US nonfarm payroll data showed the economy added 155,000 jobs in November, fewer than the 200,000 expected. Leslie Preston from TD Economics says the slowdown in hiring figures is not too much of a concern. “The Federal Reserve is not likely to put too much weight on a one-month moderation in hiring activity, and will likely focus on broader measures of labor market slack, like the unemployment rate or wage growth, which remained steady in November. We see a December rate hike as largely a done deal. However, it is undeniable that core inflation has lost momentum in recent months. While we expect price pressures to pick back up in the coming months, above-target inflation is less of a threat for the Fed. That underpins our expectation that Fed hikes will be more gradual in 2019, as the economy slows.”

Capital Economics’ Nikhil Sangani looks ahead to US data in the coming week. “Next week, we expect data to show that both producer and consumer price inflation remained subdued in November, reflecting not just a sharp drop in gasoline prices but also a more general moderation in underlying price pressures,” he writes in a market note. “Otherwise, we think that weak auto and gasoline sales held down headline retail sales in November, but underlying sales are likely to have posted another solid gain. Finally, we anticipate a strong rise in industrial production in November, led by mining and utilities. But with global headwinds mounting, we suspect that manufacturing output growth slowed.”

The European Central Bank meets on Thursday and analysts expect it to end quantitative easing in December. “Its likely to commit to re investing maturing bonds for an extended period, indicate that it will provide more cheap funding for banks if needed and reiterate that a rate hike is a long way away. December business conditions PMIs (Friday) will likely show further slippage but still be at okay levels,” said

Today’s Agenda

Local data: RBA assistant governor Christopher Kent gives speech; housing finance October.

Overseas data: Japan GDP Q3 final; Japan current account October.

Market Highlights

SPI futures down 30 points to 5637 at 7.59am Saturday AEDT.

AUD -4% to 72.03 US cents

On Wall St at 12.40pm in New York: Dow -2.2% S&P 500 -2.3% Nasdaq -3%

In Europe: Stoxx 50 +0.4% FTSE +1.1% CAC +0.7% DAX -0.2%

Gold +0.9% to $US1248.35 an ounce

Brent crude +1.6% to $US62.83 a barrel

Iron ore -0.1% to $US66.51 a tonne

LME aluminium +1% to $US1955 a tonne

LME copper +1.2% to $US6145 a tonne

10-year yield: US 2.88% Australia 2.44% Germany 0.25%

From Today’s Financial Review

Floats on ice after year of shame: Investors lured into capital raisings and new floats are nursing double digit losses. That will make it harder for companies to raise money in 2019.

PwC slashes R&D staff after ATO action: Professional services giant PwC laid off more than 30 staff and two partners left its division advising on research and development incentive applications as clients were hit with government audits.

Wall St largely flat 2019, tips Macquarie: Macquarie is expecting flat to marginally higher returns for US equities in 2019, predicting the S&P 500 Index will return to the 2800 points level.

United States

Wall Street saw its biggest weekly losses since March, led by declines in big internet and technology shares. The Dow Jones Industrial Average fell 558.72 points, or 2.24 per cent, to 24,388.95, the S&P 500 lost 62.87 points, or 2.33 per cent, to 2,633.08 and the Nasdaq Composite dropped 219.01 points, or 3.05 per cent, to 6,969.25.

Stocks were higher on US labour data that showed employers hired fewer workers than expected in November but reversed course to close down.

Ulta Beauty slid 6.8 per cent to $US273 after the cosmetics retailer’s latest quarterly report card exceeded analysts’ expectations, but its earnings outlook disappointed traders. Hewlett Packard slumped 6.6 per cent to $US14.97. Broadcom climbed 4.2 per cent to $US236.86.

AMP Capital chief economist and head of investment strategy Shane Oliver wrote in a market note that it was too early to say shares had hit bottom. “But investor scepticism remains very high evident in good news being ignored (like strong US ISM reports and another ‘Goldilocks’ jobs report for November) and bad news being blown out of proportion (like in the Fed’s Beige Book) and many of the concerns around share markets – notably in relation to the Fed and trade – remain unresolved,” he said.

“So, share markets could yet go down further into early next year in what we have referred to as a ‘gummy bear’ market, ie where markets come down 20% or so before rebounding like we saw in 2015-16. However, we remain of the view that a ‘grizzly bear’ market – where shares fall 20% and a year later are down another 20% or so – because a US/global recession is unlikely soon. The two big concerns of the last week [Huawei arrest and US yield curve] look overdone.”

Europe

European shares staged a small recovery on Friday snapping three days of heavy losses, but stocks notched up their worst week of losses in two months amid growing worries that the US-China trade row may erupt again and slowing global economic growth.

The euro zone’s STOXX index closed up 0.6 per cent but near the session lows as tech losses on Wall Street weighed even as oil rallied and a tepid US jobs report tempered some expectations for fast US interest rates hikes.

“Volatility is high and investors are twitchy. It was been a dreadful week for European markets, and today’s positive move can’t mask the previous losses,” said David Madden, market analyst at CMC Markets UK.

Germany’s DAX, with its big exposure to the trade war, has joined the long list of indexes or stocks to fall into bear territory in 2018. It was the only major bourse to close in the red on the day. German government bond yields rose from six-month lows. Fresenius was the biggest loser, down 17 per cent, dragging down the DAX.

Meanwhile China’s largest shipping group, COSCO Shipping, is considering raising capital for the first time on the London Stock Exchange through a new initiative with Shanghai’s bourse, two finance sources familiar with the matter said.

On the FTSE, a glimpse of optimism was provided by the market debut of Britain’s AJ Bell. The investment platform provider bucked a trend of lacklustre European initial public offerings, with the shares rising more than 37.5 per cent. Associated British Foods shares fell 4.6 per cent to the bottom of the FTSE 100 after reporting that trading at its Primark fashion chain was challenging.

Spain’s Sabadell dipped 0.2 per cent after its chairman said the bank planned an eventual merger or sale of its TSB unit once it has returned the British bank to profitability.

Asia

Hong Kong stocks closed lower on Friday, marking the end of a volatile week of trading, as the arrest of a senior Huawei executive dampened hopes of a lasting resolution to the US-China trade conflict. The Hang Seng index fell 0.4 per cent, to 26,063.76, while the China Enterprises Index lost 1.1 per cent, to 10,369.40 points.

The sub-index of the Hang Seng tracking energy shares dipped 1.9 per cent, while the IT sector rose 1.2 per cent, the financial sector ended 1.09 per cent lower and the property sector rose 1.14 per cent. The top gainer on the Hang Seng was Link Real Estate Investment Trust, which gained 2.72 per cent, while the biggest loser was Sino Biopharmaceutical, which fell 7.88 per cent. Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.19 per cent, while Japan’s Nikkei index closed up 0.82 per cent. Shares rose in India, Taiwan and Southeast Asia.

The top gainers among H-shares were CITIC up 2.7 per cent, followed by Tencent Holdings, gaining 2.1 per cent and China Resources Land, up by 2.09 per cent.

Hong Kong is on track for a bumper year of listings, with $US33.2 billion raised so far, data from Refinitiv showed. But performance has been largely poor with several firms, including big names such as Meituan Dianping and Xiaomi trading below IPO prices.

Chinese medical tech platform WuXi AppTec raised $US1.01 billion in its Hong Kong listing, sources said, valuing the company at $US10.2 billion in a deal that marks one of this year’s last big stock offerings in the Asian financial hub. It priced its Hong Kong shares at HK$68 ($US8.71) apiece, at the middle of an indicated range of HK$64.1-HK$71.5, the sources told Reuters. That represents a discount of 25 per cent to its closing price of 79.99 yuan ($US11.63). China’s Fosun Tourism Group, operator of the Club Med holiday business, said it has raised $US428 million in its initial public offering (IPO), pricing shares at the bottom of a marketed range.

Currencies

OANDA’s Stephen Innes says the Australian dollar is still getting a bounce from oil prices and riding the coattails of the Canadian dollar. But he says the market is running out of ways to short the currency. “After this week’s horrendous GDP print, whatever remnants of a tightening bias in the RBA thinking is entirely priced out of the market now,” he says. “With trade wars… likely drag out well into 2019, and China all but a lock to move into contraction, it’s down to which currency you want to short the Aussie through, with many traders hedging bets three ways via EUR-USD and JPY and short Aussie could be the most significant trade in Q1 2019.”

Sterling’s hopes will rest entirely on the expected defeat of British Prime Minister Theresa May’s Brexit bill on Thursday. Bloomberg reported analysts believed the margin of the defeat would be the key factor for the pound.

“Personally, I see a little wiggle room but not much – it’s quite binary for me,” said Neil Jones, head of hedge fund currency sales at Mizuho Bank. He says the market will “probably buy pound on 300 votes, sell on 270.” He says the market alarm points to sell or buy are 270 votes or less and 300 votes or more. Jones sees the pound rallying to $US1.35 if May gets the majority 320 votes; at 300 it will probably rally to $US1.30

The Canadian dollar strengthened against its US counterpart as higher oil prices and a record increase in domestic jobs bolstered expectations for further interest rate hikes from the Bank of Canada. The currency, which on Thursday hit its lowest in nearly 18 months at 1.3445, traded in a range of 1.3285 to 1.3400.

The yuan posted a rare gain amid news that China’s foreign exchange reserves unexpectedly rose in November to $US3.062 trillion, central bank data showed on Friday.

Commodities

Oil prices spiked sharply higher Friday as major oil producers, including the OPEC cartel, agreed to cut global oil production by 1.2 million barrels a day to reduce oversupply. OPEC said it would cut 800,000 barrels per day for six months from January, though some countries such as Iran have been given an exemption. The balance will come from Russia and other non-OPEC countries. The US is not part of the deal.

Following the news, Brent crude was up $US2.79 a barrel, or 4.7 per cent, at $US62.85. Benchmark New York crude was $US2.11, or 4.1 per cent, higher at $US53.60 a barrel.

Gold hit a five-month peak as the dollar slid following weaker-than-expected US jobs data.

Spot gold gained 0.9 per cent to $US1,249 per ounce, its highest since July 13. With a rise of nearly 2 per cent this week, gold looked set to post its best gain since the week of March 23. “At this point it looks like the price of gold has a strong foundation at these levels and should remain in a bullish mode the rest of the year,” Walter Pehowich, executive vice president of investment services at Dillon Gage Metals wrote in a note.

Russia’s finance ministry is seeking to speed up cutting VAT on investments in gold in part to support a Russian gold refiner which has been struggling after it was hit by US sanctions, Deputy Finance Minister Alexei Moiseev told Reuters.

Meanwhile, spot palladium rose 1.2 per cent to $US1,225.19 per ounce and posted its second straight weekly gain.

LME zinc ended down 0.2 per cent at $US2,587 a tonne, having hit its highest since late October, while aluminium closed up 1 per cent at $US1,955. The premium for cash zinc over the three- month price CMZN0-3 at $US114 a tonne, was near record highs, indicating very tight nearby supply. LME zinc stocks have halved since mid-August and are near a 10-year low.

Australian Sharemarket

Australian shares defied a global stock rout to close the week higher as defensive property and infrastructure stocks held firm.

The S&P/ASX 200 Index closed the week 14.3 points, or 0.3 per cent, higher at 5681.5 while the broader All Ordinaries rose 8.6 points, or 0.1 per cent, to 5757.9, while other global markets fell.

Defensive stocks held firm this week, as investors to the safer property and infrastructure stocks amid the global stock rout. Transurban was among the market leaders this week, rising 4.1 per cent to $11.86. Scentre Group rose 6.7 per cent to $4.16, Goodman Group advanced 6.9 per cent to $10.96, Dexus closed 5.8 per cent higher at $11.07 and Stockland closed the week’s trade at $3.84, up 5.5 per cent.

GrainCorp shares rose 25.5 per cent to $9.16 after the group received a $3.3 billion takeover offer from Long-Term Asset Partners (LTAP). LTAP said it had no intention of selling any of the company’s assets should the $10.42 a share offer succeed.

IOOF Holdings wiped more than a third of its value this week, sliding 33.3 per cent to $4.60 after APRA began a case in Federal court against five of its senior executives.

Street Talk

PEXA packs price punch for rival InfoTrack

IT services business seeks capital partner; KPMG hired

Hamilton Locke hires new capital markets partner

with Reuters, Bloomberg, AAP

Comments? Questions? Let us know what you think of Before the Bell: natasha.rudra@fairfaxmedia.com.au

Read More

LEAVE A REPLY

Please enter your comment!
Please enter your name here