Friday 28 Nov 2014

EUROPE

Economy

Inflation – Nov 2014 (flash estimate) Opinion

Extract

Euro area annual inflation is expected to be 0.3% in November 2014, down from 0.4% in October, according to a flash estimate from Eurostat, the statistical office of the European Union.

Looking at the main components of euro area inflation, services is expected to have the highest annual rate in November (1.1%, compared with 1.2% in October), followed by food, alcohol & tobacco (0.5%, stable compared with October), non-energy industrial goods (0.0%, compared with -0.1% in October) and energy (-2.5%, compared with -2.0% in October).

Eurostat, “Euro area annual inflation down to 0.3%“, 28 Nov 2014 More

Comment

The scale of the disinflation problem facing the ECB becomes increasingly concerning as time progresses. Downward revisions to their inflation and growth forecasts will be key to justifying an expansion of their asset purchase programs.
Colin Bermingham, Economist, BNP Paribas SA (London) More

The only crumb of comfort for the ECB – and it is not much – is that November’s renewed drop in inflation was entirely due to an increased year-on-year drop in energy prices.
Howard Archer, Chief European Economist, IHS Global Insight (London) More

Unemployment – Oct 2014

Extract

The euro area (EA18) seasonally-adjusted unemployment rate was 11.5% in October 2014, stable compared with September 2014 , but down from 11.9% in October 2013. The EU28 unemployment rate was 10.0% in October 2014, also stable compared with September 2014 and down from 10.7% in October 2013.

Eurostat estimates that 24.413 million men and women in the EU28, of whom 18.395 million were in the euro area, were unemployed in October 2014. Compared with September 2014, the number of persons unemployed increased by 42 000 in the EU28 and by 60 000 in the euro area. Compared with October 2013, unemployment fell by 1.549 million in the EU28 and by 547 000 in the euro area.

Member States

Among the Member States, the lowest unemployment rates were recorded in Germany (4.9%) and Austria (5.1%), and the highest in Greece (25.9% in August 2014) and Spain (24.0%).

Compared with a year ago, the unemployment rate in October 2014 fell in twenty-two Member States, increased in five and remained stable in Luxembourg. The largest decreases were registered in Hungary (10.0% to 7.3% between September 2013 and September 2014), Portugal (15.6% to 13.4%), Spain (26.0% to 24.0%), Bulgaria (13.0% to 11.1%) and Greece (27.8% to 25.9% between August 2013 and August 2014), and the highest increases were registered in Italy (12.3% to 13.2%) and Finland (8.3% to 8.9%).

Youth unemployment

In October 2014, 4.983 million young persons (under 25) were unemployed in the EU28, of whom 3.356 million were in the euro area. Compared with October 2013, youth unemployment decreased by 504 000 in the EU28 and by 141000 in the euroarea. In October 2014,the youth unemployment rate was 21.6% in the EU28 and 23.5% in the euro area, compared with 23.3% and 24.0% respectively in October 2013. In October 2014, the lowest rates were observed in Germany (7.7%), the Netherlands (9.7%) and Austria (10.0%), and the highest in Spain (53.8%), Greece (49.3% in August 2014), Italy (43.3%) and Croatia (41.5% in the third quarter 2014).

Eurostat, “Euro area unemployment rate at 11.5%, EU28 at 10.0%“, 28 Nov 2014 More

Comment

Unemployment in Italy, the third largest economy in the eurozone, rose to a record 13.2%, the highest since the quarterly unemployment series began in 1977. Commenting on that, Italian Prime Minister Matteo Renzi said that the increase in the unemployment rate is partly due to more people starting to look actively for a job. “Unemployment data are worrying. We cannot deny the problems out there, still we shouldn’t see the glass half empty either.More

Italy is stuck in a rut of diminishing expectations. Numbed by years of wage freezes, and skeptical the government can improve their economic fortunes, Italians are hoarding what money they have and cutting back on basic purchases.Reuters

USA

Stock market indices Opinion

Today is Black Friday: a short trading day at NYSE and NASDAQ.

Falling oil prices and OPEC’s decision to maintain supply are affecting prices of stocks involved in that industry, dragging market indices down. Nevertheless, the DJIA closed on a record high today while the broader S&P 500 lost a little ground.

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,067.56 -0.25% 1,848.36 +11.86%
DJIA INDU 17,828.24 +0.00% 16,576.66 +7.55%
NASDAQ IXIC 4,791.63 +0.09% 4,176.59 +14.73%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 28 Nov 2014 Watch Read
Comment

Crude seems to have no floor right now, and we could easily see the price drop into the low $60s.
Tony Roth, Chief Investment Officer, Wilmington Trust More

The larger story is the sharp oil-price dip overnight. That’s expected to continue the pressure on the oil majors*, while at the same time giving a fillip both to the consumer – an effective tax cut – and indeed the airlines**.
Richard Hunter, Head of Equities, Hargreaves Lansdown Plc (London) More

* Exxon Mobil fell 4.2%, Chevron fell 5.4%, Schlumberger fell 7.4%, Baker Hughes fell 8.9%, Halliburton fell 11%, and Denbury Resources, QEP Resources and Newfield Exploration each fell more than 15%.
** American Airlines rose 7.9%, Delta Air Lines rose 5.5%, Southwest Airlines Co. rose 6.5%. UPS rose 2.8%.

Retail sales and internet retail sales show yesterday was a good day*. With the drop in oil we think this will be a tremendous holiday season. Investors are going to watch which sectors will be impacted by the decline in oil.
Dan Heckman, National Investment Consultant, U.S. Bank Wealth Management, ($120 billion) More

* Wal-Mart Stores rose 3%, J.C. Penney rose 3.4%, Best Buy rose 1.7% and Amazon.com rose 1.5%.

PORTFOLIO

Index values Opinion

:-) Both of our indices achieved record high close values today.

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.857 +0.06% 1.399 +32.69%
Valuation Rate USD/AUD 0.85587 -0.47% 0.89789 -4.68%
Portfolio Index AUD 2.169 +0.54% 1.558 +39.21%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $118.93 -0.08% $80.1457 +48.39%
Amazon AMZN $338.64 +1.52% $398.79 -15.08%
Ebay EBAY $54.88 +0.57% $54.865 +0.03%
Facebook FB $77.70 +0.10% $54.65 +42.18%
Google A GOOGL $549.08 +0.25% $560.365 -2.01%
Google C GOOG $541.83 +0.27% $560.365 -3.31%
Linkedin LNKD $226.27 -0.03% $216.83 +4.35%
VMware VMW $87.96 -0.36% $89.71 -1.95%

Thanksgiving – 27 Nov 2014

Organization of Petroleum Exporting Countries (OPEC)

Production decision

OPEC Press statement

Extract

The Conference reviewed the oil market outlook, as presented by the Secretary General, in particular supply/demand projections for the first, second, third and fourth quarters of 2015, with emphasis on the first half of the year. The Conference also considered forecasts for the world economic outlook and noted that the global economic recovery was continuing, albeit very slowly and unevenly spread, with growth forecast at 3.2% for 2014 and 3.6% for 2015.

The Conference also noted, importantly, that, although world oil demand is forecast to increase during the year 2015, this will, yet again, be offset by the projected increase of 1.36 mb/d in non-OPEC supply. The increase in oil and product stock levels in OECD countries, where days of forward cover are comfortably above the five-year average, coupled with the on-going rise in non-OECD inventories, are indications of an extremely well-supplied market.

Recording its concern over the rapid decline in oil prices in recent months, the Conference concurred that stable oil prices – at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand – were vital for world economic wellbeing. Accordingly, in the interest of restoring market equilibrium, the Conference decided to maintain the production level of 30.0 mb/d, as was agreed in December 2011. As always, in taking this decision, Member Countries confirmed their readiness to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market.

HE Abdourhman Ataher Al-Ahirish, OPEC President and Libyan Vice Prime Minister for Corporations and Head of its Delegation, “Press statement: OPEC 166th Meeting of OPEC, Vienna, Austria“, 27 Nov 2014 More

Comment

OPEC has chosen to abdicate its role as a swing producer, leaving it to the market to decide what the oil price should be. It wouldn’t be surprising if Brent starts testing $70.
Harry Tchilinguirian, Head of Commodity Markets, BNP Paribas SA (London) More

The change is that it’s no longer Saudi Arabia and OPEC that are going to be managing the supply side of the market. That is so fundamental, it is hard to overstate.
Michael Wittner, Head of Oil Market Research, Societe Generale SA More

OPEC Membership

OPEC meets again on 5 Jun 2015. Its members and current crude oil production levels are:

Crude oil price

WTI Crude Oil Spot Price to 24 Nov 2014 (Chart: MarketWatch)

WTI Crude Oil Spot Price to 24 Nov 2014 (Chart: MarketWatch)

As at 13:00 ET the Light Sweet Crude (West Texas Intermediate) (Jan 2015) price has fallen 6.30% to $69.05/bbl. Brent Crude (Jan 2015) has fallen 6.65% to $72.58. More

Impacts on commodity currencies

The trader’s line “my loss is your gain” applies to oil producers’ currencies.

Russia

Oil prices have added to downward pressures on Russia's rouble over the last 6 months (Chart: xe.com)

Oil prices added to downward pressures on the rouble over the last 6 months (Chart: xe.com)

Norway

Norway's krone has fallen against the USD over the last 6 months (Chart: xe.com)

Norway’s krone has fallen against the USD over the last 6 months (Chart: xe.com)

Australia

Any impact on Australia's dollar has not been felt as of 21:00UTC. (Chart: xe.com)

Any impact on Australia’s dollar has not been felt as of 21:00UTC. (Chart: xe.com)

Impacts on US consumers

For those who do not work in the oil industry, the falling cost of oil is great news. Regular gasoline averaged $2.80 a gallon Thursday, down from $3.29 a year ago, according to AAA, and will almost certainly fall further. More

And the start of the holiday shopping season is a great time for US consumers to have more to spend – provided they feel confident (otherwise they save their gains). Recent surveys (reported yesterday) suggest consumers are confident:

  • Thomson Reuters/University of Michigan’s final November reading on the overall index on consumer sentiment came in at 88.8, its highest reading since July 2007 on a final basis.
  • The Bloomberg Consumer Comfort Index advanced to 40.7 for the period ended 23 Nov 2014 from 38.5. All three components improved last week, with the gauge of views on whether it’s a good time to shop rising to a seven-year high.

World Trade Organization (WTO)

The World Trade Organization adopted the first worldwide trade reform in its history on Thursday, after years of stalemate, months of deadlock and a final day’s delay following an eleventh-hour objection. The agreement means the WTO will introduce new standards for customs checks and border procedures. Proponents say streamlining the flow of trade will add as much as $1 trillion and 21 million jobs to the world economy.Reuters

USA

Thanksgiving is a non-trading day for NASDAQ and NYSE.

The weather in North East USA is easing. Flight cancellations fell from 750 yesterday to 67 today, and delays fell from 4,814 yesterday to 549 today. More

Nightly Business Report: 27 Nov 2014 Watch Read

PORTFOLIO

Index values

Index Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.855 +0.00% 1.399 +32.61%
Valuation Rate USD/AUD 0.85993 +0.01% 0.89789 -4.23%
Portfolio Index AUD 2.158 -0.01% 1.558 +38.46%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Wednesday 26 Nov 2014

USA

Economy

Unemployment Insurance Weekly Claims Report: Week to 22 Nov 2014 Opinion

Jobless claims unexpectedly increased last week by 21,000 to 313,00. Economists had forecast a decrease to 288,000.

Extract

In the week ending November 22, the advance figure for seasonally adjusted initial claims was 313,000, an increase of 21,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 291,000 to 292,000. The 4-week moving average was 294,000, an increase of 6,250 from the previous week’s revised average. The previous week’s average was revised up by 250 from 287,500 to 287,750.

The advance seasonally adjusted insured unemployment rate was 1.7 percent for the week ending November 15, a decrease of 0.1 percentage point from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 15 was 2,316,000, a decrease of 17,000 from the previous week’s revised level. This is the lowest level for insured unemployment since December 9, 2000 when it was 2,263,000. The previous week’s level was revised up 3,000 from 2,330,000 to 2,333,000. The 4-week moving average was 2,352,000, a decrease of 17,750 from the previous week’s revised average. This is the lowest level for this average since January 6, 2001 when it was 2,349,250. The previous week’s average was revised up by 750 from 2,369,000 to 2,369,750.

U.S. Employment and Training Administration, “Unemployment Insurance Weekly Claims Report – Week to 22 Nov 2014“, 26 Nov 2014 (08:30am) More

Comment

Variant winter weather, the floating timing of the Thanksgiving holiday, and preparations for the holiday-shopping season that differ from prior years tend to make historical comparisons difficult. Volatility will probably continue to be elevated until the end of the year, but we expect that claims will drift lower again.
Thomas Simons, Economist, Jefferies LLC More

Advance report on durable goods – Oct 2014 Opinion

Extract

New Orders

New orders for manufactured durable goods in October increased $1.0 billion or 0.4 percent to $243.8 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 0.9 percent September decrease. Excluding transportation, new orders decreased 0.9 percent. Excluding defense, new orders decreased 0.6 percent.
Transportation equipment, also up following two consecutive monthly decreases, drove the increase, $2.5 billion or 3.4 percent to $76.3 billion.

Shipments

Shipments of manufactured durable goods in October, up four of the last five months, increased $0.3 billion or 0.1 percent to $246.5 billion. This followed a 0.3 percent September increase.
Transportation equipment, also up four of the last five months, drove the increase, $0.4 billion or 0.5 percent to $72.9 billion.

Unfilled Orders

Unfilled orders for manufactured durable goods in October, up eighteen of the last nineteen months, increased $5.0 billion or 0.4 percent to $1,174.0 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent September increase.
Transportation equipment, up thirteen of the last fourteen months, led the increase, $3.4 billion or 0.5 percent to $746.3 billion.

Inventories

Inventories of manufactured durable goods in October, up eighteen of the last nineteen months, increased $2.0 billion or 0.5 percent to $406.8 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 0.5 percent September increase.
Transportation equipment, also up eighteen of the last nineteen months, led the increase, $0.9 billion or 0.7 percent to $131.7 billion.

Capital Goods

Nondefense new orders for capital goods in October decreased $0.1 billion or 0.1 percent to $82.2 billion. Shipments decreased $0.6 billion or 0.8 percent to $80.1 billion. Unfilled orders increased $2.1 billion or 0.3 percent to $735.1 billion. Inventories increased $0.9 billion or 0.5 percent to $185.9 billion.
Defense new orders for capital goods in October increased $1.1 billion or 11.2 percent to $10.5 billion. Shipments increased $0.1 billion or 1.4 percent to $9.8 billion. Unfilled orders increased $0.7 billion or 0.4 percent to $158.6 billion. Inventories increased $0.2 billion or 1.0 percent to $23.9 billion.

US Census Bureau, “Advance report on durable goods – Oct 2014“, 26 Nov 2014 (08:30) More

Personal income and outlays – Oct 2014 Opinion

Extract

Personal income increased $32.9 billion, or 0.2 percent, and disposable personal income (DPI) increased $23.4 billion, or 0.2 percent, in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $27.3 billion, or 0.2 percent. In September, personal income increased $24.6 billion, or 0.2 percent, DPI increased $17.2 billion, or 0.1 percent, and PCE increased $4.1 billion, or less than 0.1 percent, based on revised estimates.

Real DPI increased 0.1 percent in October, the same increase as in September. Real PCE increased 0.2 percent in October, in contrast to a decrease of less than 0.1 percent in September

Bureau of Economic Analysis, “Personal income and outlays – Oct 2014“, 26 Nov 2014 (08:30) More

New residential sales – Oct 2014 Opinion

Extract

Sales of new single-family houses in October 2014 were at a seasonally adjusted annual rate of 458,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent (±16.5%) above the revised September rate of 455,000 and is 1.8 percent (±17.4%) above the October 2013 estimate of 450,000.

The median sales price of new houses sold in October 2014 was $305,000; the average sales price was $401,100. The seasonally adjusted estimate of new houses for sale at the end of October was 212,000. This represents a supply of 5.6 months at the current sales rate.

US Census Bureau, “New residential sales – Oct 2014“, 26 Nov 2014 (10:00) More

Pending home sales – Oct 2014 Opinion

Extract

Pending home sales declined in October but remained at a healthy level of activity and are above year-over-year levels for the second straight month, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 1.1 percent to 104.1 in October from an upwardly-revised 105.3 in September, but is 2.2 percent higher than October 2013 (101.9). The index is above 100—considered an average level of contract activity—for the sixth consecutive month.

National Association of Realtors, “Pending Home Sales Slow in October but Remain Higher Than a Year Ago“, 26 Nov 2014 (10:00) More

Consumer confidence – Final – Oct 2014 Opinion

Extract

The Thomson Reuters/University of Michigan’s final November reading on the overall index on consumer sentiment came in at 88.8, its highest reading since July 2007 on a final basis. The reading was up from the 86.9 the month before but slightly below the preliminary reading of 89.4.

The survey’s barometer of current economic conditions rose to 102.7 from 98.3, just below a forecast of 103.0.

The survey’s gauge of consumer expectations edged up to 79.9 from the 79.6 in October and was short of the expected 80.8.

The survey’s one-year inflation expectation slipped to 2.8 percent, the lowest year-ahead inflation rate expected since October 2010, from the 2.9 percent in the prior month. The survey’s five-to-10-year inflation outlook was at 2.6 percent from 2.8 percent in October.

Thomson Reuters-University of Michigan, “Consumer confidence – Final – Oct 2014“, 26 Nov 2014 (09:55) More

Consumer comfort index Opinion

Extract

The Bloomberg Consumer Comfort Index advanced to 40.7 for the period ended Nov. 23 from 38.5, according to a report today. All three components improved last week, with the gauge of views on whether it’s a good time to shop rising to a seven-year high.

Today’s sentiment report showed the buying-climate measure, which asks whether this is a good time to purchase goods and services, increased to 35.1, the highest since November 2007, before the last recession began, from 32.8 the prior period.

The gauge of personal finances advanced to 56.1, the highest since April 2008, from 54.4. Bloomberg’s weekly measure about the state of the economy climbed to 30.9, the highest since January 2008, from 28.2 the prior week.

Bloomberg, “Consumer Comfort in U.S. Rises to Highest Level Since 2007“, 26 Nov 2014 More

Stock market indices Opinion

Today is the last trading day before Thanksgiving and a short trading day on Black Friday.

Investors would be giving thanks for new records for the S&P 500 and DJIA indices today. The NASDAQ Composite achieved a 14 year high as it works its way back to its 10 Mar 2000 record close of 5,048.62. All it would take to reach that record is a rise of 5.5%.

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,072.83 +0.28% 1,848.36 +12.14%
DJIA INDU 17,827.75 +0.07% 16,576.66 +7.55%
NASDAQ IXIC 4,787.32 +0.61% 4,176.59 +14.62%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 26 Nov 2014 Watch Read
Comment

Momentum is weakening in the fourth quarter. While there is no reason to be pessimistic, it curbs some of the enthusiasm we had seen after the strong growth of the past two quarters.
Thomas Costerg, Economist, Standard Chartered Bank More

Economic numbers in general have been good, and that optimism is following through. It could be a good retail season, and low gas prices are making a difference.
Richard Sichel, Chief Investment Officer. Philadelphia Trust Co. ($2 billion) More

PORTFOLIO

Index values Opinion

:-) Both of our indices achieved record high close values today. We’re rooting for our USD index, currently at 1.855, to rise to a stretch target of 2.000. That requires a rise of 7.8%

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.855 +1.02% 1.399 +32.61%
Valuation Rate USD/AUD 0.85988 +0.22% 0.89789 -4.23%
Portfolio Index AUD 2.158 +0.80% 1.558 +38.47%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

:-) A record close price for Apple.

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $119.00 +1.19% $80.1457 +48.48%
Amazon AMZN $333.57 -0.44% $398.79 -16.35%
Ebay EBAY $54.57 +0.31% $54.865 -0.54%
Facebook FB $77.62 +2.63% $54.65 +42.03%
Google A GOOGL $547.73 -0.27% $560.365 -2.25%
Google C GOOG $540.37 -0.13% $560.365 -3.57%
Linkedin LNKD $226.34 +0.89% $216.83 +4.39%
VMware VMW $86.91 +1.58% $89.71 -1.59%

FX: USD/AUD

Iron ore price falls to 5-year low

Extract

Iron ore extended a retreat below $US70 a metric ton to the lowest level in more than five years as global supplies of the steel-making raw material are poised to swell just as economic growth in China is slowing. Ore with 62 per cent content delivered to Qingdao in China declined 1.6 per cent to $US68.49 a dry ton today, the lowest since June 2009, according to Metal Bulletin Ltd. The commodity used to make steel slumped 49 per cent this year after plunging into a bear market in March as output climbed.AFR

Low iron ore and crude oil prices saw the AUD fall below USD0.85 to USD0.84827 during the day.

The AUD fell below USD0.85 today (Chart: xe.com)

The AUD fell below USD0.85 today (Chart: xe.com)

Tuesday 25 Nov 2014

One month to Christmas: Melbourne, Australia

One month to Christmas: Melbourne, Australia

CHINA

Economy

PBOC cuts short term money rate Opinion

Today the People’s Bank of China (PBOC) cut the yield on the 14-day bond repurchase agreement (repo) to 3.2%, from 3.4%.

Government insiders told Reuters that concerns about debt loads at Chinese firms, combined with fears of deflationary risks, have triggered a change in attitudes, and regulators are now considering embarking on a longer loosening cycle that could even include a cut to bank reserve requirement ratios, which would flood markets with fresh cash.More

USA

Economy

Gross Domestic Product – Q3 2014 (second estimate) Opinion

In Q3 2014 GDP increased at an annual rate of 3.9%, better than the initial estimate of 3.5% and the expected rate of 3.3%. The boost comes from a greater than expected rise in consumer spending and an increase in reported business investment.

Extract

Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 3.9 percent in the third quarter of 2014, according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent. With the second estimate for the third quarter, private inventory investment decreased less than previously estimated, and both personal consumption expenditures (PCE) and nonresidential fixed investment increased more. In contrast, exports increased less than previously estimated.

The increase in real GDP in the third quarter reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The deceleration in the percent change in real GDP reflected a downturn in private inventory investment and decelerations in exports, in nonresidential fixed investment, in state and local government spending, in PCE, and in residential fixed investment that were partly offset by a downturn in imports and an upturn in federal government spending.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.4 percent in the third quarter, 0.1 percentage point more than in the advance estimate; this index increased 2.0 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.6 percent in the third quarter, compared with an increase of 1.7 percent in the second.

Bureau of Economic Analysis, “Gross Domestic Product, 3rd quarter 2014 (second estimate)“, 25 Nov 2014 (08:30) More

Comment

The upward revision was almost exclusively due to much stronger buying by consumers. I find that very encouraging coming into the commercial side of the holiday seasons.
Carl R. Tannenbaum, Chief Economist, Northern Trust Company. More

Conference Board consumer confidence index – Nov 2014 Opinion

Extract

The Conference Board Consumer Confidence Index®, which had rebounded in October, declined in November. The Index now stands at 88.7 (1985=100), down from 94.1 in October. The Present Situation Index declined from 94.4 to 91.3, while the Expectations Index decreased sharply to 87.0 from 93.8 in October.

Conference Board, “Conference Board consumer confidence index – Nov 2014“, 25 Nov 2014 (10:00) More

Comment

This doesn’t change our view that the trend in consumer confidence is moving upwards. Gasoline prices are down, the unemployment rate is down, home prices are gradually rising, and stock prices are certainly rising.
David Kelly, Chief Global Strategist, JPMorgan Funds More

S&P/Case-Shiller 20-City Composite House Price Index – Sep 2014 Opinion

Extract

S&P Dow Jones Indices today released the September 2014 index data for the S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices. Results show that home prices continue to decelerate. The 10-City Composite gained 4.8% year-over-year, down from 5.5% in August. The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August. The National and Composite Indices were both slightly negative in September. Both the 10 and 20-City Composites reported a slight downturn while the National Index posted a -0.1% change for the month.

S&P/Case-Shiller, “Broad-based Slowdown for Home Prices According to the S&P/Case-Shiller Home Price Indices“, 25 Nov 2014 More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,067.03 -0.12% 1,848.36 +11.83%
DJIA INDU 17,814.94 -0.02% 16,576.66 +7.47%
NASDAQ IXIC 4,758.25 +0.07% 4,176.59 +13.93%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 25 Nov 2014 Watch Read
Comment

Sentiment is probably optimistic, but cautious. Part of the reason for that is that stocks have had a powerful run. Any time you have a bull market run like this, you tend to be more selective.
Erik Wytenus, Global Investment Specialist, JPMorgan Private Bank ($1.052 trillion) More

The Q3 GDP number is backward-looking, and therefore the market has taken a gigantic yawn to it. Portfolio managers and traders are squaring their books going into the holiday weekend – speculators don’t want to get caught in a tornado.
Chad Morganlander, Money Manager, Stifel Nicolaus & Co.($160 billion) More

PORTFOLIO

Index values Opinion

Our AUD index closed on a record high today.

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.837 -0.47% 1.399 +31.27%
Valuation Rate USD/AUD 0.85802 -0.96% 0.89789 -4.44%
Portfolio Index AUD 2.141 +0.50% 1.558 +37.37%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

 Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)


Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock news

Apple achieves a $700bn valuation

Apple share price over the last 5 years (Chart: Yahoo Finance)

Apple share price over the last 5 years (Chart: Yahoo Finance)

Apple peaked at $119.75 this morning, achieving a market capitalization of $701.74 billion. It remains the world’s largest listed company, with Exxon Mobil Corp in second place, valued at $400.86bn. More

Comment

Given Apple’s significant portfolio refresh over the past three months, the lack of innovation from competitors and a constructive spending backdrop in the U.S. market, we believe Apple has opportunity to shine bright this holiday season.
Brian White, Analyst, Cantor Fitzgerald More

If you look at Apple as a tech company, it’s one of the most exciting out there with a solid revenue earnings stream going forward.
Oliver Pursche, President, Gary Goldberg Financial Services ($925m) More

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $117.60 -0.86% $80.1457 +46.73%
Amazon AMZN $335.04 -0.18% $398.79 -15.99%
Ebay EBAY $54.40 +0.02% $54.865 -0.85%
Facebook FB $75.63 +2.19% $54.65 +38.39%
Google A GOOGL $549.23 +0.32% $560.365 -1.99%
Google C GOOG $541.08 +0.34% $560.365 -3.44%
Linkedin LNKD $224.35 +1.17% $216.83 +3.47%
VMware VMW $86.91 +2.30% $89.71 -3.12%

FX: USD/AUD

Surging output from Rio Tinto Group, BHP Billiton and Vale, coinciding with reduced demand from China, has produced a glut of iron ore, leading to a 48% fall in ore prices More There has also been an oversupply of oil, leading to competition between oil producers and a fall in oil prices More

Commodity currencies, such as the AUD, have been sold down against a strengthening USD.

:-) This, of course, boosts the performance of our AUD-denominated portfolio – an expected outcome of our portfolio strategy.

The AUD continues its fall against the USD (6-month chart: XE.com)

The AUD has fallen 9% against the USD since 9 Sep 2014 (6-month chart: XE.com)

Reserve Bank of Australia perspective

It is important to recognise that the exchange rate, wages and the return to saving each also play a key role in how the economy is performing at any point in time.

In terms of the exchange rate, the RBA has been saying for a while now that a lower value of the Australian dollar would be helpful from an overall macroeconomic perspective. If the exchange rate is to play its important stabilising role, it needs to go down when the terms of trade and investment are declining, just as it went up when the terms of trade and investment were rising. To date, as we expected, we have seen some adjustment, but if our assessment of the fundamentals is correct we would expect to see more in time.

In terms of wages, there is sometimes commentary bemoaning their high level in Australia. There are, no doubt, certain areas where wages are very high and working conditions are highly favourable and some adjustment is likely to be required. But it is also useful to recall that over the past two decades or so, aggregate wage outcomes have been consistent with the inflation target and with a trend decline in the unemployment rate. They have also been associated with a fairly low share of wages in national income. While we need to pay close attention to overall labour costs, these observations point to the conclusion that concerns about the overall level of wages in Australia are, to some extent, really concerns about the exchange rate, with the high exchange rate leading to high wages expressed in foreign currency terms. A lower exchange rate would obviously make a difference to these comparisons.

In terms of the return to saving, it is currently very low. As I spoke about last month, this largely reflects global factors. A lack of investment around the world, relative to people’s desire to save, means that savers everywhere are being offered low returns on their savings in bank accounts. This is causing them to look elsewhere, which, in turn, is pushing up the price of existing assets.

So from a cyclical perspective – and largely as a result of global factors – our exchange rate is unusually high and, at the same time, savers are being offered unusually low returns. Of course, Australia is not unique in being in this position. And this particular configuration is causing complications for macroeconomic management here as well as in a number of other countries.
But as we deal with these complications we should not lose sight of the longer-term challenge of building a highly productive, globally competitive economy.

We should have some confidence that we are able to do this. We certainly have a number of strong foundations that provide the basis for this optimism. The question is how well we can use those foundations over the years ahead.

Philip Lowe, Deputy Governor, Reserve Bank of Australia, Extract from an “Address to the Australian Business Economists (ABE) Annual Dinner“, Sydney – 25 November 2014 More

Monday 24 Nov 2014

GERMANY

Economy

Ifo business climate index – Nov 2014 Opinion

The Ifo institute’s business climate index rose to 104.7 in Nov 2014 from 103.2 in Oct 2014 More Economists had expected a decline from October’s number Reuters

Extract

Ifo Institute business climate index (Chart: Ifo)

The Ifo Business Climate Index for industry and trade in Germany rose in November to 104.7 points from 103.2 points in October. The business climate previously deteriorated six times in a row. Assessments of the current business situation are slightly more favourable than last month. Expectations with regard to the months ahead are also brighter. The downturn in the German economy has ground to a halt for the moment at least.

In manufacturing the business climate indicator rose after six consecutive decreases. Manufacturers are more satisfied with their current business situation. They are also somewhat less pessimistic about their business outlook. Manufacturers continue to expect further stimuli from export business.

In wholesaling the business climate improved markedly. Wholesalers assess their current business situation as significantly better. Business expectations turned slightly positive. The business climate also brightened in retailing. Thanks to a marginal improvement in the current business situation, positive and negative assessments are now balanced. Retailers are far less pessimistic about future business developments.

In construction the overall favourable current business situation deteriorated only marginally. The marked improvement in business expectations is typical for this time of the year.

Hans-Werner Sinn, President, Ifo Institute More

CHINA

Economy

Markit China Business Outlook Opinion

Extract

China business activity future expectations

The Markit Business Outlook Survey, which looks at expectations for the year ahead, signals further optimism at Chinese companies in October. A net balance of +26 percent of firms forecast a rise in activity over the coming year, up from +24 percent in June. Despite improving from the previous outlook survey, the net balance remains below the series long run trend, and is slightly lower than both global and BRIC averages (+28 percent and +27 percent respectively).

The improvement in overall sentiment was largely driven by service providers, where the net balance of companies expecting growth of activity increased from +20 percent in June to +27 percent in October. Furthermore, this is the highest net balance recorded for the sector in over a year-and-a-half. Panellists suggest that supportive state policies and expectations of stronger client demand are key factors that will boost activity over the next 12 months.

Meanwhile, the net balance of companies anticipating activity growth in the manufacturing sector dipped to a one-year low in October (+25 percent), with a number of respondents citing an uncertain global economic outlook.

Overall confidence towards business revenues over the next 12 months improved slightly in October, while forecasts of profits growth were little-changed from June’s outlook survey. Sector data signalled divergent trends, with sentiment towards business revenues and profits strengthening across the service sector, but moderating at manufacturers.

Employment set to rise

Chinese companies forecast an expansion of staff numbers over the next year, and at a slightly quicker rate than that expected in June’s outlook survey period. A net balance of +11 percent of companies expect to raise their workforce numbers over the next year, compared with +8 percent in the summer.

Markit Economics, “Markit China Business Outlook“, 24 Nov 2014 More

USA

Economy

Markit U.S. Business Outlook Opinion

Extract

The Markit Business Outlook Survey, which looks at expectations for the year ahead across 650 US private sector companies, indicated that corporate sentiment eased to a post-crisis low in the latest outlook period.

At +31.2 percent, the net balance of firms expecting a rise in activity over the coming 12 months was down from +51.4 percent in the previous survey conducted in the summer. Moreover, the latest reading is the lowest seen since the survey began five years ago.

… manufacturers are much more upbeat about future output levels (+42.5 percent), than service providers (+28.9 percent).

Markit Economics, “Markit U.S. Business Outlook“, 24 Nov 2014 More

Markit Flash U.S. Services PMI™ – Nov 2014 Opinion

Extract

The seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index – which is based on approximately 85% of usual monthly replies – registered 56.3 in November, down from 57.1 in the previous month and the lowest reading since April. Moreover, the index has now pointed to softer growth of business activity in each of the past five months, to signal a sustained loss of momentum since the post-crisis peak seen in June.

Weaker service sector output growth largely reflected a moderation in new business gains during November. The latest rise in incoming new work was the slowest for seven months and slightly less marked than the average seen since the survey began in October 2009. Some survey respondents commented on weaker client confidence and associated delays to the launch of new projects.

Meanwhile, unfinished work increased across the service economy for the fourth month running in November. The current period of sustained backlog accumulation is the longest since 2012/13, suggesting continued pressure on operating capacity. This in turn supported employment growth during the latest survey period, with the pace of job creation accelerating to a five-month high in November.

Increased payroll numbers also reflected an upturn in confidence towards the business outlook. More than half of the survey panel anticipate a rise in business activity over the year ahead, and the overall degree of confidence picked up since October to its strongest for five months. November data signalled that service sector input cost inflation moderated for the third month running and was below the survey average. Prices charged by service providers increased at a slower pace in November, with the rate of inflation easing to its lowest since July.

Markit Economics, “Markit U.S. Business Outlook“, 24 Nov 2014 More

Middle class household income increasing Opinion

A Goldman Sachs report (13 Nov 2014) states that total income (real terms) for those making less than $12.50 an hour rose 3.8% in the year through Oct 2014 on a 3-month average. More And their spending power is increasing as fuel costs continue to fall.

Comment

For the first time, real paychecks of households in the middle class are not getting smaller anymore – they’re getting incrementally bigger. This puts a little more strength behind consumer spending because you’re not very dependent on a small core of very wealthy households to power the recovery.
Guy Berger, U.S. Economist, RBS Securities More

Lower gas prices come at an opportune time. If you combine stronger wage growth with ongoing payroll growth, higher confidence and that extra kick from lower gas prices, then you’re set for a fairly strong holiday season and more importantly stronger momentum for consumer spending heading into 2015.
Gregory Daco, Lead U.S. economist, Oxford Economics USA Inc. More

Stock market indices Opinion

The S&P 500 and DJIA indices closed on record highs.

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,069.41 +0.29% 1,848.36 +11.96%
DJIA INDU 17,817.90 +0.04% 16,576.66 +7.49%
NASDAQ IXIC 4,754.89 +0.89% 4,176.59 +13.85%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 24 Nov 2014 Watch Read
Comment

We’re seeing a carryover from last week’s comments made by Draghi trying to address the inflation in Europe, and the actions from the Chinese central bank to lower lending rates. You’ve gotten some good economic news and earnings reports. The market has more upside potential.
Robert Pavlik, Chief Market Strategist, Banyan Partners LLC ($4.5 billion) More

PORTFOLIO

Index values Opinion

Our USD and AUD indices closed on record highs today.

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.845 +1.50% 1.399 +31.89%
Valuation Rate USD/AUD 0.86635 -0.61% 0.89789 -3.51%
Portfolio Index AUD 2.130 +2.13% 1.558 +36.69%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock prices

Apple closed on a record high today.

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $118.625 +1.85% $80.1457 +48.01%
Amazon AMZN $335.64 +0.90% $398.79 -15.84%
Ebay EBAY $54.39 -0.06% $54.865 -0.87%
Facebook FB $73.99 +0.33% $54.65 +35.43%
Google A GOOGL $547.48 +0.29% $560.365 -2.30%
Google C GOOG $539.27 +0.33% $560.365 -3.76%
Linkedin LNKD $221.995 +1.22% $216.83 +2.27%
VMware VMW $84.95 -0.35% $89.71 -5.29%

Week 17-23 Nov 2014

SCIENCE

Update on Philae, Rosetta’s comet lander << Previous

It appears that Philae is not awake – the hope is that as the comet nears the sun, the brighter light will recharge Philae’s battery. Philae’s closest approach to the Sun occurs 13 Aug 2015. One just hopes that as surface activity increases, Philae’s solar panels don’t get covered in dust.

Philae was active on the comet’s surface for 60 hours. Data transmitted before Philae shut down is being analysed. One possible finding is that the comet contains organic matter. More

CHINA

PBOC open to further stimulus Impact

Reuters reports that a senior economist at a government think-tank involved in internal policy discussions has said that the People’s Bank of China had shifted its focus toward broad-based stimulus and were open to more rate cuts as well as a cut to the banking industry’s reserve requirement ratio (RRR), which effectively restricts the amount of capital available to fund loans. Economists are concerned that employment and confidence may be affected if GDP falls below 7% next year. They are also concerned about the risk of deflation. More

China may need 1,000 nuclear power plants to achieve its carbon emissions target disagree

At G20 last week, China’s President Xi Jinping committed to an agreement with US President Barack Obama to cap China’s carbon emissions by 2030 and turn to renewable sources for 20 percent of the country’s energy. Bloomberg estimates that this would require “about 1,000 nuclear reactors, 500,000 wind turbines or 50,000 solar farms.More That’s some capex program – but then Obama (or his successor) may yet face a challenge from Congress on USA’s commitment.

USA

A short week ahead

The holiday shopping season starts this week:

  • Thanksgiving (Thursday): 27 Nov 2014 (Black Friday business is migrating forward into Thanksgiving More)
  • Black Friday: 28 Nov 2014
  • Cyber Monday: 1 Dec 2014 (online shopping event)

The NYSE and NASDAQ are closed on Thanksgiving, and close at 1:00pm on Black Friday More

Shopping season risks

Weather

There’s some risk that the shopping season in North West USA’s snowbelt may be affected by recent lake effect show storm (“Knife”) which has delivered snowfalls of up to 7 feet, leading to the deaths of 13 people Watch CNN With warmer temperatures there is a further risk of flooding from thawing snow and/or lake effect rain More The Buffalo, NY area is under flood watch until Wednesday Read Watch USA Today

Shopper caution

Real average hourly earnings increased 0.4%, seasonally adjusted, over the 12 months to October
2014. More Households experiencing low, if any, real increase in income this year are less likely to increase spending this season Watch Reuters However the recent fall in oil price has driven a fall in fuel prices, increasing households’ spending power.

US market indices Impact

US stocks posted a fifth straight week of gains this week, record high closes for the S&P500 and DJIA indices.

Index 21 Nov 2014 Week 14 Nov 2014 Month 31 Oct 2014 Year 31 Dec 13
S&P 500 2,063.50 +1.16% 2,039.82 +2.25% 2,018.05 +11.64% 1,848.36
DJIA 17,810.06 +0.99% 17,634.74 +2.41% 17,390.52 +7.44% 16,576.66
NASDAQ 4,712.97 +0.52% 4,688.54 +1.78% 4,630.74 +12.84% 4,176.59

The shape of the week

S&P500, DJIA and NASDAQ index performance this week (Chart: Yahoo Finance)

S&P500, DJIA and NASDAQ index performance this week (Chart: Yahoo Finance)

Is the market getting overvalued?

S&P500 1-year forward P/E (Chart: The Age)

S&P500 1-year forward P/E (Chart: The Age) More

Last year, almost the entire growth in the S&P came from multiple expansion, this year it has been much more earnings driven and we think it has the potential to go higher based on the growth of the earnings. Forward price-to-earnings ratio on the S&P500 is 17.08x, just a few clicks above the long-term average of 16.73. Earnings are good, they continue to grow. Valuation, right now, going forward is going to be much more a function of the earnings power than the multiple.
Matt Rubin, Chief Investment Officer, Neuberger Berman More

What if …?

But if people were to to decide that the market is overvalued, how would the trigger be pulled on a selloff? It might work something like these clips from the movie “Margin Call” Deciding (YouTube) Implementing (YouTube). Yes, there are consequences Senate (YouTube), but the company that pulls the trigger survives, while the average retail investor loses.

And remember the advice Sky Masterson’s father gave him: “One of these days in your travels a guy is going to come up to you and show you a nice brand-new deck of cards on which the seal is not yet broken, and this guy is going to offer to bet you that he can make the Jack of Spades jump out of the deck and squirt cider in your ear. But, son, do not bet this man, for as sure as you are standing there, you are going to end up with an earful of cider.Watch

Author’s message

To survive and be successful, investors have to be diligent, vigilant, and ahead of the game – or leave their money in a bank that is “too large to fail”.

PORTFOLIO

:-) Our USD-denominated closed above 1.800, with a record value of 1.818.
:-) Our AUD-denominated index broke through 2.100 for the first time on Thursday, but closed the week a little lower at 2.086.

Long term (52-week) performance Impact

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

This week’s performance Impact

Index 21 Nov 2014 Week 14 Nov 2014 Month 31 Oct 2014 Year 31 Dec 13
USD Index 1.818 +1.17% 1.797 +5.76% 1.719 +29.95% 1.399
Valuation USD/AUD 0.87166 -1.04% 0.88082 -1.51% 0.88505 -2.92% 0.89789
AUD Index 2.086 +2.25% 2.040 +7.47% 1.941 +33.89% 1.558

Portfolio stocks

Apple AAPL +2.01%

:-) Apple closed the week on an all-time high.

AAPL share price performance this week (Chart: Yahoo Finance)

AAPL share price performance this week (Chart: Yahoo Finance)

Amazon AMZN +1.51%

AMZN share price performance this week (Chart: Yahoo Finance)

AMZN share price performance this week (Chart: Yahoo Finance)

Ebay EBAY +0.11%

EBAY share price performance this week (Chart: Yahoo Finance)

EBAY share price performance this week (Chart: Yahoo Finance)

Facebook FB -1.51%

FB share price performance this week (Chart: Yahoo Finance)

FB share price performance this week (Chart: Yahoo Finance)

Google Class A GOOGL -1.68%

GOOGL share price performance this week (Chart: Yahoo Finance)

GOOGL share price performance this week (Chart: Yahoo Finance)

  • Friday close: $545.89 -1.68% from $555.19.
  • P/E (historical): 28.63 Change from 29.11
  • P/E (1 year fwd): 25.83 Change from 26.36
  • Target (1 year): NASDAQ consensus $650, range $530 ↔ $750.
  • SEC filings (CIK 0001288776): Edgar Search (New, Beta)

Google Class C GOOG -1.27%

GOOG  share price performance this week (Chart: Yahoo Finance)

GOOG share price performance this week (Chart: Yahoo Finance)

  • Friday close: $537.50 -1.27% from $544.40.
  • P/E (historical): 22.38 Change from 22.68
  • Analyst recommendations: 8 strong buy, 3 buy, 0 hold.

Linkedin LNKD -6.33%

LNKD  share price performance this week (Chart: Yahoo Finance)

LNKD share price performance this week (Chart: Yahoo Finance)

VMware VMW -1.24%

vmw_20141122

USD/AUD

USD/AUD over the last week (Chart: xe.com)

USD/AUD over the last week (Chart: xe.com)

Friday 21 Nov 2014

Diamond Princess visiting Port Melbourne today

Diamond Princess visiting Port Melbourne today

CHINA

Economy

PBOC cuts deposit rates Opinion

The Peoples’ Bank of China (PBOC) Monetary Policy Committee has announced the following interest rate reductions, effective tomorrow (2 Nov 2014):

  • one-year deposit rate reduced by 25bp to 2.75%, and
  • one-year lending rate reduced by 40bp to 5.6%, the first reduction since Jul 2012.

The lending rate averaged 6.40% from 1996 to 2014, with a high of 10.98% in Jun 1996 and low of 5.31% in Feb 2002.

Comment

Disinflationary pressures remain strong and the labour market showed further signs of weakening. We still see uncertainties in the months ahead from the property market and on the export front. We think growth still faces significant downward pressures, and more monetary and fiscal easing measures should be deployed.
Qu Hongbin, Chief China Economist, HSBC More

They are cutting rates and liberalising rates at the same time so that the stimulus won’t be so damaging.
Li Huiyong, Economist, Shenyin and Wanguo Securities More

It’s absolutely the right thing to do. Real interest rates have moved up significantly with slowing growth and inflation, which hurts corporate cash flow and balance sheet and threatens to increase non-performing loans.
Wang Tao, Chief China Economist, UBS AG (HK) More

It’s a surprise, another Friday night special. It may not have a major impact on GDP growth – that depends on if policy makers also allow the rate of credit growth to pick up.
Mark Williams, Chief Asia Economist, Capital Economics (London) More

The rate cut clearly signals that China’s central bank has changed its monetary policy stance to a more accommodative one. The conditions for further policy easing are ripe.
Li-Gang Liu and Hao Zhou, Economists, Australia & New Zealand Banking Group Ltd. (Shanghai) More

EUROPE

Economy

ECB Monetary Policy Statement

Extract

The current situation in the euro area

Two and a half years ago, the euro area faced a very bleak situation. We had a fragmented financial system, a banking sector that would not lend and an economy in recession. European economies were on diverging but generally downward paths.

Since then governments and the ECB have taken several steps to address fragmentation, and the financial situation in the euro area has improved dramatically. Spreads on government bonds have fallen on average by 3 percentage points. Interest rates on corporate and bank bonds have also converged substantially. And the fragmentation of financial flows across borders has receded, although it is still higher in some markets than it was before the crisis.

The process of cleaning up the banking sector has also advanced considerably. In particular, our Comprehensive Assessment has encouraged banks to frontload their balance sheet repair and recapitalisation efforts, as well as identifying €25bn in capital shortfalls and imposing important prudential requirements. All this increases confidence in the sector and puts euro area banks in a better position to restart lending to the real economy.

Nevertheless, these positive developments in the financial sphere have not transferred fully into the economic sphere. The economic situation in the euro area remains difficult. The euro area exited recession in the second quarter of 2013, but underlying growth momentum remains weak. Unemployment is only falling very slowly. And confidence in our overall economic prospects is fragile and easily disrupted, feeding into low investment.

Indeed, the latest flash euro area Purchasing Managers Index released yesterday suggests a stronger recovery is unlikely in the coming months, with new orders falling for the first time since July 2013.

In this context, the inflation situation in the euro area has also become increasingly challenging. Headline inflation has fallen significantly over the last year. Last November, it still stood at 0.9%. This was low, but it was generally expected to rise safely above 1% by now. Instead, the latest reading for headline inflation is 0.4%.

This downward movement of inflation was primarily driven by declines in energy and food price inflation, which are two components that tend to be volatile and whose effects are typically temporary. So to some extent the ECB could “look through” them. Indeed, in our current environment low energy and food prices give valuable support to economic activity by raising real disposable incomes.

But we also see that core inflation is low – the inflation rate that strips out these volatile and temporary components. The annual rate of change in core inflation has been consistently below 1% over the past year, with the latest reading for October at 0.7%. A low reading for core inflation for such a period of time indicates that it is not only temporary factors that are operative: underlying demand weakness is also playing a role.

Indeed, we have clear signs from survey data that weak demand is contributing to low pricing power among firms. We also know that with high unemployment in many euro area countries workers have less power to negotiate higher wages, which reduces inflation pressures. Compensation per employee increased by only 1.1% year-on-year in the second quarter of this year, the lowest increase in three years.

We have had low headline inflation in the past driven by energy prices – it was even negative in 2009. But at that time, core inflation was already moving upwards as the economy was rebounding, which provided us with comfort that inflation would pick up over the medium-term. This time around, the overall picture is different.

So we cannot be complacent – we have to be very watchful that low inflation does not start percolating through the economy in ways that further worsen the economic situation and inflation outlook. There are several channels through which low inflation can have this effect, including by complicating relative price adjustment between euro area countries, and worsening the effects of the debt overhang that prevails in parts of the euro area.

But a channel I particularly want to focus on is the risk that a too prolonged period of low inflation becomes embedded in inflation expectations. The firm anchoring of inflation expectations is critical under any circumstances, as it ensures that temporary movements in inflation do not feed into wages and prices and hence become permanent. But it is even more critical in the circumstances we face today.

This is because if inflation expectations fall, the real interest rate rises, which is the interest rate that matters most for investment decisions. And because nominal short-term rates in the euro area have already reached the effective lower bound, they cannot be adjusted downwards further to compensate for this. In other words, any de-anchoring of expectations would cause an effective monetary tightening – the exact opposite of what we want to see.

We are currently seeing some volatility in inflation expectations. Longer-term indicators are on the whole within a range that we consider consistent with price stability. Over shorter horizons, however, indicators have been declining to levels that I would deem excessively low. Survey-based measures of inflation expectations have generally been more stable, but the latest Survey of Professional Forecasters also indicates some decline – and at all horizons.

If we put this all together, we see that it has been essential that the ECB has acted – and is continuing to act – to bring inflation back towards 2% and ensure the firm underpinning of inflation expectations.

The monetary policy response

So how have we responded? Our response has certainly been unconventional, in the sense that our measures are unprecedented – but it is far from unorthodox. We have responded in a way that any central bank with a strict price stability objective would do. It has essentially involved three overlapping steps.

The first step, as I said, was to lower overnight interest rates all the way to their effective lower bound – including below zero for the deposit facility. But once we reach this point, and if inflation is still too low and more monetary stimulus needed, the central bank has to adopt new instruments to fulfil its mandate.

The next logical step to ease monetary conditions is to influence more directly the term structure of interest rates, which we did by introducing forward guidance in July of last year. We have recently re-affirmed our forward guidance that key policy rates will stay low for an extended period of time in line with the subdued outlook for inflation. And in the Targeted Long-Term Refinancing Operations (TLTRO) programme we have backed this up, by providing term funding over up to four years at a very low fixed rate.

As a result, the level of the forward interest rate curve in the euro area is currently uniformly lower than it has ever been – and also lower for instance than at any point in the US since the start of the financial crisis.

Both these steps have in common that they operate through steering current and forward money market rates. However, once the margin for manoeuvre here becomes exhausted – that is, overnight and near-term money market rates are both at the lower bound – a third step becomes necessary. If further monetary stimulus is needed, central banks need to by-pass the money market and intervene directly in other asset markets to affect, through prices and quantities, the various transmission channels of monetary policy.

Speaking in Amsterdam earlier this year, I clarified the circumstances under which the ECB would need to resort to asset purchases to increase meaningfully the degree of monetary accommodation. In what I called the “third contingency”, I referred to a broad-based weakening of aggregate demand that would threaten our baseline scenario of recovery and/or a loosening in the anchoring of medium-term inflation expectations.

And this is the point the ECB has reached with the Governing Council’s decision to initiate purchases of asset-backed securities (ABS) and covered bonds.

How asset purchases contribute to the ECB’s objective

With our monetary policy decisions in June and in particular in September, we have transitioned from a monetary policy framework based predominantly on passive provision of liquidity to a more active and controlled management of our balance sheet.

This means that it is now changes in the size and composition of our balance sheet that determine our monetary policy stance – or to be more specific, the markets in which we intervene, and the magnitude and pace of our purchases. We expect such interventions to affect output and inflation through two main channels.

Direct pass-through effects

The first is by addressing impairments in financial markets that have a direct pass-through effect to the real economy. And this effect will naturally be stronger in those markets that are more important for the transmission of monetary policy.

With this in mind, we began our shift to actively deploying our balance sheet by focusing on the ABS market, as this was a market that was both impaired and that had a tight link with bank lending, which is the main transmission mechanism of monetary policy in the euro area. This reinforced our overall aim to ensure there are no barriers to credit supply as credit demand progressively picks up.

Purchases of ABS will push down market spreads on senior tranches, reduce volumes available for investors in those markets and thereby encourage banks to relieve this scarcity by originating more ABS. As they can only do this by creating more loans in the first place, this ought to increase the supply of credit and reduce the price at which it is granted.

The impact of these purchases will be bolstered by the scaling-up in parallel of the TLTROs. As banks receive cheap long-term funding on the condition that they expand loans to households and firms, the TLTRO will increase credit supply, which in turn should lead the price of credit to fall in a competitive environment.

And both these measures will arrive in the context of the successful completion of the Comprehensive Assessment, which puts banks in a much stronger position to transmit our new monetary policy impulse.

Indeed, there is already evidence that in expectation of the roll-out of these measures, banks are lowering lending rates and increasing loan volumes. Our latest Bank Lending Survey reported a net easing of credit standards on loans to non-financial corporations and, more generally, suggests we have passed a turning point in credit growth.

Portfolio balance effects

The second channel through which we expect asset purchases to work in the euro area is the broad portfolio balance channel. Let me explain how in principle that channel operates.

As we buy assets, investors are likely to substitute the lower risk assets we buy with riskier assets such as longer-term assets, equities and possibly real estate. This has well-known effects on interest rates across the curve, on the cost of capital, on wealth – via higher equity and real estate prices – and therefore on balance sheets more generally.

There are certainly question marks as how strong these effects are in the euro area. We do not have precedents and therefore empirical data for an economy such as ours, which has a different financial structure from the US or Japan. But there is no question as to the sign of the effects – it is clearly positive.

Indeed, given our relatively greater reliance on banks as a source of finance, these balance sheet effects could work particularly through the bank lending channel. On the bank side, rising asset prices would free up capital resources for additional lending. While on the side of firms and households, an improvement in net worth, combined with a general improvement in economic prospects and hence future earnings, can expand their capacity to borrow.

Substitution of assets can also take place across jurisdictions, which would take the form of investors rebalancing portfolios away from euro-denominated assets towards other jurisdictions and currencies providing higher yields.

For example, there is evidence that both the various Large Scale Asset Purchase programmes of the Fed as well as the Bank of Japan’s Quantitative and Qualitative Easing programme led to a significant depreciation of their respective exchange rates, even in a situation in which long-term yields were already very low, as in Japan.

Finally, through these portfolio balance effects the central bank can also expect to have a strong signalling effect. They signal that we will use all means available to us, within our mandate, to return inflation towards our objective – and without any undue delay. This in turn helps anchor inflation expectations and thereby lower real interest rates, boosting activity and inflation. This is also a channel that was operative in the US and Japan.

Both economic theory and international experience suggest that the magnitude of portfolio balance effects is a function of the size of the central bank’s balance sheet. As this effect stems from the displacement of portfolios, it is logical that the greater the purchases, the greater the displacement across asset classes.

This is why the Governing Council has communicated its expectation that the combination of all the decided measures will expand the Eurosystem’s balance sheet towards the levels prevailing in early 2012. And in this context, the addition of purchases of covered bonds to our ABS purchases will allow us to conduct interventions on a scale that will achieve the intended effects in terms of portfolio rebalancing and signalling.

Let me underline however that contingent on outcomes, we are committed to recalibrate the size, pace and composition of our purchases as necessary to deliver our mandate. This is why the Governing Council has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed.

Conclusion

For all the reasons I have mentioned, it is essential to bring back inflation to target and without delay. Monetary policy can and will do its part to achieve this. But it is also clear that, as monetary policy works on the demand side of the economy, other policies can assist in this process – or at least not counteract it.

This means that the aggregate fiscal stance of the euro area has to be consistent with our position in the cycle. And it means that this fiscal stance must be achieved in a confidence-enhancing way – that is, consistent with the fiscal governance framework – otherwise lack of confidence will undermine investment and offset the positive effects of fiscal policy on demand.

And as investment does not only create current demand, but also future supply – by raising growth potential – appropriate structural policies are also a key part of the policy mix. We need to create a business environment where new investment is attractive. And this in turn would also help monetary policy to reap its full effects.

In short, there is a combination of policies that will work to bring growth and inflation back on a sound path, and we all have to meet our responsibilities in achieving that. For our part, we will continue to meet our responsibility – we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.

If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.

Mario Draghi, President, European Central Bank, Speaking at the Frankfurt European Banking Congress
Frankfurt am Main, 21 Nov 2014 More

Comment

Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely.
Nick Kounis, Head Macro & Financial Markets Research, ABN AMRO Bank N.V. (Amsterdam) More

It has never been cheaper for countries such as France to borrow. Buying state bonds could influence the price of state bonds, but wouldn’t have much impact on the economy.
Michael Heise, Chief Economist, Allianz SE (Munich) More

USA

Economy

Regional and State employment and unemployment – Oct 2014

Extract

Regional and state unemployment rates were generally little changed in October. Thirty-four states and the District of Columbia had unemployment rate decreases from September, 5 states had increases, and 11 states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-two states and the District of Columbia had unemployment rate decreases from a year earlier, five states had increases, and three states had no change. The national jobless rate edged down to 5.8 percent from September and was 1.4 percentage points lower than in October 2013.

In October 2014, nonfarm payroll employment increased in 38 states and decreased in 12 states and the District of Columbia. The largest over-the-month increases in employment occurred in California (+41,500), Texas (+35,200), and Florida (+34,400). The largest over-the-month decrease in employment occurred in Nevada (-7,300), followed by New York (-5,600) and New Jersey (-4,500). The largest over-the-month percentage increase in employment occurred in Wyoming (+1.4 percent), followed by Idaho (+0.8 percent) and Utah (+0.7 percent). The largest over-the-month percentage declines in employment occurred in Montana and Nevada (-0.6 percent each), followed by Rhode Island (-0.5 percent). Over the year, nonfarm employment increased in 49 states and the District of Columbia and decreased in Alaska (-0.2 percent). The largest over-the-year percentage increase occurred in North Dakota (+5.0 percent), followed by Utah (+3.8 percent) and Texas (+3.7 percent).

Bureau of Labor Statistics, “Regional and State employment and unemployment – Oct 2014“, 21 Nov 2014 (10:00am) More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,063.50 +0.52% 1,848.36 +11.64%
DJIA INDU 17,810.06 +0.51% 16,576.66 +7.44%
NASDAQ IXIC 4,712.97 +0.24% 4,176.59 +12.84%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 21 Nov 2014 Watch Read
Comment

Asia is strong on the interest rates, and Europe is strong on the Draghi comments. There’s a positive flow coming through to U.S. businesses. A rising tide lifts all boats.
Michael James, Managing Director of Equity Trading, Wedbush Securities Inc. More

… but later …

Initially everything looked really good with China lowering interest rates, Draghi saying he’ll do anything necessary and with oil bouncing a bit. But the market is drifting now. That may be a reflection of people trying to stay flat over the weekend and eliminate any geopolitical risk.
Brian Peery, Co-Portfolio Manager, Hennessy Advisors Inc. More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.818 +0.23% 1.399 +29.93%
Valuation Rate USD/AUD 0.87166 +0.47% 0.89789 -2.92%
Portfolio Index AUD 2.086 +0.53% 1.558 +33.84%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

(Note: the feed for this chart stopped about a minute before close, so the prices and deltas are different from the corrected numbers in the table below)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $116.47 +0.14% $80.1457 +45.32%
Amazon AMZN $332.63 +0.63% $398.79 -16.59%
Ebay EBAY $54.42 -0.22% $54.865 -0.82%
Facebook FB $73.75 -0.07% $54.65 +34.95%
Google A GOOGL $545.89 +0.39% $560.365 -2.58%
Google C GOOG $537.27 +0.50% $560.365 -4.08%
Linkedin LNKD $219.09 -0.55% $216.83 +1.04%
VMware VMW $85.26 +2.81% $89.71 -4.96%

Thursday 20 Nov 2014

RUSSIA-UKRAINE

Economy

Ukrainian loans to borrowers in Crimea are becoming unrecoverable. “Andriy Pyshnyy, chairman of the management board of Ukraine’s state-owned Oschadbank, says “99.99 percent” of the bank’s loans in Crimea – which totaled more than $500 million – are now delinquent.” Crimeans with deposits in Ukrainian banks cannot access their funds. “Most ATMs no longer accept non-Russian bank cards; foreign credit cards can’t be used to buy things. Most non-local mobile phones can’t receive a signal. And even if they could, calling other Crimeans is complicated: Most of the peninsula’s residents recently had to get new mobile phone numbers because Ukrainian services were cut off.More

JAPAN

Economy

Markit/JMMA Flash Japan Manufacturing PMI – Nov 2014 Opinion

Key points:

  • Flash Japan Manufacturing PMI at 52.1 (52.4 in October). Moderate improvement in business conditions in November.
  • Flash Japan Manufacturing Output Index at 53.5 (51.3 in October). Output growth accelerates to fastest pace since March.

Markit, “Markit/JMMA Flash Japan Manufacturing PMI” 20 Nov 2014 More

CHINA

Economy

HSBC Flash China Manufacturing PMI – Nov 2014 Opinion

Key points:

  • Flash China Manufacturing PMI at 50.0 in November (50.4 in October). Six-month low.
  • Flash China Manufacturing Output Index at 49.5 in November (50.7 in October). Seven-month low.

Markit, “HSBC Flash China Manufacturing PMI” 20 Nov 2014 More

EUROPE

Economy

Markit Flash Eurozone PMI – Nov 2014 Opinion

Key points:

  • Flash Eurozone PMI Composite Output Index at 51.4 (52.1 in October). 16-month low.
  • Flash Eurozone Services PMI Activity Index at 51.3 (52.3 in October). 11-month low.
  • Flash Eurozone Manufacturing PMI at 50.4 (50.6 in October). 2-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 51.8 (51.5 in October). 4-month high.

Markit, “Markit Flash Eurozone PMI” 20 Nov 2014 More

USA

Economy

Unemployment Insurance Weekly Claims Report: Week to 15 Nov 2014 Opinion

Extract

In the week ending November 15, the advance figure for seasonally adjusted initial claims was 291,000, a decrease of 2,000 from the previous week’s revised level. The previous week’s level was revised up by 3,000 from 290,000 to 293,000. The 4-week moving average was 287,500, an increase of 1,750 from the previous week’s revised average. The previous week’s average was revised up by 750 from 285,000 to 285,750.

The advance seasonally adjusted insured unemployment rate was 1.8 percent for the week ending November 8, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 8 was 2,330,000, a decrease of 73,000 from the previous week’s revised level. This is the lowest level for insured unemployment since December 16, 2000 when it was 2,322,000. The previous week’s level was revised up 11,000 from 2,392,000 to 2,403,000. The 4-week moving average was 2,369,000, a decrease of 6,250 from the previous week’s revised average. This is the lowest level for this average since January 13, 2001 when it was 2,360,500. The previous week’s average was revised up by 2,750 from 2,372,500 to 2,375,250.

U.S. Employment and Training Administration, “Unemployment Insurance Weekly Claims Report – Week to 15 Nov 2014“, 20 Nov 2014 (08:30am) More

Comment

Claims are still well under the 300,000 mark and they’ve remained there for a little over two months now, and that bodes well in terms of payroll growth,. We’re seeing good prospects and a strong trend for progress in the labor market.
Gregory Daco, Lead U.S. Economist, Oxford Economics USA Inc (NY) More

Consumer price index (CPI) – Oct 2014

Extract

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

Gasoline and other energy indexes declined, offsetting increases in shelter and an array of other indexes to leave the seasonally adjusted all items index unchanged. The gasoline index fell for the fourth month in a row, declining 3.0 percent, and the indexes for natural gas and fuel oil also decreased. The food index rose slightly in October, with major grocery store food groups mixed.

The index for all items less food and energy increased 0.2 percent in October. Besides the shelter index, airline fares, household furnishings and operations, medical care, recreation, personal care, tobacco, and new vehicles were among the indexes that increased. The indexes for used cars and trucks and for apparel declined in October.

The all items index increased 1.7 percent over the last 12 months, the same increase as for the 12 months ending September. The index for all items less food and energy increased 1.8 percent over the span, and the food index rose 3.1 percent. In contrast, the energy index declined 1.6 percent over the last 12 months.

Bureau of Labor Statistics, “Consumer price index (CPI) – Oct 2014“, 20 Nov 2014 (08:30am) More

Comment

Core inflation, which is our best measure of future headline inflation, is showing signs of bottoming out here. The weakness overseas is more than offset by what’s looking to be a strengthening domestic demand picture.
Eric Green, Head of U.S. Rates and Economic Research, TD Securities USA LLC More

Real earnings – Oct 2014

Extract

Real average hourly earnings for all employees rose 0.1 percent from September to October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.1 percent increase in average hourly earnings combined with no change in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased 0.4 percent over the month due to the increase in real average hourly earnings combined with a 0.3 percent increase in the average workweek.

Real average hourly earnings increased 0.4 percent, seasonally adjusted, from October 2013 to October 2014. This increase in real average hourly earnings, combined with a 0.6 percent increase in the average workweek, resulted in a 0.9 percent increase in real average weekly earnings over this period.

Bureau of Labor Statistics, “Real earnings – Oct 2014“, 20 Nov 2014 (08:30am) More

Markit Flash US Manufacturing PMI – Nov 2014 Opinion

November data highlighted a further slowdown in the pace of recovery across the U.S. manufacturing sector. At 54.7, down from 55.9 in October, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ IndexTM (PMITM) indicated the weakest overall improvement in business conditions since the snow-related setback in January. Although the latest reading remained well above the neutral 50.0 threshold, the index has now dropped for three months in a row.

Weaker rates of output and new business growth were the main negative influences on the headline PMI figure in November. Latest data pointed to the slowest expansion of manufacturing production for ten months, with a number of survey respondents citing less favourable demand conditions.

Incoming new work also increased at the weakest pace since January, partly reflecting a reversal in export sales volumes. Although only modest, the rate of decline in new orders from abroad was the most marked for 17 months. Some survey respondents commented on the strengthening dollar exchange rate, as well as more subdued underlying export market business conditions.

Resilient job market trends continued across the U.S. manufacturing sector in November. Latest data highlighted a robust rise in payroll numbers, and the rate of expansion was slightly stronger than seen in the previous month. However, there were signs of moderating capacity pressures, as manufacturers indicated that backlogs of work increased at the slowest pace for ten months.

In line with softer new business gains, the latest survey indicated the weakest upturn in input buying since March. Pre-production inventories increased for the fifth month running, but at a slower pace than in October, while stocks of finished goods rose only marginally. Despite slower growth of purchasing activity, average lead times from suppliers continued to lengthen in November, which extended the current period of deterioration to 17 months.”

Markit, “Markit Flash US Manufacturing PMI – Nov 2014“, 20 Nov 2014 (09:45am) More

Existing home sales – Oct 2014 Opinion

Extract

Existing-home sales rose in October for the second straight month and are now above year-over-year levels for the first time in a year, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.5 percent to a seasonally adjusted annual rate of 5.26 million in October from an upwardly-revised 5.18 million in September. Sales are at their highest annual pace since September 2013 (also 5.26 million) and are now above year-over-year levels (2.5 percent from last October) for the first time since last October.

The median existing-home price for all housing types in October was $208,300, which is 5.5 percent above October 2013. This marks the 32nd consecutive month of year-over-year price gains.

Total housing inventory at the end of October fell 2.6 percent to 2.22 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace – the lowest since March (also 5.1 months). Unsold inventory is now 5.2 percent higher than a year ago, when there were 2.11 million existing homes available for sale.

National Association of Realtors, “Existing home sales – Oct 2014“, 20 Nov 2014 (10:00am) More

Bloomberg Consumer Comfort Index – Week to 16 Nov 2014 Opinion

Extract

Consumer sentiment in the U.S. advanced last week to the highest level since January 2008 as Americans grew more optimistic about their financial well-being and the buying climate.

The Bloomberg Consumer Comfort Index climbed to 38.5 in the period ended Nov. 16 from 38.2 the week before. While a monthly measure tracking the economic outlook fell to 47 in November from a two-year high of 51, the share of respondents saying the economy is improving matched the second-highest since June 2013.

Improving employment prospects, record stock values and declining gasoline prices probably boosted sentiment as the holiday-shopping season gets under way. At the same time, confidence among lower-income earners is lagging behind as wages are slow to pick up.

Bloomberg, “Bloomberg Consumer Comfort Index – Nov 2014“, 20 Nov 2014 (10:00am) More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,052.75 +0.20% 1,848.36 +11.06%
DJIA INDU 17,719.00 +0.19% 16,576.66 +6.89%
NASDAQ IXIC 4,701.87 +0.56% 4,176.59 +12.58%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 20 Nov 2014 Watch Read
Comment

The swing from this morning was powerful, that shows you there’s strength and the data is quieting market fears about growth. We got some concerning numbers out of Europe and softness in China but the data in the U.S. continues to be mixed to better whereas in other places it’s mixed to worse.
Paul Zemsky, Head of Multi-Asset Strategies, Voya Investment Management LLC ($213 billion) More

The backdrop for holiday sales and retail is setting up to be a very good holiday season. That additional cash or income that consumers will have to spend from lower energy prices at least for a quarter or two will be a fantastic tailwind for retailers.
David Lyon, Global Investment Specialist, JP Morgan Private Bank ($1 trillion) More

Next year will be a reasonable to maybe a surprisingly good year. There is no reason in the world why we can’t see P/Es expand.
Margaret Patel, Senior Portfolio Manager, Wells Capital Management – speaking at the Reuters Global Investment Outlook Summit More

PORTFOLIO

Index values Opinion

:-) During intra-day trading this morning our AUD-denominated index broke through 2.100 for the first time! As the day progressed it fell to a lower closing value, but remains within reach of that level.

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.814 +1.09% 1.399 +29.63%
Valuation Rate USD/AUD 0.86762 +0.13% 0.89789 -3.37%
Portfolio Index AUD 2.090 +0.95% 1.558 +34.16%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $116.31 +1.43% $80.1457 +45.12%
Amazon AMZN $330.54 +1.22% $398.79 -17.11%
Ebay EBAY $54.54 -0.73% $54.865 -0.59%
Facebook FB $73.60 +0.37% $54.65 +34.68%
Google A GOOGL $543.76 -0.63% $560.365 -2.96%
Google C GOOG $534.83 -0.40% $560.365 -4.56%
Linkedin LNKD $220.30 +0.31% $216.83 +1.60%
VMware VMW $82.93 -1.14% $89.71 -7.56%

FX: USD/AUD

Westpac Banking Corporation’s strategist Sean Callow predicts the AUD will climb to USD0.88 in Dec 2014, to USD0.90 in Jun 2015, then USD0.92 by the end of 2015. Australia currently offers the world’s highest AAA sovereign returns, maintaining the AUD as the developed world’s most overvalued currency after the NZD. More

Wednesday 19 Nov 2014

EUROPE

Economy

Eurozone monthly balance of payments – Sep 2014

In September 2014, the current account of the euro area recorded a surplus of €30.0 billion.

In the financial account, combined direct and portfolio investment recorded net increases of €84 billion and €27 billion in assets and liabilities respectively.

Current account

The current account of the euro area recorded a surplus of €30.0 billion in September 2014 (see Table 1). This reflected surpluses for goods (€20.7 billion), services (€10.4 billion) and primary income (€7.6 billion), which were partly offset by a deficit for secondary income (€8.7 billion). [2]

The 12-month cumulated current account for the period ending in September 2014 recorded a surplus of €245.6 billion (2.5% of euro area GDP), compared with one of €229.7 billion (2.4% of euro area GDP) for the 12 months to August 2014 (see Table 1 and Chart 1). The increase in the current account surplus was due mainly to increases in the surpluses for goods (from €211.5 billion to €217.3 billion) and, to a lesser extent, to increases in the surplus for services (from €92.3 billion to €95.2 billion) and primary income (from €68.0 billion to €71.9 billion), as well as to a decrease in the deficit for secondary income (from €142.0 to €138.8 billion).

Financial account

In the financial account (see Table 2), combined direct and portfolio investment recorded net increases of assets of €84 billion and of liabilities of €27 billion in September 2014.

Euro area residents recorded direct investment abroad (assets) of €33 billion, almost evenly split between equity and debt instruments (mostly inter-company loans). Foreign direct investors increased their investments in the euro area (liabilities) by €10 billion, almost entirely by means of debt instruments. As regards portfolio investment assets, euro area residents had net acquisitions of foreign securities of €51 billion, mostly debt securities (€47 billion). On the liability side, non-residents had net acquisitions of euro area securities of €17 billion (net purchases in equity securities of €20 billion partially offset by €3 billion of net sales in debt securities).

The euro area financial derivatives account recorded net flows of €7 billion. Other investment recorded net decreases of €39 billion and €4 billion in assets and liabilities respectively. The net decrease of assets was explained by developments in the MFIs excluding the Eurosystem (€37 billion) and the general government (€4 billion) sectors. The net decrease of liabilities was explained by decreases in the Eurosystem (€3 billion), general government (€3 billion) and other sectors (€14 billion), which were partly offset by an increase in MFIs excluding the Eurosystem (€17 billion).

The Eurosystem’s stock of reserve assets increased by €3 billion in September 2014 (to €597 billion). This was explained by net disposals of reserve assets of €2 billion and positive revaluations of €5 billion.

European Central Bank, “Eurozone monthly balance of payments – Sep 2014“, 19 Nov 2014 More

USA

Economy

New residential construction (permits, starts, completions) – Oct 2014

Opinion Housing starts for single-family homes, condominiums and apartments in Oct 2014 fell 2.8% from Sep 2014.
Opinion Permits for future projects rose to the highest level since Jun 2008.
Opinion Residential-construction permits climbed to a six-year high.

Extract

BUILDING PERMITS

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,080,000. This is 4.8 percent (±1.3%) above the revised September rate of 1,031,000 and is 1.2 percent (±1.2%) above the October 2013 estimate of 1,067,000.

Single-family authorizations in October were at a rate of 640,000; this is 1.4 percent (±1.2%) above the revised September figure of 631,000. Authorizations of units in buildings with five units or more were at a rate of 406,000 in October.

HOUSING STARTS

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 1,009,000. This is 2.8 percent (±10.0%) below the revised September estimate of 1,038,000, but is 7.8 percent (±8.7%)* above the October 2013 rate of 936,000.

Single-family housing starts in October were at a rate of 696,000; this is 4.2 percent (±8.8%) above the revised September figure of 668,000. The October rate for units in buildings with five units or more was 300,000.

HOUSING COMPLETIONS

Privately-owned housing completions in October were at a seasonally adjusted annual rate of 881,000. This is 8.8 percent (±14.7%) below the revised September estimate of 966,000, but is 8.1 percent (±13.0%)* above the October 2013 rate of 815,000.

Single-family housing completions in October were at a rate of 585,000; this is 7.4 percent (±9.5%) below the revised September rate of 632,000. The October rate for units in buildings with five units or more was 289,000.

US Census Bureau, “New residential construction (permits, starts, completions) – Oct 2014“, 19 Nov 2014 (08:30) More

Comment

Conditions in the housing market are at least stable, and on the margin they appear to be improving a bit. We should expect continued gradual growth heading into next year.
Ryan Wang, Economist, HSBC Securities USA Inc More

Housing activity continues to recover, although the pace of the recovery remains slower than in the previous couple of years, owing to the decline in housing affordability.
Blerina Uruci, Economist, Barclays (NY) More

Quarterly data series on business employment dynamics – Q1 2014

Extract

From December 2013 to March 2014, gross job gains from opening and expanding private sector establishments were 6.9 million, a decrease of 440,000 jobs from the previous quarter, the U.S. Bureau of Labor Statistics reported today. Over this period, gross job losses from closing and contracting private sector establishments were 6.5 million, a decrease of 94,000 jobs from the previous quarter.

The difference between the number of gross job gains and the number of gross job losses yielded a net employment gain of 397,000 jobs in the private sector during the first quarter of 2014.

Bureau of Labor Statistics, “Quarterly data series on business employment dynamics – Q1 2014“, 19 Nov 2014 (10:00) More

FOMC Minutes: meeting of 28-29 Oct 2014

Extract

In their discussion of monetary policy for the period ahead, members judged that information received since the FOMC met in September indicated that economic activity was expanding at a moderate pace. Labor market conditions had improved somewhat further, with solid job gains and a lower unemployment rate; on balance, a range of indicators suggested that underutilization of labor resources was gradually diminishing. Household spending was rising moderately and business fixed investment was advancing, while the recovery in the housing sector remained slow. Inflation had continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation had declined somewhat, but survey-based measures of longer-term inflation expectations had remained stable. The Committee expected that, with appropriate policy accommodation, economic activity would expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate.

In their discussion of language for the post-meeting statement, a number of members judged that, while some underutilization in the labor market remained, it appeared to be gradually diminishing. In addition, members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. In the end, the Committee decided not to include such a reference. Finally, a couple of members suggested including language in the statement indicating that recent foreign economic developments had increased uncertainty or had boosted downside risks to the U.S. economic outlook, but participants generally judged that such wording would suggest greater pessimism about the economic outlook than they thought appropriate.

In their discussion of the asset purchase program, members generally agreed that the condition articulated by the Committee when it began the program in September 2012 had been achieved—that is, there had been a substantial improvement in the outlook for the labor market—and that there was sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, all members but one supported concluding the Committee’s asset purchase program at the end of October and maintaining its existing policy of re-investing principal payments from its holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury securities at auction. By keeping the Committee’s holdings of longer-term securities at sizable levels, this policy was expected to help maintain accommodative financial conditions.

In addition, the Committee agreed to maintain the target range for the federal funds rate at 0 to 1⁄4 percent and to reaffirm the indication in the statement that the Committee’s decision about how long to maintain the current target range for the federal funds rate would depend on its assessment of actual and expected progress toward its objectives of maximum employment and 2 percent inflation. All but one member agreed that the Committee should reiterate the expectation that it likely would be appropriate to maintain the current target range for the federal funds rate for a considerable time following the end of the asset purchase program in October, especially if projected inflation continued to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remained well anchored. The one member thought that the Committee should instead strengthen the forward guidance in order to underscore the Committee’s commitment to its 2 percent inflation objective. The Committee agreed to include additional wording in the statement in order to emphasize that the Committee’s decision on the timing of the first increase in the federal funds rate would be data dependent. In particular, the statement would say that, if incoming information indicated faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate would likely occur sooner than currently anticipated. It would also note that, if progress proves slower than expected, then increases in the target range would likely occur later than currently anticipated. The Committee also agreed to re-iterate its expectation that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Federal Reserve, “Minutes of the Federal Open Market Committee October 28–29, 2014“, 19 Nov 2014 (14:00) More

Comment

They seemed to pay more attention to inflation. If inflation is not high and they’re not too concerned about it being a problem, it gives them more breathing room to hold off raising rates. If they don’t feel inflation is imminent and the labor market is recovering nicely, but not heating up too much, it gives them more breathing room.
Jeff Kravetz, Regional Investment Strategist, U.S. Bank Wealth Management More

The wording (of the minutes) would suggest greater pessimism. They didn’t want to create fears.
Robbert Van Batenburg, Director of Market Strategy, Newedge More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,048.72 -0.15% 1,848.36 +10.84%
DJIA INDU 17,685.73 -0.01% 16,576.66 +6.69%
NASDAQ IXIC 4,675.71 -0.57% 4,176.59 +11.95%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 19 Nov 2014 Watch Read
Comment: Pre-FOMC minutes

There’s been a build up to what the Fed will say today. The market’s been in quite a tight channel. Last time, they left the ‘considerable period of time’ phrase but they tweaked some other language. They’re clearly trying to get the message across that things are getting better.
Jasper Lawler, Market Analyst, CMC Markets Plc (London) More

The market’s had a huge, huge run in a virtually straight line up to here, and now we’re down a little bit. It’s hard to believe the market’s going to go up every week through year-end. I don’t expect to see any surprises coming out of the Fed today.
Bruce Bittles, Chief Investment Strategist, RW Baird & Co More

Comment: Post-FOMC minutes

The market is yawning … The Fed minutes did nothing to change the conversation.
Adam Sarhan, Chief Executive, Sarhan Capital More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.794 -0.60% 1.399 +28.24%
Valuation Rate USD/AUD 0.86646 -1.27% 0.89789 -3.50%
Portfolio Index AUD 2.071 +0.68% 1.558 +32.89%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $114.67 -0.69% $80.1457 +43.08%
Amazon AMZN $326.31 +0.42% $398.79 -18.17%
Ebay EBAY $54.94 -0.79% $54.865 +0.14%
Facebook FB $73.33 -1.36% $54.65 +34.18%
Google A GOOGL $547.20 +0.49% $560.365 -2.35%
Google C GOOG $536.99 +0.37% $560.365 -4.17%
Linkedin LNKD $219.61 -0.66% $216.83 +1.28%
VMware VMW $83.89 -2.78% $89.71 -6.49%

Tuesday 18 Nov 2014

USA

Economy

Producer Price Indices – Oct 2014

The Producer Price Index for final demand rose 0.2 percent in October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a 0.1-percent decline in September and no change in August. On an unadjusted basis, the index for final demand advanced 1.5 percent for the 12 months ended in October, the smallest 12-month increase since a 1.2-percent rise in February 2014.

In October, the 0.2-percent rise in final demand prices can be traced to the index for final demand services, which advanced 0.5 percent. In contrast, prices for final demand goods moved down 0.4 percent.

Within intermediate demand, prices for processed goods declined 0.9 percent, the index for unprocessed goods fell 2.4 percent, and prices for services inched up 0.1 percent.

Bureau of Labor Statistics, “Producer Price Indices – Oct 2014“, 18 Nov 2014 (08:30) More

Comment

The upside surprise is pretty much entirely in one component of services, and it’s correcting from a below-trend number in September. The picture’s pretty subdued – there’s no real sign of inflationary pressure.
David Sloan, Senior Economist, 4Cast Inc. More

Stock market indices Opinion

Record closes for the S&P500 and DJIA indices.

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,051.82 +0.51% 1,848.36 +11.01%
DJIA INDU 17,687.82 +0.23% 16,576.66 +6.70%
NASDAQ IXIC 4,702.44 +0.67% 4,176.59 +12.59%

The shape of the day

 Market indices today (Chart: Yahoo)


Market indices today (Chart: Yahoo)

Nightly Business Report: 18 Nov 2014 Watch Read
Comment

People are happy the market is at all-time highs, but they are still nervous. Going into next year, will the market be able to maintain these gains and go higher given the cautiousness from Europe and Asia?
Michael James, Managing Director of Equity Trading, Wedbush Securities Inc. More

Consumer and investor sentiment is pretty positive at the moment. We continue to see M&A as the topic of the day and U.S. economic data is suggesting really good stability.
Omar Aguilar, Chief Investment Officer of Equities, Charles Schwab Investment Management More

Whether that’s a sign of strength or a bounce-back rally from the weakness we’ve seen, it’s still too early to tell. People are still biased towards moving money into equities and you’ve seen that flow prevent any meaningful corrections throughout the year.
Bruce McCain, Chief Investment Strategist, KeyCorp ($25 billion) More

PORTFOLIO

Index values Opinion

:-) Our USD-denominated index closed above 1.800 for the first time today, and our AUD-denominated index is now at 2.057.

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.805 +0.96% 1.399 +29.01%
Valuation Rate USD/AUD 0.87757 +0.17% 0.89789 -2.26%
Portfolio Index AUD 2.057 +0.78% 1.558 +32.00%

52-week performance Opinion

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

Stock price movements

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stocks and market indices: price changes today (%) (Chart: Bunting)

Portfolio stock prices

:-) Another record close for Apple.

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $115.47 +1.30% $80.1457 +44.08%
Amazon AMZN $324.93 +0.58% $398.79 -18.52%
Ebay EBAY $55.38 +1.01% $54.865 +0.94%
Facebook FB $74.34 +0.13% $54.65 +36.03%
Google A GOOGL $544.51 -0.39% $560.365 -2.83%
Google C GOOG $535.03 -0.28% $560.365 -4.52%
Linkedin LNKD $221.07 -0.99% $216.83 +1.96%
VMware VMW $86.29 -0.40% $89.71 -3.81%