Preview: 2014 Year

Portfolio performance in 2014, compared to market indices

What sort of year has 2014 been, and how are we all likely to look at the end of 2014?

We provide here a 12-month comparison of the performance of major market indices (S&P 500, DJIA, NASDAQ) with that of our portfolio denominated in USD (PT (USD)) and AUD (PT (AUD)).

:-) So far it looks like we’re all going to end the year with a positive return.

12-Month Performance Comparison

Index S&P 500 DJIA NASDAQ PT (USD) PT (AUD)
19 Dec 2013 2,010.40 17,279.74 4,058.14 1.364 1.531
19 Dec 2014 2,070.65 17,804.80 4,765.38 1.755 2.143
Gain 3.00% 3.04% 17.43% 28.67% 39.97%

Market Indices

S&P 500 Index

S&P500 Index:  12 months to 19 Dec 2014 (Chart: NASDAQ [GSPC])

S&P500 Index: 12 months to 19 Dec 2014 (Chart: NASDAQ [GSPC])

Dow Jones Industrial Average Index

DJIA Index:  12 months to 19 Dec 2014 (Chart: NASDAQ)

DJIA Index: 12 months to 19 Dec 2014 (Chart: NASDAQ [DJI])

NASDAQ Composite Index

NASDAQ Composite Index:  12 months to 19 Dec 2014 (Chart: Yahoo Finance)

NASDAQ Composite Index: 12 months to 19 Dec 2014 (Chart: Yahoo Finance)

PortfolioTicker Indices

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

USD and AUD denominated indices: 12 months to 19 Dec 2014 (Chart: Bunting)

FX: USD/AUD

USD/AUD - year to 20 Dec 2014 (Chart: xe.com)

USD/AUD: 12 months to 20 Dec 2014 (Chart: xe.com)

Week: 15-21 Dec 2014

USA

US market indices Impact

Index 19 Dec 2014 Week 12 Dec 2014 Month 28 Nov 2014 Year 31 Dec 13
S&P 500 2,070.65 +3.41% 2,002.33 +0.15% 2,067.56 +12.03% 1,848.36
DJIA 17,804.80 +3.03% 17,280.83 -0.13% 17,828.24 +7.41% 16,576.66
NASDAQ 4,765.38 +2.40% 4,653.60 -0.55% 4,791.63 +14.10% 4,176.59

The shape of the week

US market indices this week (Chart: Yahoo Finance)

US market indices this week (Chart: Yahoo Finance)

A week of Nightly Business Reports

Monday Tuesday Wednesday Thursday Friday

PORTFOLIO

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 19 Dec 2014 Week 12 Dec 2014 Month 28 Nov 2014 Year 31 Dec 13
USD Index 1.755 +1.74% 1.725 -5.46% 1.857 +25.44% 1.399
Valuation rate 0.81912 -1.35% 0.83033 -4.29% 0.85587 -8.77% 0.89789
AUD Index 2.143 +3.13% 2.078 -1.22% 2.169 +37.51% 1.558

Portfolio stocks

The shape of portfolio stocks this week (Chart: Yahoo Finance)

The shape of portfolio stocks this week (Chart: Yahoo Finance)

Apple AAPL +1.87%

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

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

Amazon AMZN -2.41%

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

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

Ebay EBAY +2.46%

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

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

Facebook FB +2.63%

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

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

Google Class A GOOGL -0.28%

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

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

  • Friday close: $520.04 -0.28% from $521.51.
  • P/E (historical): 27.27 Change from 27.35
  • P/E (1 year fwd): 24.52 Change from 25.28
  • Target (1 year): NASDAQ consensus $638.50Change, range $530 ↔ $750.
  • SEC filings (CIK 0001288776): Edgar Search (New, Beta)

Google Class C GOOG -0.45%

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

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

  • Friday close: $516.35 -0.45% from $518.66.
  • P/E (historical): 21.50 Change from 21.59
  • Target (1 year): NASDAQ consensus $597.5, range $580 ↔ $615.
  • Analyst recommendations: 7 strong buy, 3 buy, 1 hold.

Linkedin LNKD +6.69%

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

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

VMware VMW +9.46%

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

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

Friday 19 Dec 2014

IN PORTFOLIOTICKER TODAY

News

Regular items

RUSSIA

Economy

Ruble situation report

The ruble seems to have a policy floor of USD0.016 (Chart: xe.com)

The ruble seems to have a policy floor of USD0.016 (Chart: xe.com)

EUROPE

Economy

Eurozone monthly balance of payments – Oct 2014

Extract
  • In October 2014, the current account of the euro area recorded a surplus of €20.5 billion.
  • In the financial account, combined direct and portfolio investment recorded a net increase of €28 billion in assets and a net decrease of €25 billion in liabilities.

eurobop_20141219

Current account

The current account of the euro area recorded a surplus of €20.5 billion in October 2014 (see Table 1). This reflected surpluses for goods (€19.3 billion), services (€5.5 billion) and primary income (€5.3 billion), which were partly offset by a deficit for secondary income (€9.6 billion). [2]

The 12-month cumulated current account for the period ending in October 2014 recorded a surplus of €251.5 billion (2.5% of euro area GDP), compared with one of €205.2 billion (2.1% of euro area GDP) for the 12 months to October 2013 (see Table 1 and Chart 1). The increase in the current account surplus was due mainly to increases in the surpluses for goods (from €210.9 billion to €226.0 billion) and services (from €66.9 billion to €95.2 billion) as well as to a decrease in the deficit for secondary income (from €142.9 to €138.0 billion); these were offset marginally by a decrease in the surplus for primary income (from €70.4 billion to €68.3 billion)

Financial account

In the financial account (see Table 2), combined direct and portfolio investment recorded a net increase of assets of €28 billion and a net decrease of liabilities of €25 billion in October 2014.

Euro area residents recorded a net increase of direct investment abroad (assets) of €11 billion, almost entirely by means of debt instruments (€10 billion). Foreign direct investors increased their investments in the euro area (liabilities) by €10 billion, primarily through equity. As regards portfolio investment, euro area residents made net acquisitions of foreign securities of €16 billion (net acquisitions of debt securities of €27 billion, offset by net disposals of equity securities amounting to €11 billion). On the liabilities side, non-euro area residents engaged in net disinvestments of euro area securities of €35 billion (net disposals of debt securities of €62 billion, partially offset by €27 billion of net acquisitions of equity securities).

The euro area net financial derivatives account (assets minus liabilities) recorded net flows of +€0.2 billion. Other investment recorded net decreases of €34 billion in assets and €13 billion in liabilities. The net decrease of assets was explained by developments in other sectors (€20 billion) and MFIs excluding the Eurosystem (€10 billion). The net decrease of liabilities was primarily explained by developments in the Eurosystem (€7 billion) and MFIs excluding the Eurosystem (€5 billion) sectors.

The Eurosystem’s stock of reserve assets decreased by €11 billion in October 2014 (to €586 billion), which was explained by negative revaluations of €12 billion. Net acquisitions of reserve assets amounted to €1 billion.

In the 12 months to October 2014, combined direct and portfolio investment recorded cumulated net increases of assets by €502 billion and of liabilities by €406 billion, compared with net increases of assets by €845 billion and of liabilities by €799 billion in the 12 months to October 2013. This development resulted from a significant decrease in direct investment activity, which was partially offset by increases in transactions in portfolio investment assets and liabilities .

European Central Bank, “Euro area monthly balance of payments (October 2014)“, 19 Dec 2014 More

USA

Economy

Regional and State employment and unemployment – Nov 2014

Extract

Regional and state unemployment rates were little changed in November. Forty-one states and the District of Columbia had unemployment rate decreases from October, three states had increases, and six states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-three states and the District of Columbia had unemployment rate decreases from a year earlier, four states had increases, and three states had no change. The national jobless rate was unchanged from October at 5.8 percent and was 1.2 percentage points lower than in November 2013.

In November 2014, nonfarm payroll employment increased in 37 states and the District of Columbia, decreased in 12 states, and was unchanged in Idaho. The largest over-the-month increases in employment occurred in California (+90,100), Florida (+41,900), and Texas (+34,800). The largest over-the-month decrease in employment occurred in West Virginia (-5,200), followed by Mississippi (-4,500) and Kansas (-4,100). The largest over-the-month percentage increase in employment occurred in Vermont (+1.2 percent), followed by Hawaii (+0.9 percent) and Delaware, South Carolina, and Wisconsin (+0.7 percent each). The largest over-the-month percentage decline in employment occurred in West Virginia (-0.7 percent), followed by Mississippi (-0.4 percent) and Kansas, South Dakota, and Wyoming (-0.3 percent each). Over the year, nonfarm employment increased in 48 states and the District of Columbia and decreased in Alaska (-0.4 percent) and Mississippi (-0.1 percent). The largest over-the-year percentage increase occurred in North Dakota (+4.8 percent), followed by Texas (+3.9 percent) and Utah (+3.4 percent).

Bureau of Labor Statistics, “Regional and State employment and unemployment – Nov 2014“, 19 Dec 2014 (10:00am) More

Stock market indices Opinion

Today’s stock prices may have been affected by quadruple witching – the expiration of stock options, index options, index futures and single-stock futures – along with the rebalancing of the S&P 500, which is scheduled to take effect after the close. Reuters

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,070.65 +0.46% 1,848.36 +12.03%
DJIA INDU 17,804.80 +0.15% 16,576.66 +7.41%
NASDAQ IXIC 4,765.38 +0.36% 4,176.59 +14.10%

Oil price

Oil prices rose more than 4.4% today:

  • West Texas Intermediate (WTI) (Jan 2015) $56.52/barrel (+4.45%)
  • ICE Brent Crude (Feb 2015) $62.14/barrel (+4.84%)

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Nightly Business Report: 19 Dec 2014 Watch Read
Comment

The Fed set the tone and that what’s fueling the market right now. There’s a lack of economic numbers this morning and we’ll probably finish up the week with a little profit-taking.
Stephen Carl, Principal and Head Equity Trader, Williams Capital Group LP More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.755 -0.33% 1.399 +25.44%
Valuation Rate USD/AUD 0.81912 -0.32% 0.89789 -8.77%
Portfolio Index AUD 2.143 -0.02% 1.558 +37.51%

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

The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

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 $111.78 -0.77% $80.1457 +39.77
Amazon AMZN $299.90 +0.73% $398.79 -24.80%
Ebay EBAY $57.14 -0.68% $54.865 +4.15%
Facebook FB $79.88 +1.89% $54.65 +46.17%
Google A GOOGL $520.04 +1.05% $560.365 -7.20%
Google C GOOG $516.35 +1.03% $560.365 -7.85%
Linkedin LNKD $234.61 +1.19% $216.83 +8.20%
VMware VMW $83.99 +0.47% $89.71 -6.38%

FX: USD/AUD

The AUD bounced off a low of USD0.8119 today (Chart: xe.com)

The AUD bounced off a low of USD0.81241 today (Chart: xe.com)

After 21:00 UTC, the AUD fell further to a low of USD0.8119.

Thursday 18 Dec 2014

Celebrity Century visiting Port Melbourne today

Celebrity Century visiting Port Melbourne today

IN PORTFOLIOTICKER TODAY

News

Regular items

RUSSIA

Economy

Ruble situation report

The ruble is being held at around USD0.016  (Chart: xe.com)

The ruble is being held at around USD0.016 (Chart: xe.com)

The ruble, heading for its worst month since September 1998, weakened 1.8 percent to 61.31 per dollar at 8:17 p.m. in Moscow following a 12 percent gain a day earlier. The yield on 10-year bonds increased 25 basis points to 13.72 percent, from this week’s high of 16.24 percent.Bloomberg

The Mosprime overnight rate has jumped to 27.3 percent, the highest since Bloomberg started compiling the data in 2006. It was 19.83 percent on 17 Dec 2014 and 11.85 percent last week. The cost of short-term cash usually closely follows the central bank’s benchmark rate, which policy makers increased 6.5 percentage points to 17 percent on 16 Dec 2014 to shore up the ruble amid an exodus of capital from Russia.Bloomberg

Comment

Banks are either demanding additional collateral, or asking to close deals and then reducing limits on the counterparty. Gradually, the situation is getting worse, the market is shrinking.
Oleg Kouzmin, Analyst, Renaissance Capital (Moscow) More

EUROPE

Economy

Switzerland sets a negative interest rate on deposits

The SNB is concerned to maintain a minimum FX above CHF 1.20 / EUR (Chart: xe.com)

The SNB is concerned to maintain a minimum FX above CHF 1.20 / EUR (Chart: xe.com)

The Swiss National Bank will impose a rate of minus 0.25% on “sight deposits” – a form of instant access account – of more than CHF10m effective on 22 Jan 2014. This move is intended to avert currency destabilisation from a flood of money exiting Russia and likely inflows from the euro zone if the ECB starts full-scale money printing early next year. More

Extract

The Swiss National Bank (SNB) is imposing an interest rate of –0.25% on sight deposit account balances at the SNB, with the aim of taking the three-month Libor into negative territory. It is thus expanding the target range for the three-month Libor to –0.75% to 0.25% and extending it to its usual width of 1 percentage point. Negative interest will be levied on balances exceeding a given exemption threshold.

The SNB reaffirms its commitment to the minimum exchange rate of CHF 1.20 per euro, and will continue to enforce it with the utmost determination. It remains the key instrument to avoid an undesirable tightening of monetary conditions resulting from a Swiss franc appreciation. Over the past few days, a number of factors have prompted increased demand for safe investments. The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate. The SNB is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required.

Swiss National Bank, “Swiss National Bank introduces negative interest rates. Minimum exchange rate reaffirmed, and target range for three- month Libor lowered into negative territory“, 18 Dec 2014 More

Comment

In the short term it gives (the SNB) some breathing space. If you hold Swiss francs right now you do have to bear a cost. New buyers will be forced to think twice.
Geoffrey Yu, Currency Strategist, UBS More

CHINA

Economy

PBOC offers loans to banks

Extract

The People’s Bank of China (PBOC) has offered short-term loans to commercial lenders as the benchmark money-market rate jumped the most in 11 months.

Policy makers are adding funds to the financial system to address a cash crunch as subscriptions for the biggest new share sales of the year lock up funds. Twelve initial public offerings from today through Dec. 25 will draw orders of as much as 3 trillion yuan ($483 billion), Shenyin & Wanguo Securities Co. estimated.

The seven-day repurchase rate, a gauge of interbank funding availability in the banking system, surged 139 basis points, or 1.39 percentage points, to a 10-month high of 5.28 percent as of 4:39 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The increase was the biggest since Jan. 20.

Bloomberg “PBOC Offers Loans to Banks as Money Rate Jumps Most in 11 Months“, 18 Dec 2014 More

USA

Economy

Unemployment Insurance Weekly Claims Report: Week to 13 Dec 2014 Opinion

Extract

unempla_20141218

In the week ending December 13, the advance figure for seasonally adjusted initial claims was 289,000, a decrease of 6,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 294,000 to 295,000. The 4-week moving average was 298,750, a decrease of 750 from the previous week’s revised average. The previous week’s average was revised up by 250 from 299,250 to 299,500.

unemplb_20141218

The advance seasonally adjusted insured unemployment rate was 1.8 percent for the week ending December 6, 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 December 6 was 2,373,000, a decrease of 147,000 from the previous week’s revised level. The previous week’s level was revised up 6,000 from 2,514,000 to 2,520,000. The 4-week moving average was 2,397,000, an increase of 10,000 from the previous week’s revised average. The previous week’s average was revised up by 1,500 from 2,385,500 to 2,387,000.

U.S. Employment and Training Administration, “Unemployment Insurance Weekly Claims Report – Week to 13 Dec 2014“, 18 Dec 2014 (08:30am) More

Comment

Labor demand has in fact picked up a bit. Chair Yellen set continued improvement in labor market conditions as the key requirement to justify liftoff at some point next year, and the data continue to support that scenario.
Stephen Stanley, Chief Economist, Amherst Pierpont Securities LLC More

Markit Flash US Services PMI – Dec 2014 Opinion

Extract

U.S. service sector output growth hits 10-month low in December. Key points:

  • Weakest rise in service sector business activity since February
  • Job creation moderates to eight-month low
  • Service sector cost inflation eases to its least marked since March 2013

At 53.6 in December, down from 56.2 in November, the seasonally adjusted Markit Flash U.S. Services PMI Business Activity Index1 – which is based on approximately 85% of usual monthly replies – registered above the neutral 50.0 threshold for the fourteenth month running. However, the latest reading pointed to the weakest rate of service sector output growth since the weather-related slowdown in February.

In line with softer output momentum, the latest survey highlighted a further moderation in new business growth from June’s post-crisis peak. Moreover, the rise in incoming new work in December was the weakest for nine months. Some survey respondents noted that concerns about the economic outlook had weighted on client demand at the end of the year.
Weaker new business gains contributed to a moderation in pressures on operating capacity across the U.S. service sector. December data indicated only a marginal rise in backlogs of work, with the latest increase the slowest for five months.

Service providers indicated an increase in payroll numbers during the latest survey period, which continued to upward trend seen in each month since March 2010. However, the rate of job creation was only modest and eased to its weakest since April. Some firms noted that softer new business gains had led to more cautious hiring policies at their units. Meanwhile, the latest survey indicated that service providers’ confidence towards the year- ahead business outlook moderated from the five- month high seen in November.

Input price inflation slowed for the fourth month running in December. The latest increase in average cost burdens was only marginal and the least marked since March 2010. Anecdotal evidence highlighted that falling oil-related prices had partly offset upward pressure on costs from increased staff wages. Meanwhile, prices charged by service providers increased only slightly, and at the slowest pace for five months.

Markit Economics, “Markit Flash US Services PMI – Dec 2014“, 18 Dec 2014 (09:45am) More

Bloomberg Consumer Comfort Index: Week to 13 Dec 2014 Opinion

Extract

“The Bloomberg Consumer Comfort Index (COMFCOMF) climbed to 41.7 in the period ended Dec. 14, the highest reading since mid-November 2007, from 41.3 the week before. Monthly views on economic expectations rose to match a two-year high.”

Bloomberg, “Consumer Confidence in U.S. Rose to Seven-Year High Last Week“, 18 Dec 2014 More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,061.23 +2.40% 1,848.36 +11.52%
DJIA INDU 17,778.15 +2.43% 16,576.66 +7.25%
NASDAQ IXIC 4,748.40 +2.24% 4,176.59 +13.69%

Oil price

Oil prices have resumed their decline, with WTI below $55/barrel and Brent below $60/barrel:

  • West Texas Intermediate (WTI) (Jan 2015) $54.97/barrel (-2.66%)
  • ICE Brent Crude (Feb 2015) $59.83/barrel (-2.21%)

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Nightly Business Report: 18 Dec 2014 Watch Read
Comment

Just as with other instances, a dovish Fed is making up for a lot of bad news, from Europe from other parts of the world. This is why you have this rebound rally after a few days of very harsh losses.
Russ Koesterich, Chief Investment Strategist, BlackRock Inc More

I wouldn’t say we’re seeing wild raging bulls, but a lot of the worry they had is gone. For now and for the rest of the year, we’re in a good spot.
Joe Kinahan, Chief Strategist, TD Ameritrade Holding Corp ($653 billion) More

PORTFOLIO

Index values Opinion

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.761 +2.76% 1.399 +25.86%
Valuation Rate USD/AUD 0.82172 +0.51% 0.89789 -8.48%
Portfolio Index AUD 2.143 +2.24% 1.558 +37.53%

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

 The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

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 $112.65 +2.96% $80.1457 +40.56%
Amazon AMZN $297.73 -0.38% $398.79 -25.34%
Ebay EBAY $57.53 +1.99% $54.865 +4.86%
Facebook FB $78.40 +3.01% $54.65 +43.46%
Google A GOOGL $514.62 +1.61% $560.365 -8.16%
Google C GOOG $511.10 +1.23% $560.365 -8.79%
Linkedin LNKD $231.84 +5.49% $216.83 +6.92%
VMware VMW $83.60 +6.29% $89.71 -6.81%

Wednesday 17 Dec 2014

Diamond Princess visiting Port Melbourne today

Diamond Princess visiting Port Melbourne today

IN PORTFOLIOTICKER TODAY

News

Regular items

RUSSIA

Economy

Ruble stabilises above USD0.016

The ruble has recovered slightly from yesterday's low of USD0.01291 (Chart: xe.com)

The ruble has recovered slightly from yesterday’s low of USD0.01291 (Chart: xe.com)


Russian Prime Minister, Dmitry Medvedev has ruled out capital controls. “Central bank and the government have worked out a package of measures to stabilise the situation. What we are seeing today is mainly emotional games. It is in our interests to bring order to the markets, no one gains from instability. But at the same time, there is no need for tough regulations, as used to happen in the past. It does not bring anything good – we shall use market tools.More

Deputy finance minister Alexei Moiseyev has said Russia is going to sell foreign currency from its treasury accounts “as much as necessary and as long as necessary“. More

Comment

At least the Russian authorities have figured out that letting your currency drop 10% one day, more or less 20% the next peak to trough… might not be such a good idea in terms of financial security… and are finally beginning to join up the dots, and think collectively, to try and re-assure markets.
Timothy Ash, Head of Emerging Market Research, Standard Bank More

Margin consequences for investors

Due to the uncertain economic situation in Russia causing extreme volatility and lack of liquidity in RUB, Saxo Capital Markets has decided to increase the margin requirement for RUB with relatively short notice.

During the trading day of Tuesday, 16th December, RUB has weakened more than 30% against USD. We could be hours away from ‘capital restrictions’ in Russia. This is a sensible step to take when money is flowing out as aggressively as at the moment in Russia.

You should expect that Saxo Capital Markets will continue to stream FX Spot RUB, but for very low threshold. FX Options will be on reduce only and FX Forwards on RFQ.

Change to opening hours in RUB: As of today RUB will be tradable from 7am GMT to 4pm GMT. Please note that the RUB market will be closed due to New Year holiday from 31 December to 9 January, both days included.

New margin requirement: 40%, up from current 8%. Effective: Wednesday, 17 December at 22:00AEDT

Saxo Bank, “Email to Investors: Increase in margin requirement for RUB“, 17 Dec 2014

EUROPE

Economy

Inflation (HICP) – Nov 2014 Opinion

Extract
Annual inflation in the euro area and EU (Chart: Eurostat)

Annual inflation in the euro area and EU (Chart: Eurostat)

Euro area annual inflation was 0.3% in November 2014, down from 0.4% in October. A year earlier the rate was 0.9%. European Union annual inflation was 0.4% in November 2014, down from 0.5% in October. A year earlier the rate was 1.0%. These figures come from Eurostat, the statistical office of the European Union.

In November 2014, negative annual rates were observed in Bulgaria (-1.9%), Greece (-1.2%), Spain (-0.5%) and Poland (-0.3%). The highest annual rates were recorded in Romania and Austria (both 1.5%) and Finland (1.1%). Compared with October 2014, annual inflation fell in sixteen Member States, remained stable in five and rose in six.

The largest upward impacts to euro area annual inflation came from restaurants & cafés (+0.09 percentage points), rents (+0.08 pp) and tobacco (+0.06 pp), while fuels for transport (-0.22 pp), telecommunications and heating oil (-0.09 pp each) had the biggest downward impacts.

Eurostat “Inflation (HICP) – Nov 2014“, 17 Dec 2014 More

USA

Economy

Consumer price index (CPI) – Nov 2014 Opinion

Extract

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 percent in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.3 percent before seasonal adjustment.

The gasoline index posted its sharpest decline since December 2008 and was the main cause of the decrease in the seasonally adjusted all items index. The indexes for fuel oil and natural gas also declined, and the energy index fell 3.8 percent. The food index rose 0.2 percent with major grocery store food groups mixed.

The index for all items less food and energy increased 0.1 percent in November. The shelter index rose 0.3 percent, and the indexes for medical care, airline fares, and alcoholic beverages also rose. In contrast, the indexes for apparel, used cars and trucks, recreation, household furnishings and operations, personal care, and new vehicles all declined in November.

The all items index increased 1.3 percent over the last 12 months, a notable decline from the 1.7 percent figure from the 12 months ending October. The index for all items less food and energy has increased 1.7 percent over the last 12 months, compared to 1.8 percent for the 12 months ending October. The food index has risen 3.2 percent over the span. However, the energy index has declined 4.8 percent over the past 12 months, with the gasoline and fuel oil indexes both falling over 10 percent.

Bureau of Labor Statistics “Consumer price index (CPI) – Nov 2014“, 17 Dec 2014 (08:30) More

Comment

The consumer is getting a well-deserved break. We’re seeing a little more wage growth, more jobs, better confidence and finally a price break at the pump. It adds up to a very strong holiday season.
Stuart Hoffman, Chief Economist, PNC Financial Services Group Inc. More

Real earnings – Nov 2014 Opinion

Extract

Real average hourly earnings for all employees rose 0.6 percent from October to November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.4 percent increase in average hourly earnings combined with a 0.3 percent decrease in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased by 0.9 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 by 0.8 percent, seasonally adjusted, from November 2013 to November 2014. This increase in real average hourly earnings, combined with a 0.3 percent increase in the average workweek, resulted in a 1.1 percent increase in real average weekly earnings over this period.

Bureau of Labor Statistics, “Real earnings – Nov 2014“, 17 Dec 2014 (08:30am) More

Federal Open Market Committee meeting: 16-17 Dec 2014 Opinion

Extract

Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates 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 are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates 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, “Statement by Federal Open Market Committee after its meeting of 16-17 Dec 2014“, 17 Dec 2014 (14:00pm) More

Comment

They’re clearly putting wording there that they have no sense of urgency in trying to normalize policy. They don’t see inflation pressure on the horizon. With the statement, and if we can see some stabilization in oil prices, we’re well poised for a rally here perhaps through the year-end.
Peter Jankovskis, Co-Chief Investment Officer, OakBrook Investments LLC ($1.9 billion) More

They’re being very conservative, adding that they’ll be patient but basically saying they’re going to take their time raising rates. There’s no way they’re raising rates in July, it’s at least fourth quarter 2015 or further out. This certainly favors risk assets, they’re loving it and reacting accordingly.
Doug Cote, Chief Market Strategist, Voya Investment Management LLC ($215 billion) More

USA and Cuba to normalise relations Opinion

Extract: Proposed US actions to normalise relations between USA and Cuba

Re-establish diplomatic relations

Our diplomatic relations with Cuba were severed in January of 1961. The President is immediately reopening discussions with Cuba and working to re-establish an embassy in Havana in the next coming months. The U.S. will work with Cuba on matters of mutual concern that advance U.S. national interests, such as migration, counternarcotics, environmental protection, and trafficking in persons, among other issues.

More effectively empower the Cuban people by adjusting regulations

The President is taking steps to improve travel and remittance policies that will further increase people-to-people contact, support civil society in Cuba, and enhance the free flow of information to, from, and among the Cuban people.

Facilitate an expansion of travel to Cuba

With expanded travel, Americans will be able to help support the growth of civil society in Cuba more easily, and provide business training for private Cuban businesses and small farmers. Americans will also be able to provide other support for the growth of Cuba’s nascent private sector.

General licenses will be made available for all authorized travelers in 12 existing categories

1. Family visits

2. Official business of the U.S. government, foreign governments, and certain intergovernmental organizations

3. Journalistic activity

4. Professional research and professional meetings

5. Educational activities

6. Religious activities

7. Public performances, clinics, workshops, athletic and other competitions, and exhibitions

8. Support for the Cuban people

9. Humanitarian projects

10. Activities of private foundations, research, or educational institutions

11. Exportation, importation, or transmission of information or information materials

12. Certain export transactions that may be considered for authorization under existing regulations and guidelines

Authorize expanded sales and exports of certain goods and services from the U.S. to Cuba

The expansion will seek to empower the nascent Cuban private sector and make it easier for Cuban citizens to have access to certain lower-priced goods to improve their living standards and gain greater economic independence from the state.

Authorize American citizens to import additional goods from Cuba

Licensed U.S. travelers to Cuba will be authorized to import $400 worth of goods from Cuba, of which no more than $100 can consist of tobacco products and alcohol combined.

Initiate new efforts to increase Cubans’ access to communications and their ability to communicate freely

Cuba has an Internet penetration of about five percent – one of the lowest rates in the world. The cost of telecommunications in Cuba is exorbitantly high, while the services offered are extremely limited. Now, telecommunications providers will be allowed to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecommunications and internet services.

White House, “Charting a new course on Cuba“, 17 Dec 2014 More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,012.89 +2.04% 1,848.36 +8.90%
DJIA INDU 17,356.87 +1.69% 16,576.66 +4.71%
NASDAQ IXIC 4,644.31 +2.12% 4,176.59 +11.20%

Oil price

Oil prices appear to have paused their fall:

  • West Texas Intermediate (WTI) (Jan 2015) $56.08/barrel (+0.15%)
  • ICE Brent Crude (Feb 2015) $60.73/barrel (+1.20%)

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Nightly Business Report: 17 Dec 2014 Watch Read
Comment

The game has really changed in terms of inflation. There’s heightened uncertainty in international markets. The drop in oil prices has kept the lid on inflation. The Fed has to wait to see how these two factors play out. That’s why they retained dovish language.
Jeff Kravetz, Regional Investment Director, US Bank Private Client Reserve More

PORTFOLIO

Index values Opinion

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.714 +2.29% 1.399 +22.48%
Valuation Rate USD/AUD 0.81753 -1.13% 0.89789 -8.95%
Portfolio Index AUD 2.096 +3.47% 1.558 +34.52%

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

The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

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 $109.41 +2.50% $80.1457 +36.51%
Amazon AMZN $298.88 +1.29% $398.79 -25.05%
Ebay EBAY $56.40 +0.83% $54.865 +2.80%
Facebook FB $76.11 +1.90% $54.65 +39.27%
Google A GOOGL $506.45 +1.66% $560.365 -9.62%
Google C GOOG $504.89 +1.92% $560.365 -9.90%
Linkedin LNKD $219.78 +1.95% $216.83 +1.36%
VMware VMW $78.65 +2.50% $89.71 -12.33%

FX: USD/AUD

The AUD fell against a stronger USD today (Chart: xe.com)

The AUD fell against a stronger USD today (Chart: xe.com)

Tuesday 16 Dec 2014

Dawn Princess at Port Melbourne on a day of very strong winds

Dawn Princess at Port Melbourne on a day of very strong winds

IN PORTFOLIOTICKER TODAY

News

Regular items

RUSSIA

Economy

Rise in interest rate fails to rescue the ruble

Value of the RUB in USD over the last 7 years (Chart: xe.com)

Value of the RUB in USD over the last 7 years (Chart: xe.com)

Russia’s central bank said it would raise its key interest rate to 17 percent from 10.5 percent, effective today. The move was the largest single increase since 1998, when Russian rates soared past 100 percent and the government defaulted on debt. The news prompted an immediate gain in the ruble, with one-month ruble forwards up 1.6 percent in Asian trading.Bloomberg

Comment – immediately after the announcement

This move symbolizes the surrender of economic growth for the sake of preserving the financial system. It’s the right move to make, and it wasn’t easy to make it.
Ian Hague, Founding Partner, Firebird Management LLC ($1.1 billion) (New York) Bloomberg

While such drastic tightening measures will inflict more pain on the economy, we have been arguing for a while that it is not about preventing recession, but full-scale financial turmoil caused by the precipitous ruble fall.
Piotr Matys, Currency Strategist, Rabobank International (London) Bloomberg

There is a feeling that this rate hike is unfortunately not going to be enough. Russia’s central bank has tried every trick in the book with exception of full-blown capital controls.
Nicholas Spiro, Managing Director, Spiro Sovereign Strategy (London) Bloomberg

The central bank is trying to stop the avalanche, and such a massive hike may be sufficient. No one seems to be thinking what it will do to the economy, as the priority is to stop the ruble plunge.
Slava Breusov, Analyst, Alliance Bernstein (New York) Bloomberg

Comment – after the further fall of the ruble

The interest rate rise has failed to arrest the fall of the ruble which fell as much as 19% since the interest rate announcement.

Our traders are informing me that we see no bids to buy rubles. I thought 17 percent would give them at least a month of breathing space. We next have to look at the experience in 1998-1999. We are also one big step closer to capital controls.
Per Hammarlund, Chief Emerging-markets Strategist, SEB (Stockholm) Bloomberg

I am speechless. What a failure for the central bank. Russia would need to announce capital controls today. That is the last solution.
Jean-David Haddad, Emerging-market Strategist, OTCex Group (Paris) Bloomberg

If such a rate hike, such a shot of medicine doesn’t help the ruble, then interventions won’t help either. There’s no point in spending reserves.
Artem Roschin, Foreign-Exchange Dealer, Aljba Alliance (Moscow) Bloomberg

It’s very hard to stop the panic since everyone is betting against the ruble. The central bank was too late with its move. Without oil and the economy stabilizing, the ruble won’t rise.
Vadim Bit-Avragim, Money Manager, Kapital Asset Management LLC (Moscow) Bloomberg

If I was chairman of President Putin’s council of economic advisers, I would be extremely concerned. They are between a rock and a hard place in economic policy. It’s a serious economic situation that is largely of their own making and largely reflects the consequences of not following a set of international rules.
Jason Furman, Chairman of President Barack Obama’s Council of Economic Advisers Reuters

The RUB bounced off a low of USD0.01291 today

The RUB bounced off a low of USD0.01291 today (Chart xe.com)

JAPAN

Economy

Markit/JMMA Flash Japan Manufacturing PMI – Dec 2014 Opinion

Extract

pmi_japan_20141216

Operating conditions continue to improve in December

  • Flash Japan Manufacturing PMITM at 52.1 (52.0 in November). Growth rate little-changed from previous month.
  • Flash Japan Manufacturing Output Index at 53.3 (52.7 in November). Production rises at sharpest pace in three months.

Markit Economics, “Markit/JMMA Flash Japan Manufacturing PMI – Dec 2014“, 16 Dec 2014 More

CHINA

Economy

HSBC Flash China Manufacturing PMI – Dec 2014 Opinion

Extract

Operating conditions deteriorate for the first time since May

  • Flash China Manufacturing PMITM at 49.5 in December (50.0 in November). Seven-month low.
  • Flash China Manufacturing Output Index at 49.7 in December (49.6 in November). Two-month high.

Markit Economics, “HSBC Flash China Manufacturing PMI – Dec 2014“, 16 Dec 2014 More

Comment

The data highlights intensifying downward pressure on the manufacturing sector. The situation calls for action from policy makers to ensure that soft landing continues and that the slowdown does not become too deep.
Dariusz Kowalczyk, Economist, Credit Agricole CIB (Hong Kong) More

The economy is likely to head to another deceleration, even with a modest campaign of central government driven infrastructure investment, over the coming quarters. Still, we expect this to be a mild deceleration.
Tao Dong, Chief Regional Economist for Asia excluding Japan, Credit Suisse Group AG (Hong Kong) More

They are moving to more of a services-based consumption model and that’s a slower growth model than the hyper growth of manufacturing that led exports and investment.
Stephen Roach, Senior Fellow, Yale University More

EUROPE

Economy

International trade in goods – Oct 2014 Opinion

Extract

Euro area international trade in goods surplus €24.0 bn, €7.6 bn surplus for EU28

The first estimate for the euro area (EA18) trade in goods balance with the rest of the world in October 2014 gave a €24.0 billion surplus, compared with +€16.5 bn in October 2013. The September 2014 balance was +€18.1 bn, compared with +€10.9 bn in September 2013. In October 2014 compared with September 2014, seasonally adjusted exports fell by 0.3% and imports by 1.3%

European Commission, “International trade in goods – Oct 2014“, 16 Dec 2014 More Note: Eurostat website down.

Markit Flash Eurozone Composite PMI – Dec 2014 Opinion

Extract

Flash PMI signals slight gain in momentum at year-end

  • Flash Eurozone PMI Composite Output Index at 51.7 (51.1 in November). 2-month high.
  • Flash Eurozone Services PMI Activity Index at 51.9 (51.1 in November). 2-month high.
  • Flash Eurozone Manufacturing PMI at 50.8 (50.1 in November). 5-month high.
  • Flash Eurozone Manufacturing PMI Output Index at 51.2 (Unchanged from November).

Eurozone business activity grew at a slightly faster rate in December, but the pace of expansion was still one of the weakest seen over the past year. The Markit Eurozone PMI® rose from November’s 16- month low of 51.1 to 51.7 in December, signalling a modest upturn in the rate of growth. However, the reading was the second-lowest seen over the past year and failed to prevent the average reading for the fourth quarter from falling to the lowest since the third quarter of 2013.

Costs fell in Germany for the first time in one-and-a-half years, while the rate of increase slowed across the rest of the region on average. Input price inflation in France accelerated slightly to a four-month high.

Looking ahead, expectations for the year ahead in the service sector dipped from November’s four- month high to again run well below levels seen earlier in the year. In manufacturing, the forward- looking new orders to inventory ratio picked up to a four-month high, though likewise remained subdued.

Markit Economics, “Markit Flash Eurozone Composite PMI – Dec 2014“, 16 Dec 2014 More

USA

Economy

New residential construction (permits, starts, completions – Nov 2014 Opinion

Extract

BUILDING PERMITS

Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,035,000. This is 5.2 percent (±1.4%) below the revised October rate of 1,092,000 and is 0.2 percent (±1.8%) below the November 2013 estimate of 1,037,000.
Single-family authorizations in November were at a rate of 639,000; this is 1.2 percent (±1.4%)* below the revised October figure of 647,000. Authorizations of units in buildings with five units or more were at a rate of 367,000 in November.

HOUSING STARTS

Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,028,000. This is 1.6 percent (±8.1%)* below the revised October estimate of 1,045,000 and is 7.0 percent (±10.2%) below the November 2013 rate of 1,105,000.
Single-family housing starts in November were at a rate of 677,000; this is 5.4 percent (±8.1%)* below the revised October figure of 716,000. The November rate for units in buildings with five units or more was 340,000.

HOUSING COMPLETIONS

Privately-owned housing completions in November were at a seasonally adjusted annual rate of 863,000. This is 6.4 percent (±8.3%)* below the revised October estimate of 922,000, but is 4.5 percent (±9.6%) above the November 2013 rate of 826,000.
Single-family housing completions in November were at a rate of 596,000; this is 2.9 percent (±8.2%)* below the revised October rate of 614,000. The November rate for units in buildings with five units or more was 256,000.

US Census Bureau “New residential construction (permits, starts, completions – Nov 2014“, 16 Dec 2014 (08:30) More

Comment

All the conditions for stronger residential investment are in place for 2015. An improving job market is going to do wonders for the housing market.
Ryan Sweet, Senior Economist, Moody’s Analytics Inc More

Markit Flash US Manufacturing PMI – Dec 2014 Opinion

Extract
US Manufacturing PMI from 2007 to 2014

US Manufacturing PMI from 2007 to 2014 (Source: Markit Economics)

U.S. manufacturing output and new orders continued to rise at a solid pace in December, but both rates of expansion eased to the weakest for 11 months. The latest survey also highlighted a moderation in job creation and input buying growth across the manufacturing sector. Meanwhile, goods producers benefitted from a slowdown in cost inflation to its lowest since April 2013, reflecting falling commodity prices and oil-related costs.

Adjusted for seasonal influences, the Markit Flash U.S. Manufacturing Purchasing Managers’ IndexTM (PMITM)1 registered 53.7 in December, downfrom 54.8 in November and the lowest reading for 11 months. Nonetheless, the index was comfortably above the neutral 50.0 value and remained higher than the long-run series average (52.1).

A weaker improvement in overall business conditions partly reflected slower output growth in December. The latest expansion of production volumes was the least marked since the snow-related slowdown seen during January. Anecdotal evidence from survey respondents suggested that a moderation in new business gains in recent months had contributed to softer output growth at their plants.

Latest data highlighted a solid rise in new business received by U.S. manufacturing companies, but the pace of expansion eased fractionally since November and was the least marked for 11 months. Some manufacturers commented that greater uncertainty about the economic outlook had resulted in softer client spending patterns. Nonetheless, export sales rebounded in the manufacturing sector, as highlighted by a moderate increase in new orders received from abroad during December.

Manufacturing payroll numbers increased for the eighteenth consecutive month in December. However, the latest survey indicated that the rate of employment growth eased to its lowest since July. Reports from survey respondents suggested that slower new business growth and reduced pressures on operating capacity had weighed on staff hiring.
Weaker output and new business growth contributed to the slowest increase in input buying since January. Meanwhile, stocks of purchases rose at a reduced rate in December and post-production inventories were pared back for the first time since June.

Meanwhile, manufacturing input cost inflation moderated for the third month running and was the lowest since April 2013. Survey respondents noted that decreased commodity prices and oil-related costs had resulted in weaker overall input cost pressures. Factory gate price inflation also slowed in December, with the latest increase in output charges the weakest for seven months.

Markit Economics, “Markit Flash US Manufacturing PMI – Dec 2014“, 16 Dec 2014 (09:45am) More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,972.74 -0.85% 1,848.36 +6.73%
DJIA INDU 17,068.87 -0.65% 16,576.66 +2.97%
NASDAQ IXIC 4,547.83 -1.24% 4,176.59 +8.89%

Oil price

  • West Texas Intermediate (WTI) (Jan 2015) $56.05/barrel (+0.25%)
  • ICE Brent Crude (Jan 2015) $59.86/barrel (-1.97%)

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Nightly Business Report: 16 Dec 2014 Watch Read
Comment

There continues to be a backdrop of the U.S. economy improving and we’ll probably see some confirmation from the Fed on that. We’re trading a lot on headlines and much of that has been dominated by crude, credit and currencies, so not exactly the fundamentals to make good equity decisions.
Jim Dunigan, Chief Investment Officer, PNC Bank NA (PA) ($130 billion) More

The drop in oil prices is probably not a signal, but the pace at which it’s declined is becoming a concern. We’re in the period where we’re not getting a lot of corporate earnings and that’s typically what drives stock prices. We’re sort of in the period where macro matters a whole lot more than micro.
John Canally, Economic Strategist at LPL Financial Corp (Boston) More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.675 -1.68% 1.399 +19.73%
Valuation Rate USD/AUD 0.82690 +0.07% 0.89789 -7.91%
Portfolio Index AUD 2.026 -1.75% 1.558 +30.01%

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

The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

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 $106.75 -1.37% $80.1457 +33.19%
Amazon AMZN $295.36 -3.50% $398.79 -25.94%
Ebay EBAY $55.94 +0.90% $54.865 +1.96%
Facebook FB $74.69 -2.99% $54.65 +36.67%
Google A GOOGL $498.16 -3.43% $560.365 -11.10%
Google C GOOG $495.39 -3.58% $560.365 -11.60%
Linkedin LNKD $215.57 -1.12% $216.83 -0.58%
VMware VMW $76.73 +0.39% $89.71 -14.47%

FX: USD/AUD

The AUD bounced off USD0.82017 today (Chart: xe.com)

The AUD bounced off USD0.82017 today (Chart: xe.com)

Monday 15 Dec 2014

Ten days before Christmas …

Hostages holding an Islamic banner at a Lindt cafe in Sydney

Hostages forced to hold an Islamic shahādah banner against the window of a Sydney café

A gunman stormed the Lindt Chocolat Café in Martin Place in central Sydney at 9:45am Monday (Sydney time), holding 17 customers and staff hostage. Six of the 17 hostages escaped uninjured during the siege. Shortly after 2am Tuesday (Sydney time) police stormed the café killing the gunman. Two of the 11 remaining hostages were killed and four were wounded. More The two hostages killed were the 35-year old (male) manager of the café and a customer, a 38-year old (female) barrister (mother of 3).

The 50-year old Iranian-born gunman, Man Haron Monis, represented himself as a spiritual healer and muslim cleric but is believed to have had no relationship to any religious or political organisation. More The head of Iran’s police, Gen Ismail Ahmadi Moghaddam, said that Monis (known in Iran as Manteqi) had fled charges of fraud in Iran and arrived in Australia as a refugee under a false name. Iran had requested his extradition but the Australian government refused that request. More

Monis had been convicted in November 2013 for being an accessory before and after the fact to the murder of his wife in Apr 2013 and was also on bail facing 40 charges of indecent and sexual assault More. On Friday 12 Dec 2014 his application for a High Court review of his conviction for sending “grossly offensive” letters to the families of Australian soldiers killed in Afghanistan was rejected More. This event was probably the cause of his actions today. His lawyer said “Knowing he was on bail for very serious offences, knowing that while he was in custody some terrible things happened to him … he may consider that he’s got nothing to lose … It’s not a concerted terrorism event or act.More

IN PORTFOLIOTICKER TODAY

News

Regular items

USA

Economy

Industrial Production and Capacity Utilization (G.17) – Nov 2014 Opinion

Extract

Industrial production increased 1.3 percent in November after edging up in October; output is now reported to have risen at a faster pace over the period from June through October than previously published. In November, manufacturing output increased 1.1 percent, with widespread gains among industries. The rise in factory output was well above its average monthly pace of 0.3 percent over the previous five months and was its largest gain since February. In November, the output of utilities jumped 5.1 percent, as weather that was colder than usual for the month boosted demand for heating. The index for mining decreased 0.1 percent. At 106.7 percent of its 2007 average, total industrial production in November was 5.2 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.8 percentage point in November to 80.1 percent, a rate equal to its long-run (1972–2013) average.

US Federal Reserve “Industrial Production and Capacity Utilization (G.17) – Nov 2014“, 15 Dec 2014 (09:15am) More

Comment

With consumer demand and business demand strengthening together, it is self-reinforcing. The gain in production sets us up for a solid pace of growth next year.
Laura Rosner, U.S. economist at BNP Paribas (New York) More

Quarterly Financial Report – Retail Trade – Q3 2014

Extract

After-Tax Profits and Sales, Third Quarter 2014 – Not Seasonally Adjusted

Third quarter 2014 after-tax profits of U.S. retail corporations with assets of $50 million and over totaled $17.3 billion, not significantly different from the $17.5 billion recorded in the third quarter of 2013, but down $3.4 (±0.1) billion from the $20.7 billion recorded in the second quarter of 2014.

Sales in the third quarter of 2014 totaled $654.4 billion, up $31.8 (±7.8) billion from the $622.6 billion recorded in the third quarter of 2013, but not significantly different from the $657.2 billion recorded in the second quarter of 2014.

Retail Trade Corporations’ Sales, Third Quarter 2014 – Seasonally Adjusted

Seasonally adjusted sales of U.S. retail corporations with assets of $50 million and over totaled $668.1 billion, up $7.5 (±4.5) billion from the $660.7 billion recorded in the second quarter of 2014, and up $31.8 (±7.8) billion from the $636.4 billion recorded in the third quarter of 2013.

US Census Bureau “Third Quarter 2014 Data from the Quarterly Financial Report: Large US Retail Trade Corporations“, 15 Dec 2014 (10:00am)More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,989.63 -0.63% 1,848.36 +7.64%
DJIA INDU 17,180.84 -0.58% 16,576.66 +3.64%
NASDAQ IXIC 4,605.16 -1.04% 4,176.59 +10.26%

Oil price

  • West Texas Intermediate (WTI) (Jan 2015) $55.18/barrel (-4.55%)
  • ICE Brent Crude (Jan 2015) $60.51/barrel (-2.17%)

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Nightly Business Report: 15 Dec 2014 Watch Read
Comment

What continues to be the focus for the markets is oil … this is where the heaviness is here going into year end. The positive impact from lower oil prices both in consumer and manufacturing won’t be felt immediately.
Tim Ghriskey, Chief Investment Officer, Solaris Group More

Oil can stabilize. It’s not so much that it’s low, but the velocity of the change has been so rapid that it just scares the pants off of people.
Dan Veru, Chief Investment Officer, Palisade Capital Management ($5 billion) More

People are going to come into these markets looking at the same things they did last week, oil and secondary interest rates. To me, the oil selloff is a bit overdone and people’s reactions are a bit negative to it. We need to see stability in oil that lasts a couple of days. If we get that, people will stop being concerned.
Randy Frederick, Managing Director of Trading and Derivatives, Charles Schwab Corp More

(Today’s pattern) is a continuation of the past three or four trading days. Every time we’ve had a rally, we’ve finished near the low of the day.
Joe Bell, Senior Equity Analyst, Schaeffer’s Investment Research Inc. More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.704 -1.23% 1.399 +21.78%
Valuation Rate USD/AUD 0.82634 -0.48% 0.89789 -7.97%
Portfolio Index AUD 2.062 -0.76% 1.558 +32.33%

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

The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

Portfolio stock prices moved fairly much in line with the shape of the market today.

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 $108.22 -1.37% $80.1457 +35.03%
Amazon AMZN $306.07 -0.41% $398.79 -23.25%
Ebay EBAY $55.44 -0.59% $54.865 +1.05%
Facebook FB $76.99 -1.08% $54.65 +40.88%
Google A GOOGL $515.84 -1.09% $560.365 -7.95%
Google C GOOG $513.80 -0.94% $560.365 -8.31%
Linkedin LNKD $218.02 -0.85% $216.83 +0.55%
VMware VMW $76.73 -0.39% $89.71 -14.80%

Australia

Mid-Year Economic and Fiscal Outlook (MYEFO). 2014-2015 Opinion

Extract More

Budget aggregates

(Since the May budget) two key factors have primarily driven the $43.7 billion deterioration in the budget over the forward estimates: the impact of the economy on tax receipts and payments; and the impact of the Senate’s decisions.

Primarily as a result of the collapse in iron ore prices by over 30 per cent and weaker than expected wage growth, tax receipts have been revised down by $31.6 billion. Government payments have also been affected. Delays in passing legislation and negotiations with the Senate have cost the budget more than $10.6 billion over the forward estimates, keeping debt and interest payments higher for longer.

An underlying cash deficit of $40.4 billion is now expected in 2014‑15 (2.5 per cent of GDP), narrowing to a deficit of $11.5 billion (0.6 per cent of GDP) by 2017‑18. This reinforces that there is much more work to do and budget repair will take time.

Budget aggregates (AUD)

Fiscal Year 2014-2015 2015-2016 2016-2017 2017-2018
Estimate Budget MYEFO Budget MYEFO Budget MYEFO Budget MYEFO
Cash balance -29.8bn -40.4bn -17.1bn -31.2bn -10.6bn -20.8bn -2.8bn -11.5bn
Cash/GDP -1.8% -2.5% -1.0% -1.9% -10.6 -20.8 -2.8 -11.5
Fiscal balance -25.9bn -39.8bn -12.2bn -27.2bn -6.6bn -17.8bn +1.0bn -5.0bn
Cash/GDP -1.6% -2.5% -0.7% -1.6% -0.4 -1.0 +0.1 -0.3
Update to the economic outlook

Overall, the outlook for real GDP growth is unchanged since Budget. Real GDP is forecast to grow at 2½ per cent in 2014‑15, before increasing to near‑trend growth of 3 per cent in 2015‑16. This reflects the expectation of solid growth of real activity in the economy continuing.

However, the changes to the economic outlook since the Budget are driven by the sharper than expected fall in the terms of trade, including significant falls in prices of iron ore and coal, and weaker wage growth. While the forecasts for solid real GDP growth are unchanged, the prices we receive for our production have declined significantly. Accordingly, nominal GDP growth in 2014‑15 is expected to be weaker than forecast at Budget, at 1½ per cent. This would be the weakest nominal GDP growth in a financial year in over 50 years.

Underlying cash balance projected to 2024‑25 (Source: MYEFO)

Underlying cash balance projected to 2024‑25 (Source: MYEFO)

Major economic parameters

Forecasts 2015-Projections
Fiscal Year 2014-2015 2015-2016 2016-2017 2017-2018
Real GDP +2.5% +3.0% +3.5% +3.5%
Employment +1.0% +1.75% +2.0% +2.25%
Unemployment rate +6.5% +6.5% +6.0% +5.75%
CPI +2.5% +2.5% +2.5% +2.5%
Wage price index +2.5% +3.0% +2.75% +3.0%
Nominal GDP +1.5% +4.5% +5.25% +5.25%

Iron ore prices have unexpectedly fallen by over 30 per cent since the Budget. MYEFO assumes a free‑on‑board iron ore price of US$60 per tonne over the next two years, which compares with a spot price of US$95 at Budget. The fall in iron ore prices has led to company tax receipts being revised down by $2.3 billion in 2014‑15 and $14.4 billion over the forward estimates.

At the same time weaker wage and employment growth are expected to lower individuals’ income tax receipts by $2.3 billion in 2014‑15 and $8.6 billion over the forward estimates. Weaker wage and employment growth will also increase payments for existing government programmes.

Excluding policy changes, total taxation receipts have been revised down by $6.2 billion in 2014‑15 and $31.6 billion over the forward estimates. This brings the total writedown in tax receipts since the Government was elected to over $70 billion.

To avoid detracting from economic growth, the Government has let the impact on the budget from sharply lower iron ore prices and slower wage growth flow through to the bottom line, rather than taking decisions to cut expenditure dramatically or increase tax.

Week: 8 – 14 Dec 2014

Sun Princess visiting Port Melbourne on Sunday

Sun Princess visiting Port Melbourne on Sunday

USA

:-( Yes folks … it’s been an awful week, as a 7-week run was terminated by continuing falls in the price of oil to a 6-year low.

Bloomberg sums up the week this way: “The Dow lost 677.96 points, or 3.8 percent, to 17,280.83 (worst week since 2011). The Standard & Poor’s 500 Index (SPX) slid 3.5 percent to 2,002.33, its biggest drop since May 2012. The MSCI All-Country World Index declined 3.8 percent, also the most since 2012. The worst rout in Greek equities since 1987 sent European shares to their biggest weekly slump in more than three years. Canadian stocks plunged 5.1 percent and Brazil entered a bear market, falling more than 20 percent from a September peak.More

US market indices Impact

Index 12 Dec 2014 Week 5 Dec 2014 Month 28 Nov 2014 Year 31 Dec 13
S&P 500 2,002.33 -3.52% 2,075.37 -3.15% 2,067.56 +8.33% 1,848.36
DJIA 17,280.83 -3.78% 17,958.79 -3.07% 17,828.24 +4.25% 16,576.66
NASDAQ 4,653.60 -2.66% 4,780.75 -2.88% 4,791.63 +11.42% 4,176.59

The shape of the week

US market indices ended their 7-week run of gains

US market indices ended their 7-week run of gains (Chart: Yahoo Finance)

Comment

Analysts are allowing for the possibility that the fall in oil price may continue through $50/barrel. Other commodities, for example iron ore, are also falling to something like the same extent.

It may be that smart money heard things that the long money crowd didn’t that worked its way into the market in the last two hours. Bottom line is, you pay attention to fundamentals and the fundamentals are solid, and then you look at your screen and you want to throw up.
Philip Orlando, Chief Equity Market Strategist, Federated Investors Inc ($350 billion) More

Oil’s drop is a canary in the coal mine for economic prospects in 2015. Investors are deleveraging risk. There’s a convergence of disinflationary trends, as well as a deceleration of global economic growth, which is sending investors to the sideline.
Chad Morganlander, Portfolio, Stifel Nicolaus & Co. ($160 billion) More

Clearly the oil situation is driving things. At first it was just oversupply of oil. But now it’s that, plus fear of a world economy that’s growing too slow. Those fears are definitely outweighing the positive signs we’re seeing domestically.
Randy Warren, Chief Investment Officer and President, Warren Financial Service and Associates Inc. ($100 million) More

A week of Nightly Business Reports

Monday Tuesday Wednesday Thursday Friday

PORTFOLIO

:-( The market had a bad week – our portfolio has had 2 bad weeks: the first driven by disappointing Black Friday sales, and this week we shared the impacts of falling commodity prices, and european misfortunes.

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 12 Dec 2014 Week 5 Dec 2014 Month 28 Nov 2014 Year 31 Dec 13
USD Index 1.725 -3.72% 1.792 -7.08% 1.857 +23.30% 1.399
Valuation rate 0.83033 -0.87% 0.83765 -2.98% 0.85587 -7.52% 0.89789
AUD Index 2.078 -2.87% 2.139 -4.22% 2.169 +33.33% 1.558

Portfolio stocks

The shape of portfolio stocks this week (Chart: Yahoo Finance)

The shape of portfolio stocks this week (Chart: Yahoo Finance)

Apple AAPL -4.58%

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

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

Amazon AMZN -1.70%

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

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

Ebay EBAY +1.75%

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

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

Facebook FB +1.93%

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

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

Google Class A GOOGL -1.24%

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

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

  • Friday close: $521.51 -1.24% from $528.08.
  • P/E (historical): 27.35 Change from 27.69
  • P/E (1 year fwd): 25.28 Change from 25.78
  • Target (1 year): NASDAQ consensus $650, range $530 ↔ $750.
  • SEC filings (CIK 0001288776): Edgar Search (New, Beta)

Google Class C GOOG -1.26%

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

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

  • Friday close: $518.66 -1.26% from $525.26.
  • P/E (historical): 21.59 Change from 21.87
  • Target (1 year): NASDAQ consensus $597.5Change, range $580Change ↔ $615.
  • Analyst recommendations: 7Change strong buy, 3 buy, 1Change hold.

Linkedin LNKD +0.83%

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

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

VMware VMW -8.69%

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

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

AUSTRALIA

USD/AUD

The Mid-Year Economic and Fiscal Outlook (MYEFO) will be released next Monday, 15 December 2014. The Treasurer, Joe Hockey, and Minister for Finance, Mathias Cormann, will hold a media conference at 12:30pm.More

Treasurer Joe Hockey has warned the nation to brace for alarming numbers in mid-year budget update by revealing plunging commodity prices will see the biggest fall in terms of trade since records were first kept in 1959.AFR

USD/AUD this week (Chart: xe.com)

USD/AUD this week (Chart: xe.com)

Friday 12 Dec 2014

IN PORTFOLIOTICKER TODAY

News

Regular items

CHINA

Economy

Industrial production – Nov 2014 Opinion

China’s National Bureau of Statistics has released these estimates for Nov 2014:

  • Industrial production (IP) – Nov 2014: +7.2% year-on-year (forecast +7.5%, Oct 2014 +7.7%)
  • Fixed asset investment (FAI) – YTD (Jan 2014 – Nov 2014): +15.8% year-on-year (forecast +15.8%, Jan 2014 – Oct 2014 +15.9%)
  • Retail sales – Nov 2014: +11.7% year-on-year (forecast +11.5%, Oct 2014 +11.5%)
  • Power output – Nov 2014: + 0.6% year-on-year, third deceleration in a row
  • Property investment – YTD (Jan 2014 – Nov 2014): +11.9% year-on-year (Jan 2014 – Oct 2014 +12.4%)

Reuters, “China November factory output up 7.2 percent, misses forecasts, investment cools“. 12 Dec 2014 More

Comment

At least on the industrial output side, it’s holding up pretty well. There may be a little bit of a slowdown coming in. Fourth-quarter GDP growth may be a little bit slower than 7.3 percent in the third quarter but not a great deal.

We’re ready for an RRR (bank required reserve ratio) cut at any point. We think there will be 100 basis points of cuts over the next couple of quarters. Our baseline scenario is no more (policy interest) rate cuts. Given their demonstrated sensitivity to meeting their growth objectives, I think… the risk, at least to our forecast, is that it’s too conservative and that in fact they not only cut the RRR they cut the deposit rates.

Tim Condon, Head of Research Asia, ING (Singapore) More

November activity data pack came in mixed as industrial output and fixed asset investment slowed while retail sales accelerated. However, the key is industrial output, which slowed much more sharply than anticipated, to just 7.2 percent year-on-year – the second lowest reading since 2009.

“The data bodes ill for GDP growth in Q4, which is bound to slow further. It will put pressure on policymakers to ease monetary stance again and we expect an RRR cut in December. The data should pressure CNY and CNH rates and FX.

Dariusz Kowalczyk, Economist, Credit Agricole CIB (HK): More

Bloomberg GDP tracker

Bloomberg’s gross domestic product tracker came in at 6.78 percent year-on-year in November, down from 6.91 percent in October and a fourth month below 7 percent, according to a preliminary reading.Bloomberg

FRANCE

Economy

France’s credit rating cut to AA Opinion

Fitch has cut its rating on French long-term foreign- and local-currency to ‘AA’ from ‘AA+’. France was downgraded by S&P from AAA to AA 13 Jan 2012.

Extract

Fitch Ratings has downgraded France’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘AA’ from ‘AA+’. This resolves the Rating Watch Negative (RWN) placed on France’s ratings on 14 October 2014. The Outlooks on France’s Long-term ratings are now Stable. The issue ratings on France’s unsecured foreign and local currency bonds have also been downgraded to ‘AA’ from ‘AA+’ and removed from RWN. At the same time, Fitch has affirmed the Short-term foreign currency IDR at ‘F1+’ and the Country Ceiling at ‘AAA’.
KEY RATING DRIVERS
The downgrade reflects the following factors and their relative weights:

When it placed the ratings on RWN in October, Fitch commented that it would likely downgrade the ratings by one notch in the absence of a material improvement in the trajectory of public debt dynamics following the European Commission’s (EC) opinion on France’s 2015 budget. Since that review, the government has announced additional budget saving measures of EUR3.6bn (0.17% of GDP) for 2015, which will push down next year’s official headline fiscal deficit target to 4.1% of GDP from the previous forecast of 4.3%. On its own, this will not be sufficient to significantly change Fitch’s projections of France’s government debt dynamics.

The 2015 budget involves a significant slippage against prior budget deficit targets. The government now projects the general government budget deficit at 4.4% in 2014 (up from 3.8% in the April Stability Programme with the slippage led by weaker than expected growth and inflation) and 4.1% in 2015 (previously 3.0%), representing no improvement from the 4.1% of GDP achieved in 2013. It has postponed its commitment to meet the headline EU fiscal deficit threshold of at most 3% of GDP from 2015 until 2017.

In the draft 2015 budget, the authorities projected the gross general government debt (GGGD) to GDP ratio to peak higher at 98% and later in 2016 (previously in the Stability programme at 95.6% in 2014 and 2015) and fall more slowly to 97.3% in 2017 (previously 91.9%) and 92.9% in 2019. The projections compare with the ‘AA’ category median for GGGD of 37%. The only ‘AA’ range country with a higher debt ratio is Belgium (AA/Negative). Even under the official forecast, the capacity of the public finances to absorb shocks has been significantly reduced. Fitch expects the debt to GDP ratio to peak higher at close to 100% of GDP, with a slower decline to 94.9% of GDP by the end of the decade.

Risks to Fitch’s fiscal projections remain on the downside owing to the uncertain outlook for GDP growth and inflation in the near term and the increased uncertainty over the government’s ability to deliver on a fiscal consolidation path. Reflecting these concerns, Fitch’s medium-term growth forecasts are somewhat weaker and budget deficits wider than official projections.

Fitch Ratings, “Fitch Downgrades France to ‘AA’; Outlook Stable“, 12 Dec 2014 More

UK

Economy

Fitch Affirms UK at ‘AA+’; Outlook Stable Opinion

Extract

Fitch Ratings has affirmed the UK’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘AA+’. The Outlooks are Stable. The issue ratings on the UK’s senior unsecured foreign and local currency bonds have also been affirmed at ‘AA+’. The Country Ceiling has been affirmed at ‘AAA’ and the Short-term foreign currency IDR at ‘F1+’.
KEY RATING DRIVERS
The UK benefits from a stable, broad-based economic recovery. Strong quarterly GDP growth, on average 0.8% qoq since 2Q13, has continued since the last rating review in June 2014 and has been the least volatile among major advanced economies. Household consumption has been the key driver of GDP growth in the first three quarters of 2014, while investment growth has also been strong.

The Office for Budget Responsibility (OBR) in its December 2014 report estimates the FY14 budget deficit, public sector net borrowing (PSNB), to have declined to 5% of GDP from 5.6% in FY13 and 10.2% in FY09. According to the OBR’s calculations, the decline of the deficit in FY14 is purely cyclical. This is consistent with Fitch’s view that the previously wide gap between headline and structural budget position is gradually closing. The general government budget deficit using the internationally comparable EU Treaty definition is 5.3% of GDP for FY14, and remains large compared with rating peers and the ‘AA’ median of a 1.5% surplus. This implies substantial further consolidation over the next several years.

The 2014 Autumn Statement, the last major economic policy announcement before the 2015 general election, contained limited revenue and expenditure measures. The net effect is less than 0.1% of GDP. The Statement was in line with the government’s multi-year consolidation programme. However, the current fiscal framework, built on the dual targets of debt at fixed horizon (FY16), which is very likely to be missed, and a five-year rolling current deficit target gives limited forward guidance six months before the general elections.

Debt remains among the highest of ‘AA’ and ‘AAA’ rated sovereigns. Fitch expects gross general government debt (GGGD), using the EU Treaty definition based on the new ESA2010 methodology, to peak at 89% of GDP in 2015-16 and to start falling in 2017, when the primary balance turns positive.

The UK labour market is characterised by the unusual combination of strong employment growth and subdued wage dynamics. Unemployment declined to 6% in July-September, 0.8pp lower than at the beginning of 2014, while real wages declined further. Inflation has fallen substantially over the past six months, mainly due to lower energy prices and was 1.3% in October after 1.8% in 1H14. Despite the recovery, productivity growth is puzzlingly weak compared with other major advance economies and historical norms.

The UK’s ratings are underpinned by its high-income, diversified and flexible economy as well as by a high degree of political and social stability. Strong civil and policy institutions and a high degree of transparency enhance the predictability of the business and economic policy environment that compares favourably with peers in the ‘AA’ category.

The credible monetary policy framework and sterling’s international reserve currency status afford the UK a high degree of financial and economic policy flexibility.

The UK’s current account deficit widened to 4.2% of GDP in 2013 from 1.7% in 2011, compared with a surplus for the ‘AA’ median, mainly reflecting deterioration in net investment income. Fitch forecast the current account deficit to remain around 4% of GDP until 2016.

The long average maturity of public debt (15 years, the longest of any high-grade sovereign) almost exclusively denominated in local currency and low interest service burden implies a higher level of debt tolerance than many high-grade peers.

The substantial improvement in the UK banking sector’s capital and liquidity position has further reduced contingent liabilities arising from the sector and more recently the financial sector is increasingly able to support the economic recovery by better transmitting the loose monetary conditions to borrowers.

Fitch Ratings, “Fitch Affirms UK at ‘AA+’; Outlook Stable“, 12 Dec 2014 More

USA

Economy

Spending bill passed in House, avoiding a shutdown Opinion

Shutdown avoided as House narrowly passes a $1.1 trillion spending bill

Shutdown avoided as House narrowly (219:206) passes a $1.1 trillion spending bill

Extract

The U.S. Senate on Friday struggled to pass a $1.1 trillion spending bill that would avert a looming federal government shutdown, postponing a vote until Monday when procedural hurdles begin to evaporate.

Negotiations between Democrats and Republicans to speed the process along collapsed during late-night talks in the nearly abandoned U.S. Capitol.

Barring any agreement to act in a more streamlined way, the Senate is on track to hold a procedural vote at 1 a.m. eastern time Sunday aimed at clearing the way for passage on Monday.Reuters

Update

On Saturday the Senate passed (56:40) the spending bill. More

Producer price indices – Nov 2014 Opinion

Extract

The Producer Price Index for final demand fell 0.2 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease followed a 0.2-percent rise in October and a 0.1-percent decline in September. On an unadjusted basis, the index for final demand advanced 1.4 percent for the 12 months ended in November, the smallest 12-month increase since a 1.2-percent rise in February 2014.

In November, the 0.2-percent decline in final demand prices can be traced to the index for final demand goods, which decreased 0.7 percent. In contrast, prices for final demand services advanced 0.1 percent.

Final demand includes goods, services, and construction which are sold for personal consumption, capital investment, government purchases, and export.

Bureau of Labor Statistics “Producer price indices – Nov 2014“, 12 Dec 2014 (08:30am) More

Thomson Reuters/University of Michigan’s Index on Consumer Sentiment – Dec 2014 (Preliminary) Opinion

Extract

The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment for this month came in at 93.8, the highest reading since January 2007 and above the median forecast of 89.5 among 70 economists polled by Reuters. The final November reading was 88.8.

The survey’s gauge of consumer expectations rose to 86.1 from 79.9, also the highest since January 2007, and beating the 80.5 forecast.

The survey’s barometer of current economic conditions rose to 105.7 from 102.7 and above the 101.4 forecast. It was the highest level since February 2007.

Thomson-Reuters “Thomson Reuters/University of Michigan’s Index on Consumer Sentiment – Dec 2014 (Preliminary)“, 12 Dec 2014 More

Comment

Everything is pointing in the right direction for the consumer. We expect a pretty good run for consumption growth in the fourth quarter. It is a big boost for the economy.
Paul Ashworth, Chief U.S. Economist. Capital Economics NA (Toronto) More

Stock market indices Opinion

:-( The DJIA dropped 315.51 points for a 1.79% fall for the day.

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,002.33 -1.18% 1,848.36 +8.33%
DJIA INDU 17,280.33 -1.44% 16,576.66 +4.25%
NASDAQ IXIC 4,653.60 -0.65% 4,176.59 +11.42%

Oil price

NYMEX prices for WTI Crude  for the past 6 months (Source: NASDAQ)

NYMEX prices for WTI Crude for the past 6 months (Source: NASDAQ)

  • West Texas Intermediate (WTI) (Jan 2015) $57.81/barrel (down 3.57%) – down 12% this week
  • ICE Brent Crude (Jan 2015) $61.85/barrel (down 2.87%) – down 11% this week

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Certainly as midday came the market did not stabilize at all, so sellers knew that. Energy is at the top of the list in terms of the names getting crushed.
Kenny Polcari, Director of the NYSE Floor Division, O’Neil Securities More

Nightly Business Report: 12 Dec 2014 Watch Read
Comment

People are still nervous about the oil price and the European situation is worrisome. Consumer confidence numbers look good and retail sales were pretty strong yesterday – the domestic picture is encouraging – but one school of thought is that the rest of the world is going to drag the U.S. down with it.
John Carey, Fund Manager, Pioneer Investment Management ($230 billion) More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.725 -1.51% 1.399 +23.30%
Valuation Rate USD/AUD 0.83033 -0.85% 0.89789 -7.52%
Portfolio Index AUD 2.078 -0.66% 1.558 +33.33%

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)

The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $109.73 -1.69% $80.1457 +36.91%
Amazon AMZN $307.32 -0.01% $398.79 -22.94%
Ebay EBAY $55.77 -1.79% $54.865 +1.65%
Facebook FB $77.83 +0.13% $54.65 +42.42%
Google A GOOGL $521.51 -1.99% $560.365 -6.93%
Google C GOOG $518.66 -1.83% $560.365 -7.44%
Linkedin LNKD $219.90 +1.17% $216.83 +1.42%
VMware VMW $76.73 -1.79% $89.71 -14.47%

Thursday 11 Dec 2014

Dawn Princess visiting Port Melbourne on an overcast day

Dawn Princess visiting Port Melbourne today

IN PORTFOLIOTICKER TODAY

News

Regular items

USA

Economy

Advance monthly retail sales – Nov 2014 Opinion

Extract

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $449.3 billion, an increase of 0.7 percent (±0.5%) from the previous month, and 5.1 percent (±0.9%) above November 2013. Total sales for the September through November 2014 period were up 4.7 percent (±0.7%) from the same period a year ago. The September to October 2014 percent change was revised from +0.3 percent (±0.5%) to +0.5 percent (±0.2%).

Retail trade sales were up 0.7 percent (± 0.5%) from October 2014, and 4.9 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 9.5 percent (±3.2%) from November 2013 and nonstore retailers were up 8.7 percent (±2.1%) from last year.

US Census Bureau, “Advance monthly sales for retail and food services – Nov 2014“, 11 Dec 2014 (08:30am) More

Comment

It’s pretty clear that conditions are improving along with the fall in gasoline prices. Consumers are going to have more discretionary income and will be more willing to spend.
Terry Sheehan, Economic Analyst, Stone & McCarthy Research Associates More

US import and export price indexes – Nov 2014 Opinion

Extract

Imports

All Imports: Prices for U.S. imports fell 1.5 percent in November, the largest monthly drop in import prices since a 2.3-percent decrease in June 2012. Led by lower fuel prices, overall import prices declined in each of the past 5 months, falling 4.2 percent over that period. The price index for imports fell 2.3 percent over the past 12 months, the largest year-over-year decline since a 2.7-percent decrease between April 2012 and April 2013.

Fuel Imports: Fuel prices decreased 6.7 percent in November, after declining 6.0 percent in October. Those drops were the largest monthly decreases since the index fell 8.5 percent in June 2012. Both monthly declines were driven by lower petroleum prices, which fell 6.9 percent in November and 6.4 percent in October. In November, a 4.6-percent decrease in natural gas prices also contributed to the overall drop in
fuel prices, and followed a 0.4-percent advance the previous month. Fuel prices fell 11.5 percent for the year ended November, the largest 12-month drop since the index fell 13.4 percent in July 2012. The November 2014 decrease was led by a 12.3-percent drop in petroleum prices, which more than offset a 10.6-percent increase in natural gas prices over the same period.

All Imports Excluding Fuel: The price index for nonfuel imports decreased 0.2 percent for the third consecutive month in November. Prior to the last 3 months, the last time the index fell by more than 0.2 percent was a 0.4-percent decline in July 2013. Lower prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; and each of the major finished goods categories contributed to the overall
decline. Nonfuel import prices were unchanged over the past 12 months as higher prices for consumer goods and foods, feeds, and beverages offset falling prices for nonfuel industrial supplies and materials, automotive vehicles, and capital goods.

Exports

All Exports: Export prices fell 1.0 percent in November, the largest monthly decline since a 1.0-percent drop in April. Those were the largest 1-month decreases since the index fell 1.7 percent in June 2012. In November, lower prices for nonagricultural exports more than offset higher agricultural prices. The price index for overall exports fell 1.9 percent for the November 2013-14 period, the largest 12-month drop since a 2.2-percent decline in October 2013.

Agricultural Exports: Prices for agricultural exports increased 0.5 percent in November following a 10.0-percent decline over the previous 5 months. The November increase was the largest monthly advance since a 1.5-percent rise in April. A 7.0-percent advance in soybean prices led the overall increase, although higher prices for corn and wheat also contributed to the advance. Despite the November rise, agriculture exports fell 3.8 percent over the past 12 months. Lower prices for soybeans, corn, and wheat all factored into the decline over the past year.

All Exports Excluding Agriculture: The price index for nonagricultural exports decreased 1.2 percent in November, after falling 0.8 percent in October. Falling prices for both nonagricultural industrial supplies and materials and finished goods contributed to the overall decline. Nonagricultural exports decreased 1.7 percent between November 2013 and November 2014, as lower prices for nonagricultural industrial supplies and materials and consumer goods more than offset higher prices for capital goods and automotive vehicles.

Bureau of Labor Statistics, “US import and export price indexes – Nov 2014“, 11 Dec 2014 (08:30am) More

Unemployment Insurance Weekly Claims Report: Week to 6 Dec 2014 Opinion

Extract

In the week ending December 6, the advance figure for seasonally adjusted initial claims was 294,000, a decrease of 3,000 from the previous week’s unrevised level of 297,000. The 4-week moving average was 299,250, an increase of 250 from the previous week’s unrevised average of 299,000.

The advance seasonally adjusted insured unemployment rate was 1.9 percent for the week ending November 29, an increase 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 29 was 2,514,000, an increase of 142,000 from the previous week’s revised level. The previous week’s level was revised up 10,000 from 2,362,000 to 2,372,000. The 4-week moving average was 2,385,500, an increase of 27,750 from the previous week’s revised average. The previous week’s average was revised up by 2,500 from 2,355,250 to 2,357,750.

U.S. Employment and Training Administration, “Unemployment Insurance Weekly Claims Report – Week to 6 Dec 2014“, 11 Dec 2014 (08:30am) More

Bloomberg Consumer Comfort Index Opinion

Extract

American consumer confidence reached a seven-year high last week as job gains and plunging fuel costs propelled the economy and boosted spirits in the midst of the holiday-shopping season.

The Bloomberg Consumer Comfort Index (COMFCOMF) increased to 41.3 in the period ended Dec. 7, its highest since December 2007, from 39.8 the week before. Measures on the economy and buying climate also climbed to the strongest levels in seven years.

Bloomberg, “Consumer Comfort Rises to 7-Year High on U.S. Jobs, Cheap Fuel“, 11 Dec 2014 More

Financial Accounts of the United States – Q3 2014

Extract

The net worth of households and nonprofits dipped slightly to $81.3 trillion during the third quarter of 2014. The value of directly and indirectly held corporate equities decreased $0.7 trillion and the value of real estate rose $245 billion.

Domestic nonfinancial debt outstanding was $40.9 trillion at the end of the third quarter of 2014, of which household debt was $13.4 trillion, nonfinancial business debt was $11.8 trillion, and total government debt was $15.8 trillion.

Domestic nonfinancial debt growth was 4.4 percent at a seasonally adjusted annual rate in the third quarter of 2014, slightly higher than the previous quarter.

Household debt increased at an annual rate of 2.7 percent in the third quarter (excluding charge-offs of home mortgages). Net originations of home mortgages continued to be weak, while consumer credit continued to grow at a solid pace.

Nonfinancial business debt rose at an annual rate of 5.2 percent in the third quarter, about in line with the increase in the previous quarter. As in recent years, corporate bonds accounted for most of the increase.

State and local government debt declined at an annual rate of 2.8 percent in the third quarter, after increasing at an annual rate of 1.2 percent in the previous quarter.

Federal government debt rose 7.2 percent at an annual rate in the third quarter, up from a 2.5 percent annual rate in the previous quarter.

Federal Reserve, “Z.1: Financial Accounts of the United States: Flow of Funds, Balance Sheets and Integrated Macroeconomic Accounts – Q3/2014“, 11 Dec 2014 (12:00pm) More

Comment

Net worth has been something that’s supported consumer spending over the last couple of years. We’ve seen households de-leverage and repair balance sheets and the way that transition was able to occur with pretty steady consumption growth was asset prices and wealth gains that were enormous.
Laura Rosner, U.S. Economist, BNP Paribas (New York) More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 2,035.33 +0.45% 1,848.36 +10.12%
DJIA INDU 17,596.34 +0.36% 16,576.66 +6.15%
NASDAQ IXIC 4,708.16 +0.52% 4,176.59 +12.73%

Oil price

Since oil has become so important to the economy, markets and our stocks, we’ll track oil futures contracts for a while:

The shape of the day

Market indices today (Chart: Yahoo Finance)

Market indices today (Chart: Yahoo Finance)

Nightly Business Report: 11 Dec 2014 Watch Read
Comment

When you see a big decline like we did yesterday we’re poised for a little bit of a bounce back and retail sales are helping. Globally, we’re still one of the bright spots. Retail sales are always an indication that consumers are feeling good.”
Larry Peruzzi, Director of International Trading, Cabrera Capital Markets LLC More

The consumer is doing pretty well. Any money consumers are saving from lower gasoline prices is being deployed elsewhere. The broad-based increase in sales is quite encouraging.
Thomas Simons, Economist at Jefferies LLC (New York) More

We could have a blowout period for consumer spending in December, which gives the economy momentum going into 2015. The oil glut is a boon. Employment is growing solidly. The economy is picking up speed.
Chris Rupkey, Chief Financial Economist, Bank of Tokyo-Mitsubishi UFJ Ltd (New York) More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.751 -0.03% 1.399 +25.15%
Valuation Rate USD/AUD 0.83113 -0.76% 0.89789 -7.44%
Portfolio Index AUD 2.107 +0.73% 1.558 +35.21%

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)

Our portfolio stocks matched the shape of market indices today, although Apple and VMware ended below yesterday’s close prices.

The shape of the portfolio today (Chart: Yahoo Finance)

The shape of the portfolio today (Chart: Yahoo Finance)

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $111.62 -0.29% $80.1457 +39.27%
Amazon AMZN $307.36 +0.50% $398.79 -22.93%
Ebay EBAY $56.78 +2.74% $54.865 +3.49%
Facebook FB $77.73 +2.03% $54.65 +42.23%
Google A GOOGL $532.11 +0.77% $560.365 -5.04%
Google C GOOG $528.34 +0.43% $560.365 -5.72%
Linkedin LNKD $217.36 +1.06% $216.83 +0.24%
VMware VMW $78.13 -2.19% $89.71 -12.91%

AUSTRALIA

Economy

Australian Labour Force (Unemployment) – Oct 2014 Opinion

Australia’s unemployment rate rose from 6.2% in Oct 2014 to 6.3% in Nov 2014, the highest level since Sep 2002 (12 years).

Extract

“TREND ESTIMATES (MONTHLY CHANGE)

  • Employment increased to 11,613,900.
  • Unemployment increased to 775,400.
  • Unemployment increased by less than 0.1 pts to 6.3%.
  • Participation rate remained steady at 64.6%.
  • Aggregate monthly hours worked decreased 1.8 million hours to 1,606.1 million hours.”

“SEASONALLY ADJUSTED ESTIMATES (MONTHLY CHANGE)

  • Employment increased 42,700 to 11,637,400. Full-time employment increased 1,800 to 8,059,400 and part-time employment increased 40,800 to 3,578,000.
  • Unemployment increased 4,700 to 777,700. The number of unemployed persons looking for full-time work increased 13,500 to 545,900 and the number of unemployed persons only looking for part-time work decreased 8,800 to 231,700.
  • Unemployment rate increased by less than 0.1 pts to 6.3%.
  • Participation rate increased 0.1 pts to 64.7%.
  • Aggregate monthly hours worked decreased 4.4 million hours (0.3%) to 1 ,610.6 million hours.”

“LABOUR UNDERUTILISATION (QUARTERLY CHANGE)

  • Trend estimates: The labour force underutilisation rate increased 0.5 pts to 14.8%.
  • Seasonally adjusted estimates: The labour force underutilisation rate increased 0.6 pts to 15.0%. The male labour force underutilisation rate increased 0.5 pts to 13.1%. The female labour force underutilisation rate increased 0.7 pts to 17.2%.”

Australian Bureau of Statistics, “6202.0 – Labour Force, Australia. Oct 2014“, 11 Dec 2014 More

Glenn Stevens (RBA Governor) interview

In an interview with the Australian Financial Review, Glenn Stevens, Governor of the Reserve Bank of Australia is reported to have said:

  • the AUD should now be closer to about USD0.75
  • the recent drop in the global oil price to about USD60 a barrel is “bullish” for the global economy
  • this year’s strategy of keeping rates steady at 2.5 per cent has delivered a message of stability and predictability that has been the best way to buttress household and business sentiment
  • Australia’s AAA rating could be threatened by the Federal Government’s failure to “get real” about the budget, especially longer-term tax and spending issues.

In the context of recent comments by economists that Australia is an “income recession” More, Glenn Stevens said “The economy is not in recession, it’s not contracting, we’re not having hundreds of thousands of jobs lost over a year. So I think we need to be careful with the language, just to convey to ­people what’s going on.

Jacob Greber and Michael Stutchbury, Australian Financial Review, “RBA governor Glenn Stevens calls for US75¢ dollar“, 11 Dec 2014 More

NEW ZEALAND

Economy

Official Cash Rate and Monetary Policy Statement Opinion

Extract

The Reserve Bank today left the Official Cash Rate unchanged at 3.5 percent.

The global economy continues to grow at a moderate pace, though recent data suggest a softening in major economies other than the United States. Inflation remains below target in most of the advanced economies due to spare capacity and declining commodity prices. Monetary policy is expected to remain very supportive for some time.

New Zealand’s economic growth is running at an annual rate of around 31⁄2 percent. While dairy prices have declined sharply, domestic demand has retained momentum, supported by the ongoing growth in consumption and construction activity. Interest rates are low by historical standards and continue to support domestic demand. The exchange rate does not reflect the decline in export prices this year and remains unjustifiably and unsustainably high. We expect to see a further significant depreciation.

CPI inflation remains modest, at 1 percent in the year to September. Weak global inflation, falls in international oil prices and the high exchange rate are the main influences. Inflation in the non-tradeables sector remains subdued with capacity pressures having less impact than usual.

Growth is expected to remain at or above trend through 2016, with unemployment continuing to decline. Modest inflation pressures suggest the expansion can be sustained for longer than previously expected with a more gradual increase in interest rates. Underpinning this, the economy’s productive capacity is being boosted by high labour force participation, strong net immigration and continued investment growth.

Risks to the growth outlook include dairy prices, which are expected to recover in 2015, the overvalued exchange rate, and the strength of construction activity. Inflation risks include the impact of rising capacity pressures on domestic inflation, the response of house prices to the strong migration inflows, and the impact of lower oil prices.

With output projected to grow at or above capacity, CPI inflation is expected to approach the 2 percent midpoint of the Reserve Bank’s target range in the latter part of the forecast period. Some further increase in the OCR is expected to be required at a later stage. Further policy adjustments will depend on data emerging over the assessment period.

Reserve Bank of New Zealand, “Official Cash Rate and Monetary Policy Statement“, 11 Dec 2014 More