Investors to take cue from Wall St rally over US jobs growth

AUSTRALIAN investors look set to benefit this week from some of the euphoria seen in the US on Friday after a strong jobs report.

AUSTRALIAN investors look set to benefit this week from some of the euphoria seen in the US on Friday after a strong jobs report, although the public holiday today will probably cause Australian equities to mark time initially.

The US Labour Department’s announcement that 248,000 new jobs were created in September set the Dow on a solid move upwards., closing 208 points, or 1.24 per cent, higher on Friday.

Not only were job numbers growing faster than predicted but unemployment fell to 5.9 per cent, its lowest level since 2008, allowing US dollar bulls to get behind their currency at the prospect of an eventual rise in interest rates.

The local stockmarket is set for a more measured start to the week, with the near-month Share Price Index Futures contract up three points over the weekend after the main market index managed a mere five-point gain in the entire week to close at 5318.2.

The market has now retracted just over 340 points or 6 per cent, from its recent high, set on September 2, of 5658.51 on the S&P/ASX 200 index.

The fall has been closely tied to exchange rate movements, with the market slipping in value with the rise of the greenback, dropping from US93.69c on September 5 to US87.57c now — a slide of 6.12c, or 6.5 per cent.

That is good news in the longer term for most Australian corporates, and less good for US corporates, given that it was the low US dollar that allowed the US economy to recover.

“Investors would be better off in US dollars than US corporates at the moment,’’ said Sydney fund manager John Abernethy of Clime Asset Management.

Damian Hill, chief executive of super fund REST, last week justified his overweighting in non-Australian assets by saying that if there was a global equity pullback, the Australian dollar would also be hit.

Mr Hill’s $34 billion industry fund has more than $10bn of direct offshore exposure.

Analysts say the biggest factor at work in Australia is simply that overseas investors are making their long-awaited pullback from the Australian market, cutting their exposure to mainly blue-chip stocks while loading up on US dollars despite low yields.

The RBA’s meeting tomorrow is unlikely to see rates move from their current level of 2.5 per cent. The current consensus is that any quarter-point move up will happen later rather than sooner.

The riots in Hong Kong have added to the risk-averse mood among global fund managers, pulling the Hang Seng index down 2.6 per cent last week, while European markets had similar drops last week because the European Central Bank’s Thursday ­announcement lacked tangible evidence of major stimulus ­measures.