Surprise jobs rise helps boost confidence

The sharemarket closed higher yesterday after an unexpected increase in employment left economists scratching their heads.

By InvestSMART · 11 May 2012

By InvestSMART ·
11 May 2012

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The sharemarket closed higher yesterday after an unexpected increase in employment left economists scratching their heads.

The positive news helped investors shrug off concerns about Europe's financial system, despite financial stocks weighing heavily on the local bourse.

The benchmark S&P/ASX200 index rose 20.5 points, or 0.48 per cent, to 4295.6, while the broader All Ordinaries index rose 21.6 points, or 0.5 per cent, to 4353.8.

Economists thought another rate cut was likely next month after the Reserve Bank surprised everyone a week ago by cutting the cash rate by 0.5 percentage points.

But things became slightly less certain after data showed 15,500 new jobs were created in April, far more than the predicted 5000-job contraction. That meant Australia's monthly jobless rate unexpectedly dropped to 4.9 per cent, when economists had expected it to rise to 5.3 per cent.

"The good jobs and other reports means [the Reserve Bank] can comfortably sit on their hands in June, having got ahead of the curve in May with a 50 basis point cut," the chief economist at NAB, Rob Henderson, said.

The news helped investors ignore worrying signs in Europe, where Spain's stockmarket hit an 8? year low overnight on concerns its banks were under-funded.

Among Australia's major banks, ANZ shares fell 97?, to $22.15, after the stock went ex-dividend.

National Australia Bank fell 4? to $24.57, despite its six-month profit rising to a record $2.83 billion. Analysts suggested NAB's results showed its core banking business was under pressure. Commonwealth Bank rose 24? to $51.90, and Westpac rose 6? to $22.90.

In the resources sector, global miner BHP Billiton was 29? higher at $34.62. Rio Tinto was up 71? at $61.94 as its chairman told shareholders that he was more confident about the global economic picture than he was six months ago.

Among other stocks, News Corporation rose 89? to $20.16, and its non-voting stock rose 93? to $19.96 after third-quarter net profit rose 47 per cent. However, News said conditions would be tough for its Australian and British newspapers due to soft advertising markets.

Singapore Telecom was steady at $2.53 as its Optus business said net profit for fiscal 2012 had risen 1.5 per cent to $787 million despite intense competition.

Fuel supplier Caltex Australia fell 1? to $13.39 as it said an ongoing review of the future of its loss-making refineries was focusing on the Kurnell refinery in Sydney.

Construction giant Leighton was up 17? at $19.35 after it was awarded $800 million in gas and water infrastructure contracts in Queensland.

On Wall Street on Wednesday, the Dow Jones fell 97.03 points, or 0.75 per cent, to 12,835.06 points.

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Frequently Asked Questions about this Article…

Why did the ASX rise after the surprise jobs increase?

The sharemarket closed higher after April’s unexpected jobs boost — 15,500 new jobs were created versus an expected 5,000-job contraction — which lowered the unemployment rate to 4.9%. That upbeat jobs data helped investors shrug off worries about Europe and pushed the S&P/ASX 200 up to 4,295.6 and the All Ordinaries to 4,353.8.

How did the April jobs report change expectations for Reserve Bank interest rate cuts?

Economists had been expecting another cash-rate cut after the Reserve Bank surprised markets with a 50 basis-point cut a week earlier. But the stronger-than-expected April jobs data — and the drop in the unemployment rate to 4.9% — made another cut in June less certain. NAB chief economist Rob Henderson said the RBA could comfortably sit on its hands in June after the May cut.

How did major Australian bank shares move and what drove those changes?

Bank share movements were mixed: ANZ shares fell after going ex‑dividend (trading around $22.15), National Australia Bank fell to $24.57 despite reporting a record six‑month profit, while Commonwealth Bank rose to $51.90 and Westpac rose to $22.90. The moves reflected dividend timing, company results and analyst commentary about underlying banking performance.

What did NAB’s latest profit result mean for investors?

NAB reported a record six‑month profit of $2.83 billion, yet its share price fell, and analysts warned the bank’s core banking business appeared under pressure. Investors should note that strong headline profits can still coincide with concerns about underlying business momentum.

How did major miners like BHP Billiton and Rio Tinto perform on the day?

Resource stocks rallied: BHP Billiton traded around $34.62 and Rio Tinto rose to about $61.94. Rio’s chairman told shareholders he felt more confident about the global economic picture than six months earlier, which helped lift mining sentiment.

Why did News Corporation shares rise and are there any investor cautions?

News Corporation shares rose after third‑quarter net profit increased by 47%, lifting the ordinary and non‑voting stocks to roughly $20.16 and $19.96 respectively. However, the company warned that its Australian and British newspapers would face tough conditions due to soft advertising markets.

What corporate developments affected stocks like Caltex and Leighton?

Caltex Australia fell to about $13.39 amid an ongoing review of its loss‑making refineries, with focus on the Kurnell refinery in Sydney. Construction group Leighton rose to around $19.35 after being awarded $800 million in gas and water infrastructure contracts in Queensland.

Did international market news influence local investor confidence?

Yes — international headlines mattered but were partially offset by local jobs strength. Investors ignored worrying signs in Europe, such as Spain’s stockmarket hitting a multi‑year low on bank funding concerns, and the Dow Jones had fallen about 97 points, yet strong domestic employment data kept local markets positive.