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US
An upbeat U.S. jobs report allayed fears that the world's biggest economy is on the wane and that corporate profits will slow. The bond market is indicating that the payroll numbers will significantly reduce the chance of a rate cut in the US. Fed fund futures have gone from pricing in the possibility of two rate cuts this year to only one by Christmas. The odds that the Fed will lower rates at the end of this month are now fifty-fifty.
Retail spending will be closely watched in the US tonight. Given the very strong non-farm payroll numbers for August & September – if retail spending remains steady – then the US Fed really has no reason to cut interest rates.
Minutes from the US FOMC September meeting were released. The decision to cut interest rates last month was unanimous. The minutes did not reveal much about what the Fed will do going forward, but it did indicate that the Fed cut both the discount and Fed Funds rate to forestall some of the adverse effects on the economy that might otherwise arise. This suggests that the move was proactive and not reactive and further economic data has supported that.
Boeing Co on Wednesday pushed back first deliveries of its 787 Dreamliner by at least six months as it struggles to assemble the new lightweight, carbon-composite plane.
Job losses due to the credit market problems have continued. UBS AG & Credit Suisse Group already said this month that they would get rid of 1820 jobs. Now JP Morgan looks like it’s going to cut up to 10% of the jobs in groups that finance leveraged buyouts and debt securities.
Asia Pacific
Bank of Japan met for its two-day interest rate meeting. Interest rates remained unchanged at 0.5%. Japanese growth has not been strong enough to warrant a rate hike.
Moody’s upgraded Japan’s debt rating saying that it had confidence in the government led by PM Yasuo Fukuda.
Sony Financial rose 5% on its debut onto the market on 11 October.
Bank of Korea also remained on the sidelines this week, keeping interest rates unchanged at a 6 year high of 5%.
Australia clocked its 43rd record for the share market. Unemployment in Australia fell down to a 33 year low of 4.2%.
The Korean market also had a record week.
UK
The FTSE rose above 6700 points for the first time since June 2007 on the back of stronger commodity prices.
BP’s CEO, Tony Hayward said that he would slash management layers and jobs to reduce “unacceptably high” costs.
There was speculation that Vodafone’s CEO Arun Sarin may resign, sending the stock price soaring.
End note
Investors are back into taking risk. Nowhere is this more evident than the currency markets where the Yen carry trade is back in favour. It seems the optimists and the bulls were back in control this week. Retail sales will be closely watched tonight to ensure that the weak US housing market is not having an impact on the consumer. Steady numbers would give the US Fed no reason to cut interest rates. With 3rd quarter earnings season upon us, the market will start to take its cue from strength or weakness in company earnings.
Happy Investing
Julia Lee
Head of Fundamental Analysis
HUBB Financial Group
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