Stocks rebound from early lows

THE sharemarket slipped yesterday after the unemployment rate crept up to 5.4 per cent, its highest since March 2010.

By InvestSMART · 12 Oct 2012

By InvestSMART ·
12 Oct 2012

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THE sharemarket slipped yesterday after the unemployment rate crept up to 5.4 per cent, its highest since March 2010.

The benchmark S&P/ASX 200 Index fell 7.2 points to 4483.5.

Material stocks led the losses, falling 0.9 per cent, while information technology also fell 0.9 per cent. The energy sector lost 0.2 per cent and consumer staples dipped 0.3 per cent.

Telecommunications performed well, up 0.5 per cent, while health jumped 0.4 per cent and financials rose 0.2 per cent.

The market lost ground from the opening bell after negative leads from Europe and the US. But investors staged a fightback after the release of employment data.

Figures from the Bureau of Statistics showed unemployment climbed last month from 5.1 per cent to 5.4 per cent, with economists saying the data was better than expected.

The number of people employed grew by 14,000, so the rise in "unemployment" had more to do with the way it is measured. The official jobless figure increased because more people started looking for work, so they swelled the ranks of the officially unemployed.

"At 5.4 per cent, we believe the unemployment rate is now more in line with the reality of a softer labour market," said TD Securities Asia-Pacific Macro Strategist, Alvin Pontoh. "[But] the market reaction was a surprise to us, and suggests investors prefer the 'glass half-full' approach. He predicted a reversal in market moves in the coming days or weeks.

The dollar strengthened on the news, jumping half a US cent. Late yesterday, the currency was trading at US102.72?, up from US102.21? on Wednesday.

RBC senior economist Su-Lin Ong said the Aussie had been rising since the release of the numbers.

"We've been moving higher since we got the labour market data the currency's about a good half a US cent higher since we got the numbers," she said.

"The market took the headline employment numbers as a positive and in line with expectations."

In the resource sector, BHP Billiton fell 23? to $33.25 and Rio Tinto lost 41? to $55.42.

Iluka fell 64?, or 6.6 per cent, to $9 after the mineral sands miner posted a 58 per cent fall in third-quarter sales revenue due to lower production and demand.

Rare-earths miner Lynas plunged 13?, or 15 per cent, to 73? after a Malaysian court delayed the start of production at its plant to consider an application by opponents.

In the banking sector, National Australia Bank rose 5? to $26.25, ANZ was up 5? at $25.61, Commonwealth Bank climbed 9? to $56.74, and Westpac rose 8? to $25.80.

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Frequently Asked Questions about this Article…

What drove the ASX 200 lower after the latest unemployment figures?

The ASX 200 slipped after the unemployment rate crept up to 5.4%, its highest since March 2010. Negative leads from Europe and the US sent the market down from the open, and materials and information technology led the losses before investors staged a partial recovery after the employment data was released.

Why did the unemployment rate rise to 5.4% even though employment grew?

According to the Bureau of Statistics figures in the article, employed people grew by 14,000. The headline unemployment rate rose because more people started looking for work, which swelled the officially unemployed — so the rise reflected how the measure is calculated rather than a simple drop in jobs.

How did the employment data affect the Australian dollar (AUD)?

The Australian dollar strengthened on the employment news, jumping about half a US cent. The currency traded around US102.72¢, up from roughly US102.21¢, and RBC senior economist Su‑Lin Ong said the market took the headline employment numbers as positive and in line with expectations.

Which sectors gained and which sectors fell after the report?

Materials and information technology were the weakest, each falling about 0.9%. Energy lost roughly 0.2% and consumer staples dipped about 0.3%. On the upside, telecommunications rose about 0.5%, health jumped about 0.4% and financials were up about 0.2%.

How did major resource companies like BHP and Rio Tinto perform?

Major miners were weaker on the day: BHP Billiton fell to a close of $33.25 and Rio Tinto fell to about $55.42. Commodity and miner weakness contributed to the materials sector decline.

What happened to smaller resource names Iluka and Lynas, and why?

Iluka fell about 6.6% to $9 after reporting a 58% fall in third‑quarter sales revenue due to lower production and weaker demand. Rare‑earths miner Lynas plunged roughly 15% after a Malaysian court delayed the start of production at its plant while it considers an application by opponents.

How did the big banks react to the employment numbers?

The major banks were higher on the day: National Australia Bank closed around $26.25, ANZ about $25.61, Commonwealth Bank around $56.74 and Westpac about $25.80, each recording modest gains.

What did analysts say about market outlook after the unemployment reading?

TD Securities strategist Alvin Pontoh said a 5.4% jobless rate is more in line with a softer labour market but added the market’s positive reaction was a surprise, suggesting investors prefer a 'glass half‑full' view. He also predicted a possible reversal in market moves in the coming days or weeks.