What we liked

  • The Federal Reserve is still adamant it will raise rates in December despite a lousy jobs report. US jobs data disappointed with Non-Farm payrolls falling by 33k for September well below an expected gain of 85k. It’s clear the hurricanes caused the upset. The central bank will have another two more jobs reports to gauge whether this is just a once off or something more concerning. It will also be keeping a close eye on inflation developments and earnings data. Fed funds futures saw the fall in the unemployment rate and the rise in wages as confirmation that the Fed will raise in December. The participation rate held steady at 63.1% and has shown little movement over the year. Markets now see a 98% chance of a move.
  • The Sydney and Melbourne property market’s finally appear to be cooling. Auction clearance rates in Sydney hit 67.2 down from 76% a year ago. Melbourne fell to 72.1% down from 78.4% a year ago. Home prices in Sydney also fell as the hot air starts to leave. House prices in Sydney fell 1.9% in the last three months to September, the first fall in two years. It’s a good sign that the housing market is cooling albeit slowly.
  • Wealthy Chinese students and residents unable to transfer more than $50k in cash from the mainland are using UnionPay credit and debit cards to buy $300k Maserati’s and other luxury cars. It’s a boon for luxury car dealerships which are seeing their sales rise by up to 50%. ASX listed car dealers are AP Eagers (APE) and Automotive Holdings Group (AHE).
  • Nickel is trading at its highest point in more than two weeks driven by a softer dollar and higher steel prices.
  • Australia Post has closed its gender pay gap. The company has removed employee names from job applications to remove any unconscious unfairness. The zero gender pay gap is impressive given the company has some 34K staff.
  • CBA has vowed to fight a class action over alleged breaches of anti-money laundering laws. The class action filed by Maurice Blackburn alleges the bank neglected its disclosure obligations to advise the market, that it had engaged in serious and systemic non-compliance and as a result shareholder’s lost money who bought the stock.
  • Researchers at the Carnegie Institution for Science believe wind farms in the open ocean are capable of generating renewable energy that is far greater than those on land. Even capable of powering the entire world.
  • Oil – Saudi Arabia has cut oil exports. The move was announced by OPEC on Monday. Saudi will now allocate fewer barrels of oil for export starting next month. It will be lowered to 7.2mboe from 7.7mboe per day. Despite the cuts, it had little effect on oil prices. The US WTI crude oil price rose only 0.6% to settle at US$49.58 a barrel.
  • Bitcoin has surged above US$5000 to hit a record high. Last December, bitcoin was trading at less than US$1,000. Since then, it’s had a monstrous run. The rise has largely been attributed to growing institutional interest.

Market Indicators

What we didn’t like

  • The Government appears to be doing a backflip on its Clean Energy target. Due to the rapid fall in renewable energy costs it believes an energy target might not be needed and it can be done with 7subsidies. It will be a hard sell for the Government to move away from its plans and allow technology to do the work of subsidies in reducing costs.
  • Spain – Thousands have rallied in Barcelona as the Catalonia region heads towards declaring independence. The country is on the brink of a political collapse with the Catalonia president Carles Puigdemont under heavy pressure to defend Catalan or drop independence altogether. Some are saying independence will be more of a “symbolic’’ statement. The Spanish Government has warned him that he will be thrown into prison if he goes ahead with a declaration of independence. The Catalan situation is worrying the EU and remains a key issue to watch over the coming weeks.
  • Analysts have downgraded forecasts on key Australian commodity exports. Downgrades were on iron ore, metallurgical coal and copper. Macquarie expects iron ore to average US$50 a tonne in the 2Q this year. Capital Economics expects Met Coal to fall to US$137 a tonne in 2018 and UBS expects copper to fall by 11%-14%.
  • Iron ore has slumped back into the US$50’s. Analysts are concerned that output cuts in China will dent demand over winter at a time when the big miners are expanding supply. Iron ore stockpiles at Chinese ports were up 0.5% last week which adds to the previous week’s 1.8% increase. This rise in stockpiles can also be the cause for the softness in the iron ore price.