.25 to US$114.25/barrel and West Texas Intermediate increased about US$0.76 to US$96.29/barrel. Base metals on the London Metals Exchange were up roughly 2–3%.
The US dollar weakened, with the dollar index down about 1.1% to 80.21. The Australian dollar tracked the move higher, rising about 1.1% to US$1.0396.
China’s CPI inflation rose to an annual 2.0% in August (up from 1.8% in July), driven largely by food inflation. Industrial production slowed to 8.9% year‑on‑year—the weakest in three years—fixed asset investment came in at 20.2% (described as disappointing), and retail sales grew 13.2%, which matched forecasts. China was also due to release its August trade balance.
Important events included the Fed policy statement and press conference (with updated forecasts) mid‑week, and a large US data set on Friday covering CPI, industrial production, retail sales, inventories and consumer sentiment. For Australia, watch housing finance and investment lending data, June quarter dwelling starts, the ABARES crop report, the NAB monthly business confidence survey and the Westpac monthly consumer confidence survey. Also monitor a German constitutional court ruling on the European Stability Mechanism, which could influence ECB stimulus plans.
US equity indices posted small gains in a tight trading range: the Dow rose modestly, the S&P 500 gained about 0.4% and the Nasdaq was essentially flat. Market moves were driven by the disappointing US jobs report—which raised expectations of more Fed stimulus—and positive reactions to China’s stimulus package, while commodities and currency moves also reflected the changing risk and monetary outlook.
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