Wed 20 Sep 2017


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In Portfolioticker today

read_this Hey Jarvis, how did we go today?

Today at the stock market

bull/bearThe S&P 500 and the Dow ended slightly higher on Wednesday, adding to their string of closing records, after the Federal Reserve signaled it expects another interest rate hike by year-end and disclosed timing for reducing its balance sheet.

  • The S&P 500 gained 1.59 points, or 0.06%, to 2,508.24, clocking its 6th record closing high in the last 7 sessions.
  • The Dow Jones Industrial Average rose 41.79 points, or 0.19% to end at 22,412.59, its 7th straight record close.
  • The Nasdaq Composite dropped 5.28 points, or 0.08%, to 6,456.04, with Apple Inc as its biggest drag. Shares of Apple fell 1.7% after it admitted its latest smartwatch has connectivity problems.
  • Advancing issues outnumbered declining ones on the NYSE by a 1.26-to-1 ratio; on Nasdaq, a 1.30-to-1 ratio favored advancers.
  • Roughly 6.7 billion shares changed hands on U.S. exchanges compared with the 6 billion average for the last 20 sessions.

The Fed left rates unchanged for now, as was widely anticipated, but investors’ expectations changed for December after the U.S. central bank signaled one more rate hike by year-end despite recent weak inflation readings.

In line with expectations the Fed said it would begin in Oct 2017 to cut its roughly $4.2 trillion in U.S. Treasury bonds and mortgage-backed securities holdings by initially cutting up to $10 billion each month from the amount of maturing securities it reinvests.

Financial stocks jumped after the statement as U.S. Treasury yields rose on the prospect of higher rates while utilities took a fall on concerns that the defensive sector would look less attractive as rates climb.

While some investors said the Fed’s tone was more hawkish than expected others were happy Fed Chair Janet Yellen reiterated her stance that balance sheet reduction would be data dependent.

“The most important thing Yellen needed to communicate to the market was that the bond sale plan and rate increases are not on autopilot,” said Jason Pride, director of investment strategy at Glenmede in Philadelphia.

After the statement traders were betting on a roughly 67% chance of a Dec 2017 hike, compared with 51% minutes before, according to the CME Group’s FedWatch tool.

“Keeping rate hikes where they were was expected. What wasn’t known was the tone. The market reaction is interpreting the Fed as slightly hawkish but not too much,” said Victor Jones, director of trading at TD Ameritrade in Chicago.

The S&P’s financial sector ended 0.6% higher as banks benefit from higher rates. The sector has risen in 8 of the last 9 sessions and has clocked a 6.7% gain in that time as investors anticipated the Fed meeting.

The consumer staples sector fell 0.9% while the utilities sector ended 0.8% lower.Reuters

On overseas markets:

  • The Stoxx Europe 600 Index fell less than 0.1%.
  • The MSCI All-Country World Index lost 0.2% after earlier touching a record high.
  • The MSCI Emerging Market Index was little changed.

Spanish assets showed resilience even as the government cracked down on an illegal separatist referendum planned in its largest economic region.
The New Zealand dollar (NZD) jumped after a poll put the ruling National Party back in the lead ahead of the main opposition Labour Party ahead of this weekend’s election. And the fixing of China’s yuan (CNY) remained in focus as investors try to gauge where the People’s Bank of China wants the currency.
Bloomberg

Norway’s sovereign wealth fund hit USD 1 trillion for the first time on Tuesday, driven higher by climbing stock markets and a weaker USD.
The milestone valuation was reached for the first time on 19 Sep 2017 at 2:01 a.m. in Oslo, Norges Bank Investment Management said in a statement on Tuesday.

“I don’t think anyone expected the fund to ever reach USD 1 trillion when the first transfer of oil revenue was made in May 1996,” Yngve Slyngstad, chief executive officer of the fund, said in the statement. “Reaching USD 1 trillion is a milestone, and the growth in the fund’s market value has been stunning.”

But the extreme wealth, about equal to the gross domestic product of Mexico, isn’t unalloyed good news. The fund’s sheer size has made it a challenge to find markets big enough to invest in. Meanwhile, Norway’s politicians are finding it hard to resist the temptation to raid the world’s biggest state piggy bank, with the petro-dollar addiction threatening to overheat the USD 400 billion economy.

It has few rivals in terms of size. Japan’s Government Pension Investment Fund was valued at JPY 144.9 trillion (USD 1.3 trillion at the current exchange rate) at the end of Mar 2017. China, of course, has about USD 3 trillion in currency reserves. There are also big cash-piles at money management firms such as BlackRock Inc.’s USD 5.7 trillion and Vanguard Group’s USD 4.4 trillion.Bloomberg

Market indices

Market indices
^ Market indices today (mouseover for 12 month view) Chart: Google Finance

Index Ticker Today Change 31 Dec 16 YTD
S&P 500 SPX (INX) 2,508.24 +0.06% 2,238.83 +12.03%
DJIA INDU 22,412.59 +0.18% 19,762.60 +13.40%
NASDAQ IXIC 6,456.04 -0.09% 5,383.12 +19.93%

Portfolio Indices

:-) The S&P500 index closed on a record high of 2,508.24, up 0.06% on yesterday’s record of 2,506.65
:-) The Dow Jones Industrial Average index closed on a record high of 22,412.59, up 0.19% on yesterday’s record of 22,370.80

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

Index values

Index Currency Today Change 31 Dec 16 YTD
USD-denominated Index USD 2.796 -0.97% 2.105 +32.86%
Valuation Rate USD/AUD 0.80721 +0.11% 0.72663 +11.08%
AUD-denominated Index AUD 3.468 -1.08% 2.895 +19.79%

Portfolio stock prices

:-) PayPal closed on a record high of $67.74, up 1.43% on yesterday’s record of $63.83

Stock Ticker Today Change 31 Dec 16 YTD
Alphabet A GOOGL $947.54 +1.14% $792.45 +19.57%
Alphabet C GOOG $931.58 +1.06% $771.82 +20.69%
Apple AAPL $156.07 -1.68% $115.82 +34.75%
Amazon AMZN $973.21 +0.35% $749.87 +29.78%
Ebay EBAY $38.54 -0.13% $29.69 +29.8%
Facebook FB $172.17 -0.20% $115.05 +49.64%
PayPal PYPL $64.74 +1.43% $39.47 +64.02%
Twitter TWTR $17.62 -0.79% $16.30 +8.09%
Visa V $104.97 -0.42% $78.02 +34.54%
VMware VMW $110.13 +0.41% $78.73 +39.88%

FX: USD/AUD

USD

DXY movements
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

The Bloomberg Dollar Spot Index (DXY) rose 0.5%.
The JPY fell 0.5% to 112.16 per USD.
The EUR fell 0.9 percent to $1.1885.
Bloomberg

AUD

AUD movements
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com

Oil and Gas Futures

Futures prices

West Texas Intermediate crude advanced 1.9 percent to settle at $50.41/barrel, the highest in more than seven weeks.Bloomberg

Prices are as at 15:49 ET

  • NYMEX West Texas Intermediate (WTI): $50.41/barrel +1.88% (14:49) Chart
  • ICE (London) Brent North Sea Crude: $56.21/barrel +1.94% Chart
  • NYMEX Natural gas futures: $3.08/MMBTU -1.28% Chart

flag_usa US: Collapse of ToysRUs

Toys ‘‘R’’ Us Inc., which somehow managed to sustain a crushing debt load for more than a decade after its 2005 buyout, finally succumbed this week to a “dangerous game of dominoes” that toppled the retailer in a matter of days.

Until the past few weeks, markets had reflected little doubt that a rescue deal would get done before the crucial holiday shopping season, as Toys ‘‘R’’ Us negotiated to restructure about $400 million of borrowings due next year. But while creditors held out for a sweetened offer, people with knowledge of the matter said, the company started preparing for a possible Chapter 11 filing. That kicked off a chain of events that showed how quickly a retailer can buckle when key suppliers and creditors get spooked.

“The bankruptcy became a self-fulfilling prophecy,” said Hugh Ray, an attorney with McKool Smith in Houston. Credit managers and vendors “convinced each other it was a crisis, and the rumors fed on each other.”

The speed of their downfall was reflected in debt markets, where Toys ‘‘R’’ Us bonds that traded at almost par on Sept. 1 plunged to as low as 18 percent of face value this week. The upfront cost to insure $10 million of debt against default skyrocketed from about $300,000 on Sept. 5 to $2.5 million at the end of last week. By Monday, the eve of the bankruptcy filing, it was $7.7 million.

It’s not as if creditors weren’t well aware of troubles at Toys ‘‘R’’ Us. The Wayne, New Jersey-based company has operated for over 10 years with debt that now totals $5 billion and costs the chain around $400 million a year.

“They’ve been trying to hold it together with Elmer’s glue and Scotch tape,” said John Lekas, senior portfolio manager at Leader Capital Corp., with about $300 million of assets.

But now cash has run short and Toys ‘‘R’’ Us has fallen behind competitors, without the ability to invest in its business and future, Chief Executive Officer David Brandon said in a court declaration.

The company hired Lazard Ltd., Kirkland & Ellis LLP and Alvarez & Marsal to restructure, and by August it was talking with a group of its term loan lenders to give it more “liquidity and afford breathing room” that would take it through the key holiday season, according to the filing.Bloomberg

flag_usa US: Existing Home Sales. Aug 2017

Press Release Extract [ser_us_homesales]

Existing-home sales stumbled in August for the fourth time in five months as strained supply levels continue to subdue overall activity, according to the National Association of Realtors®. Sales gains in the Northeast and Midwest were outpaced by declines in the South and West.

Total existing-home sales, https://www.nar.realtor/topics/existing-home-sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, retreated 1.7 percent to a seasonally adjusted annual rate of 5.35 million in August from 5.44 million in July. Last month’s sales pace is 0.2 percent above last August, and is the lowest since then.

Lawrence Yun, NAR chief economist, says the slump in existing sales stretched into August despite what remains a solid level of demand for buying a home. “Steady employment gains, slowly rising incomes and lower mortgage rates generated sustained buyer interest all summer long, but unfortunately, not more home sales,” he said. “What’s ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it’s putting on prices in several parts of the country. Sales have been unable to break out because there are simply not enough homes for sale.”

Added Yun, “Some of the South region’s decline in closings can be attributed to the devastation Hurricane Harvey caused to the greater Houston area. Sales will be impacted the rest of the year in Houston, as well as in the most severely affected areas in Florida from Hurricane Irma. However, nearly all of the lost activity will likely show up in 2018.”

The median existing-home price for all housing types in August was $253,500, up 5.6 percent from August 2016 ($240,000). August’s price increase marks the 66th straight month of year-over-year gains.

Total housing inventory at the end of August declined 2.1 percent to 1.88 million existing homes available for sale, and is now 6.5 percent lower than a year ago (2.01 million) and has fallen year-over-year for 27 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.5 months a year ago.

Properties typically stayed on the market for 30 days in August, which is unchanged from July and down from 36 days a year ago. Fifty-one percent of homes sold in August were on the market for less than a month.

Inventory data from realtor.com® reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in August were San Jose-Sunnyvale-Santa Clara, Calif., 29 days; Seattle-Tacoma-Bellevue, Wash., 30 days; Vallejo-Fairfield, Calif., 31 days; and San Francisco-Oakland-Hayward, Calif., and Salt Lake City, Utah, both at 32 days.

“Market conditions continue to be stressful and challenging for both prospective first-time buyers and homeowners looking to trade up,” said Yun. “The ongoing rise in home prices is straining the budgets of some of these would-be buyers, and what is available for sale is moving off the market quickly because supply remains minimal in the lower- and mid-price ranges.”

First-time buyers were 31 percent of sales in August, which is down from 33 percent in July and is the lowest share since last August (also 31 percent). NAR’s 2016 Profile of Home Buyers and Sellers – released in late 2016 – revealed that the annual share of first-time buyers was 35 percent.

According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage fell to 3.88 percent in August from 3.97 percent in July and is the lowest since November 2016 (3.77 percent). The average commitment rate for all of 2016 was 3.65 percent.

All-cash sales were 20 percent of transactions in August, up from 19 percent in July but down from 22 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in August, up from 13 percent in July and 12 percent a year ago.

Distressed sales – foreclosures and short sales – were 4 percent of sales in August, down from 5 percent both in July and a year ago. Three percent of August sales were foreclosures and 1 percent were short sales.

According to President William E. Brown, a Realtor® from Alamo, California, the housing market continues to recover from the depths of the financial crisis. However, the significant household wealth many homeowners have accumulated in recent years through rising home values could be at risk if any of the proposed tax provisions follow through with attempts to marginalize the mortgage interest deduction and eliminate state and local tax deductions.

“Consumers are smart and know that any attempt to cap or limit the deductibility of mortgage interest is essentially a tax on homeownership and the middle class,” said Brown. A study commissioned by NAR (link is external) found that under some tax reform proposals, many homeowners with adjusted gross incomes between $50,000 and $200,000 would see an average tax increase of $815, along with home values shrinking by an average of more than 10 percent. An even steeper decline would be seen in areas with higher property and state income taxes. Congress must keep homeowners in mind as it looks towards tax reform this year.”

Single-family and Condo/Co-op Sales

Single-family home sales decreased 2.1 percent to a seasonally adjusted annual rate of 4.74 million in August from 4.84 million in July, but are still 0.4 percent above the 4.72 million pace a year ago. The median existing single-family home price was $255,500 in August, up 5.6 percent from August 2016.

Existing condominium and co-op sales climbed 1.7 percent to a seasonally adjusted annual rate of 610,000 units in August, but are still 1.6 percent below a year ago. The median existing condo price was $237,600 in August, which is 5.4 percent above a year ago.

August existing-home sales in the Northeast jumped 10.8 percent to an annual rate of 720,000, and are now 1.4 percent above a year ago. The median price in the Northeast was $289,500, which is 5.6 percent above August 2016.

In the Midwest, existing-home sales rose 2.4 percent to an annual rate of 1.28 million in August, and are now 0.8 percent above a year ago. The median price in the Midwest was $200,500, up 5.0 percent from a year ago.

Existing-home sales in the South decreased 5.7 percent to an annual rate of 2.15 million in August, and are now 0.9 percent lower than a year ago. The median price in the South was $220,400, up 5.4 percent from a year ago.

Existing-home sales in the West fell 4.8 percent to an annual rate of 1.20 million in August, but are still 0.8 percent above a year ago. The median price in the West was $374,700, up 7.7 percent from August 2016.

National Association of Realtors, “Existing-Home Sales Subside 1.7 Percent in August“, 20 Sep 2017 (14:00) More

flag_usa US FOMC Monetary Policy Statement

Press Release Extract [ser_fomc]

Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1¼ percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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 and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.

US Federal Reserve – FOMC, “Federal Reserve issues FOMC statement“, 20 Sep 2017 (14:00) More Projections

flag_japan Japan update

Trade Statistics (Provisional). Aug 2017

Preview: TradingEconomics

Exports from Japan rose 18.1 percent from the previous year to JPY 6,278 billion in August 2017, well above the 13.4 percent gain in the previous month. It was the ninth straight month of increase in exports and the fastest since November 2013, as all major categories advanced. Sales increased at a faster pace for transport equipment (13.9 percent vs 11.4 percent in July); manufactured goods (11.7 percent vs 9.0 percent); machinery (18.5 percent vs 13.7 percent); and chemicals (20.0 percent vs 14.9 percent). Meanwhile, exports to China climbed by 25.8 percent (vs 17.6 percent) and to the US by 21.8 percent (vs 11.5 percent). In contrast, exports to Taiwan expanded at a softer pace of 1.3 percent (vs 5.5 percent). Exports in Japan averaged 3260.27 JPY Billion from 1963 until 2017, reaching an all time high of 7681.69 JPY Billion in March of 2008 and a record low of 105.08 JPY Billion in January of 1963.TradingEconomics

Press Release Extract [jp_trade]

jp_trade_20170920

Ministry of Finance – Customs and Tariff Bureau, “Trade Statistics (Provisional). Aug 2017“, 20 Sep 2017 More

Currency: USD/JPY

JPY movements
^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

Stockmarket: Nikkei 225

N225 movements
^ Nikkei N225 movements over the past week Chart: Google Finance

flag_china China update

Currency: USD/CNY

CNY movements
^ CNY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

Stockmarket: CSI300

CSI300 movements
^ Shanghai CSI300 movements over the past week Chart: Google Finance