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Australian September employment figures remained surprisingly strong, with 26,200 new full-time jobs created and an unemployment rate of 5.2%.
The data continues to defy the weakness seen in job advertising – skilled vacancies are -6% on last year and the wider ANZ job advertisement figures are down -11% on 2018.
Early October manufacturing data in the US seems to have stabilised with the Empire (New York) manufacturing sentiment bouncing modestly this month
Chinese Q3 GDP grew at an annualised rate of 6% which is the lowest figure since the data series started nearly 30 years ago in 1992.
China’s economy continues to soften as the impact of US tariff’s on US$360bn of Chinese exports to the US weighs, though we would expect to see continued, measured fiscal and monetary stimulus afforded by authorities to mitigate the significant slowing.
US housing sector trends remain positive with the October NAHB Housing Market Index jumping again in October and just shy of the record optimism we saw in the sector back at the start of 2018.
Falling mortgage interest rates continue to generate strong homebuilding activity and September Housing Starts and Building Permits rare up +12% and +8% on the previous year respectively.
IOOF (IFL) confirmed our expectations and announced last week that they were set to complete the ANZ Wealth transaction and at discounted price.
Challenger (CGF) reported a resilient first quarter in the face of falling interest rates and the stock bounced accordingly.
Afterpay (APT) shares were one of the worst performers during the week, falling -17% after UBS initiated coverage of the stock with a contrarian SELL rating.
Boral (BLD) was the subject of M&A chatter during the week with The Australian publishing an article suggesting US private equity giant, Lone Star, could be considering a bid for the company.
We note, with some modest trepidation, that though the Australian share-market is +18% year-to-date and within 3% of its high, that the Australian mining sector has not only foregone its sector leadership, but in fact underperformed quite materially over the last 3 months.
As the chart below shows, the Australian mining sector does a very good job of pre-empting the performance of the wider market.
As the leading edge of the market in a cyclical earnings sense, investor appetite for miners tends to offer an early look at future risk appetite across the wider market.
In red is the ‘relative’ performance of the Australian material sector against the ASX200 benchmark, and the white line is the ASX200 share price index lagged by 6 weeks.
The underperformance of Australian miners since Q2 seems set to presage consolidation in the wider market in the weeks and months ahead.
The slowing Chinese economy is the main culprit for recent weakening in iron ore prices from their July highs at $110/ton to todays level at a touch over $80/ton.
BHP (BHP) and Rio Tinto (RIO) share prices have underperformed the market by almost -20% since their peak in April, although Fortescue (FMG) has fared marginally better.
Major corporate results in the US this week will come from Microsoft (MSFT) and Amazon (AMZN), and then the following week will see Apple (AAPL), Google (GOOG) and Facebook (FB) all report.
In Australia, the major banks and Pendal (PDL) will report September year end results in 2-3 weeks.
Regards,
Jono
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