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US non-farm figures inconclusive – further QE imminent?

Nick Dockerty in CFDs 8 Oct 2010

The expectation but not yet the realisation of further economic stimulus in the US has excited investors this week. And with the US job figures coming in flat, we can expect the argument for more stimulus to gain increasing credibility. 

Despite an unspectacular final week, September turned out all right after all. The FTSE 100 put on 6.6% for the month, Germany’s Dax 5.1% and France’s Cac 6.1%. Even better figures were recorded in the US with the S&P 500 gaining 8.8%, the Dow Jones 7.7% and the Nasdaq 12% – the best September seen in the US since 1939. In Asia, Tokyo’s Nikkei rose 6.2% and Hong Kong’s Hang Seng climbed 8.9%. The Shanghai Composite remaining largely unchanged by gaining only 0.6% being the exception to this trend.  

On Monday the Bank of Japan (BoJ) announced a surprise Y5000 billion asset buying or quantitative easing (QE) programme and added that it will be reducing its interest rate from 0.1% to a range between this figure and zero.
The central bank of Ireland’s estimate of 0.2% growth this year was at odds with its government’s prediction of 1%. Credit-ratings Agency Fitch would downgrade Ireland from AA- to A+ on Wednesday.

In the US on Tuesday, stocks rose to a five-month high as excited investors mulled the prospect of further QE in the US.  The Dow Jones put on 198 points (+1.8%), the Nasdaq 2.3% to 2399 and the S&P 500 2.1% to 1161. Also stimulating appetite was the ISM non-manufacturing figure which climbed to 53.2% in September up from 51.5% in August.
The IMF released its Global Financial Stability Report which described the ‘significant uncertainty’ currently surrounding the global financial system. It called sovereign and bank debt ‘the Achilles’ heel of the economic recovery’ while re-iterating that the ‘ongoing recovery is expected to continue’ and that both policy-makers and banks had made significant steps to address the issue.

The IMF also predicted that the world economy will grow by 4.8% this year but next year growth will slow to 4.2%.
Also on Tuesday, Tesco’s outgoing chief Terry Leahy announced robust half-year results for the group, with global sales figures outshining sluggish UK ones and the second quarter an improvement on the first. The world’s third largest retailer announced trading profit of a touch under £1.7 billion up 9.1% from the same period last year. While trading in the UK remained flat, with like-for-like sales up just 0.4%, the group saw strong growth in Asia, especially Thailand and Korea. In the US, where Tesco has struggled to gain a foothold, total sales were up 47% – Tesco expects to turn profitable in the US during 2012/2013.

Wednesday, and Sainsbury’s, the UK’s third largest grocer, posted like-for-like sales figure rise of 2.1%.
Over in the US the Challenger job cuts report said that 37,151 layoffs were planned in September up from 34,768 in August but much less than the 66,404 from September 2009.

Gold broke yet another record, reaching $1,349.80 as the prospect of further QE and fears of a currency war gathered pace. Meanwhile, silver hit a fresh 30-year high of $23.09 an ounce while copper climbed to a 27-month high of $3.7895 per pound. 

After the BoJ’s earlier announcement and the rumours that the US would be following suit much of the talk before the Bank of England’s (BoE) interest announcement centred around QE. The Monetary Policy Committee said on Thursday that it won’t be expanding its QE programme and kept interest rates at 0.5% for the 19th consecutive month. The minutes of the meeting, due out later this month, will reveal the extent of the level of agreement among the nine committee members.

Alcoa kicked off the US earnings season after the bell on Thursday. The aluminium giant reported a higher-than-expected net income of $61 million and cited healthy demand from Brazil, Russia and India.

The non-farm data revealed that the US lost 95,000 jobs in September, more than August’s 57,000. Private sector jobs rose 64,000 which was a touch lower than expected.



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US non-farm figures inconclusive – further QE imminent?

The expectation but not yet the realisation of further economic stimulus in the US has excited investors this week. And with the US job figures coming in flat, we can expect the argument for more stimulus to gain increasing credibility. 

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