Risk appetite back as Europe tries to sort out issues; Qantas back in the air today
City Index October 31, 2011 7:38 PM
<p>Asian shares are expected to open slightly ahead as risk tolerance returns to the market. European leaders seem to be working through their issues and […]</p>
Asian shares are expected to open slightly ahead as risk tolerance returns to the market.
European leaders seem to be working through their issues and the market is pleased for now but we think there is perhaps a little too much trust that the issues will be completely contained, addressed and funded.
The market is still fragile and will react to any disappointment significantly, so traders should be cautious amidst the optimism. US jobs remains key to global growth momentum. Market consensus is for jobs to have cooled in October and the unemployment rate to have remained above 9%.
Australian corporate news remains focused on the grounding of Qantas – the national aircraft carrier. The matter has now moved through the appropriate regulatory channels and Qantas planes will resume flying later today.
Qantas shares are expected to open lower but we point out that the share price has already fallen substantially over the past two years and is now trading at a big discount to its book value, almost 50%. There will be some short term earnings pain for Qantas but the business is looking at controlling its cost base – of which labour makes up a large chunk – before it seeks to continue pushing across Asia.
The Qantas issues illustrate the core issue of labour costs in the Australian economy and we think there could be more industrial disputes as companies look to the Qantas case for guidance on their own negotiations.