Mon 30 May 2016

In Portfolioticker today

Today at the stock market NBR

The US stockmarket is closed today for the Memorial Day public holiday. Here is what happened elsewhere.

The Fed factor dominated global markets, battering bonds and most developing-nation currencies.

Emerging-market currencies headed toward the worst month since August and gold fell for a ninth day in its longest losing streak in a year. Mexican dollar bonds slipped, following a tumble in Treasury 10-year futures and German bunds after Federal Reserve Chair Janet Yellen said an interest-rate increase is likely in coming months. Mexican and Brazilian stocks swung between gains and losses, also repeating a pattern seen earlier in the day in Europe. Trading volumes in the Americas and Europe were less than half the daily average amid market closures in the U.S. and U.K.Bloomberg

Index Ticker Today Change 31 Dec 15 YTD
S&P 500 SPX (INX) 2,099.06 +0.00% 2,043.94 +2.69%
DJIA INDU 17,873.22 +0.00% 17,425.03 +2.57%
NASDAQ IXIC 4,933.50 +0.00% 5,007.41 -1.48%

The portfolio today

Index values

Currency Today Change 31 Dec 15 YTD
USD-denominated Index USD 1.879 +0.00% 1.939 -3.12%
Valuation Rate USD/AUD 0.72355 +0.02% 0.73374 -1.39%
AUD-denominated Index AUD 2.597 -0.03% 2.643 -1.76%

Portfolio stock prices

Stock Currency Today Change 31 Dec 15 YTD
Alphabet A GOOGL $747.6 +0.00% $778.01 -3.91%
Alphabet C GOOG $732.66 +0.00% $758.88 -3.46%
Apple AAPL $100.35 +0.00% $105.26 -4.67%
Amazon AMZN $712.24 +0.00% $675.89 +5.37%
Ebay EBAY $24.36 +0.00% $27.48 -11.36%
Facebook FB $119.38 +0.00% $104.66 +14.06%
Linkedin LNKD $131.36 +0.00% $225.08 -41.64%
PayPal PYPL $38.09 +0.00% $36.2 +5.22%
Twitter TWTR $15.10 +0.00% $23.14 -34.75%
Visa V $79.66 +0.00% $77.55 +2.72%
VMware VMW $59.63 +0.00% $56.57 +5.40%

52-week performance

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

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

FX: USD/AUD

USD

usd_20160530
^ Dollar Index Spot Rate (DXY) movements today (Chart: Bloomberg)

The Bloomberg Dollar Spot Index (DXY) was poised for its biggest monthly jump since Sep 2014, having surged as Fed Funds futures showed the odds of a U.S. interest-rate hike by the end of Jul 2016 more than doubled to 59%. Yellen said Friday that an improving American economy would probably warrant another increase in borrowing costs “in the coming months,” a view also expressed by several regional Fed chiefs in recent weeks.

The MSCI Emerging Markets Currency Index declined 0.3% and is down 3% in May, snapping a 3-month run of gains.

The currencies in Chile, Peru and Argentina fell, while Brazil’s real bucked the trend Monday in emerging markets. The BRL rose 0.9%, the most among major currencies, after the national treasury reported a primary budget surplus that beat all expectations. The gains pared the real’s losses this month to 4%.

The Bloomberg Dollar Spot Index advanced 0.1%, bringing its gain in May 2016 to 3.6%.

The EUR gained after a report showed economic confidence in the 19-nation currency bloc rose for a second month in May 2016 to a 4-month high. The EUR climbed 0.2% to USD 1.1139, paring the decline this month to 2.7%.Bloomberg

AUD

AUD movements against the USD
^ AUD movements against the USD today (Chart: xe.com)

AUD movements against the USD
^ AUD movements against the USD over the past year (Chart: xe.com)

Oil and Gas Futures

Deputy Crown Prince Mohammed bin Salman is overseeing an unprecedented shakeup of the biggest Arab economy as the country seeks to reduce its reliance on oil after a plunge in prices that started in 2014. The country plans an initial public offering of Saudi Arabian Oil Co., which the prince said may value the company at more than $2 trillion.

The Aramco share sale is part of the prince’s strategy to create a sovereign wealth fund that will eventually control more than $2 trillion and boost income from investments. The country is also seeking to potentially breakup its state-owned utility Saudi Electricity Co. into 4 independent power generating companies.

Crude’s more than 50% plunge since the middle of 2014 is pushing governments across the region to dip into past savings, boost borrowings and cut spending, which is slowing economic growth. That has helped make regional assets cheaper, with Saudi Arabia’s benchmark index down 33% from a year ago and Dubai’s by 15%.Bloomberg

Futures prices

West Texas Intermediate crude rose 0.6% to $49.6 a barrel before this week’s meeting of the Organization of Petroleum Exporting Countries and as fights flared up near Libya’s largest oil shipping port. Total volume traded was about 86% below the 100-day average. Issues including a production freeze will be discussed at the 2 Jun 2016 talks, said Iraq’s Deputy Oil Minister Fayyad Al-Nima, who will head his ministry’s delegation. Oil was headed for fourth monthly gain, the longest winning streak since Apr 2011.Bloomberg

Prices are as at 13:29 EDT

  • NYMEX West Texas Intermediate (WTI): $49.60/barrel +0.55% Chart
  • ICE (London) Brent North Sea Crude: $49.76/barrel +0.89% Chart
  • NYMEX Natural gas futures: $2.16/MMBTU -0.55% Chart

flag_australia Australia: Business Indicators. Q1/2016

Press Comment

Corporate profits continued to decline in Q1/2016, adding drag to the value of national output ahead of Wednesday’s gross domestic product figures. The Australian Bureau of Statistics said on Monday that gross operating profits declined 4.7% in Q1/2016, seasonally-adjusted, for a year-on-year decline of 8.4%. The figure was worse than expected, and the Australian dollar dipped slightly, to around USD 0.7156. However, the value of inventories, whose volatility can also blind-side GDP estimates, rose 0.4% for the quarter, above expectations of zero. Although piled-up inventories can reflect slow or weak sales, their accumulated value goes to the positive side of the national accounts ledger.SMH

Press Release Extract

Key Points:

  • Chain Volume Estimates
    • The trend estimate for inventories rose 0.1% in the March quarter 2016. The seasonally adjusted estimate rose 0.4% this quarter.
    • The trend estimate for Manufacturing sales of goods and services fell 1.0% this quarter. The seasonally adjusted estimate fell 0.3% this quarter.
    • The trend estimate for Wholesale trade sales of goods and services rose 1.8% this quarter. The seasonally adjusted estimate rose 3.2%.
  • Current Price Estimates
    • The seasonally adjusted estimate for company gross operating profits fell 4.7% in the March quarter 2016.
    • The seasonally adjusted estimate for wages and salaries rose 0.6% in the March quarter 2016.
MARCH KEY FIGURES Q4/2015:Q1/2016 Q1/2015:Q1/2016
Sales of goods and services (Chain volume measures)
Manufacturing
Trend -1.0% -4.0%
Seasonally Adjusted -0.3% -4.3%
Wholesale trade
Trend 1.8% 3.7%
Seasonally Adjusted 3.2% 3.5%
Inventories (Chain volume measures)
Trend 0.1% 0.3%
Seasonally Adjusted 0.4% 0.6%
Company gross operating profits
Trend -3.1% -6.6%
Seasonally Adjusted -4.7% -8.4%
Wages and salaries
Seasonally Adjusted 0.6% 3.5%

Australian Bureau of Statistics, “5676.0 – Business Indicators, Australia, Mar 2016 “, 30 May 2016 More

flag_europe Europe: Monetary Policy: Negative Interest Rates Fail to Lift Investment

A prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans. Some 84% of the 9,440 companies surveyed by Swedish debt collector Intrum Justitia AB for its European Payment Report 2016 say low interest rates haven’t affected their willingness to invest. And perhaps more alarmingly, the number is up from 73% last year.

Signs of stalling investment mark a blow to central banks hoping to revive growth across Europe through negative rates and quantitative easing. Europe needs its businesses to invest more if it’s to create the jobs needed to spur growth. In the euro area, where interest rates have been negative since mid-2014, gross domestic product will slow to 1.6% this year, compared with 2.3% in the U.S., the European Commission estimates.

The survey also identified another threat to growth, namely late payments. Some 33% of survey participants said they regard not being paid on time as a threat to overall survival while 25% said they are likely to cut jobs if clients pay late or not at all. That problem is more pronounced among Europe’s 20 million small and medium-sized companies, with many reporting that bigger firms are forcing them to accept late payments.Bloomberg 29 May 2016

flag_europe Europe: Economic Sentiment Indicator. May 2016

Press Release Extract

In May the Economic Sentiment Indicator (ESI) increased in both the euro area (by 0.7 points to 104.7) and the EU (by 0.5 points to 105.7).

Economic sentiment indicator (s.a.)

Economic sentiment indicator (s.a.)

Euro area developments

The increase in euro-area sentiment resulted from marked improvements in confidence among consumers and managers in the retail trade and construction sectors, while confidence remained stable in industry and decreased slightly in the services sector. Amongst the largest euro-area economies, the ESI rose markedly in France (+1.5) and slightly in Germany (+0.4), while it decreased slightly in Spain (-0.4) and remained broadly unchanged in Italy (+0.3) and the Netherlands (-0.1).

Unchanged industry confidence resulted from managers’ more positive assessments of the current level of overall order books and stocks of finished products being offset by a marked decrease in their production expectations. Of the questions not included in the confidence indicator, the assessment of past production improved strongly, while views on export order books remained broadly unchanged. The slight decrease in services confidence (-0.4) was due to managers’ significantly gloomier assessment of past demand and slightly worsened assessment of the past business situation, while their demand expectations improved markedly. The sharp increase in consumer confidence (+2.3) was driven by markedly more positive assessments of the future general economic situation, future unemployment and savings expectations, while households’ future financial situation was expected to remained broadly unchanged. The strong improvement in retail trade confidence (+1.9) resulted from markedly more positive views on the present business situation and the adequacy of the volume of stocks, while managers’ business expectations remained broadly stable. The important rise in construction confidence (+1.7) was fuelled by a strong upward revision in managers’ assessment of the level of order books, while their employment expectations remained virtually unchanged. Finally, the important increase (+4.9) in financial services confidence (not included in the ESI) was driven by more optimistic appraisals of all three components (past business situation, past demand and demand expectations).

Employment plans were revised upwards in industry and retail trade, while remaining broadly unchanged in the services and construction sectors. Selling price expectations increased markedly in industry and services and – to a lesser extent – in retail trade and construction. Also consumer price expectations increased in May.

EU developments

In line with euro-area developments, the increase of the ESI in the EU (+0.5) resulted from improved confidence in construction (+2.9), retail trade (+0.9) and among consumers (+1.1), while confidence worsened in services (-1.0) and remained broadly stable in industry (+0.3). Looking at the largest non-euro area countries, the ESI decreased significantly in Poland (-1.6), but improved markedly in the UK (+1.3). As to employment expectations, EU managers in services and construction reported an upward revision, while the indicator remained broadly flat in the retail trade sector. Selling price expectations were in line with those for the euro area except for the retail trade sector, where expectations decreased, and the construction sector, where price expectations remained virtually stable. Also EU consumers’ price expectations remained broadly stable.

European Commission, “Economic Sentiment Indicator. May 2016“, 30 May 2016 More

flag_europe Europe: Business Climate Indicator. May 2016

Press Release Extract

Business Climate Indicator picks up in May

Business Climate Indicator for the Euro Area

Business Climate Indicator for the Euro Area

In May 2016, the Business Climate Indicator (BCI) for the euro area improved (by 0.11 points to +0.26). Managers’ appraisal of past production improved markedly and also the stocks of finished products and overall order books were assessed more positively. By contrast, managers’ production expectations worsened strongly and their views on export order books remained virtually unchanged.

European Commission, “Business Climate Indicator. May 2016“, 30 May 2016 More

flag_japan Japan update

Fiscal Policy: Sales Tax Rise Likely To Be Delayed until Oct 2019

Japanese Prime Minister Shinzo Abe plans to delay an increase in sales tax by two and a half years, a government official said on Sunday, as the economy sputters and Abe prepares for a national election. Abe told Finance Minister Taro Aso and the secretary general of his ruling Liberal Democratic Party, Sadakazu Tanigaki, on Saturday of his plan to propose delaying the tax hike for a second time, until Oct 2019, said the official, who was briefed on the meeting.

The prime minister, who has promised to announce steps on Tue 31 May 2016 to spur economic growth and promote structural reform, is also expected to order an extra budget to fund stimulus measures, just 2 months into the fiscal year and on the heels of a supplementary budget to pay for recovery from recent earthquakes in southern Japan.

After chairing a summit of Group of Seven leaders on Friday, Abe said Japan would mobilize “all policy tools” – including the possibility of delaying the tax hike – to avoid what he called an economic crisis on the scale of the global financial crisis that followed the 2008 Lehman Brothers bankruptcy. Abe said the G7 “shares a strong sense of crisis” about the global outlook, with the most worrisome risk being a global contraction led by a slowdown in emerging economies like China. Other G7 leaders, however, appeared to differ with Abe on the risk of a global crisis, fuelling comment that Abe was using the G7 to justify delaying the painful tax hike.

Abe will announce his intention to delay the tax hike by the end of the current session of parliament on Wed 1 Jun 2016, after meeting with Komeito, the LDP’s junior coalition partner, the government official told Reuters.

Japan fell into recession after Abe raised the tax from 5% to 8% in Apr 2014 and 10% in Oct 2015 BBC hoping to curb government debt, and consumption has still not recovered. Despite massive monetary easing by the Bank of Japan and a series of government spending packages Japan’s growth is weakening. Core consumer prices and exports fell in Apr 2016, and manufacturing shrank at the fastest pace since Abe took office in 2012.

A Reuters poll last week showed most companies expect no escape from deflation for the foreseeable future.Reuters 29 May 2016

Currency: USD/JPY

The JPY fell 0.7% to 111.12 per USD after an aide to Prime Minister Shinzo Abe said a sales-tax increase will probably be delayed. Japan released retail sales figures on Monday showing that growth stalled in Asia’s second-biggest economy, bolstering the case for a planned sales-tax increase to be postponed.Bloomberg

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

Stockmarket: Nikkei 225

N225 movements
^ Nikkei N225 movements over the past week (Chart: Yahoo Finance)

flag_china China update

The risk of a default chain reaction is looming over the USD 3.6 trillion market for wealth management products in China. WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as CNY 2.6 trillion (USD396 billion) last year, based on estimates from Autonomous Research this month.

The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets. In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable – a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis.

Those concerns have become more pressing this year after at least 10 Chinese companies defaulted on onshore bonds, the Shanghai Composite Index sank 20% and China’s economy showed few signs of recovery from the weakest expansion in a quarter century.

Issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past 3 years as lenders competed for funds and fees while savers sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments.

The outstanding value of WMPs rose to CNY 23.5 trillion, or 35% of China’s gross domestic product, at the end of 2015 from CNY 7.1 trillion 3 years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank Co. and China Everbright Bank Co., especially dependent on the products for funding.

Interbank holdings of WMPs swelled to CNY 3 trillion as of Dec 2016 from CNY 0.496 trillion a year earlier, according to figures released by the clearing agency last month. As much as 85% of those products may have been bought by other WMPs, according to Autonomous Research, which based its estimate on lenders’ public disclosures and data on interbank transactions. The firm speculates that in some cases the products are being “churned” to generate fees for banks.

Most WMPs have a duration of less than 6 months and some can be as short as one month. A search of 1,300 products listed on the website of government-run Chinawealth.com.cn showed the highest annual yield on offer was 8%, compared with a one-year deposit rate of 1.5%. Typical yields range from 3% to 5%.

While individual products don’t disclose their underlying assets, bonds represent the largest exposure for WMPs as a whole, clearing agency data show. WMPs are now the biggest investors in Chinese corporate debt, according to China International Capital Corp. That market suffered its biggest losses in 16 months in Apr 2016 after a wave of defaults at state-owned enterprises spooked investors.

Some WMPs have already encountered trouble. Dozens of investors in a product sold through a former employee of Beijing-based Huaxia Bank Co. protested in 2012 after losing money when the issuer, a private-equity firm, defaulted. It was the first failure of such a product, and investors said they believed Huaxia was the distributor and affiliated with the issuer. The principal was repaid in full after regulators stepped in and a guarantee firm bought the assets. Seven months after that episode, Bank of Communications Co. compensated investors for a WMP whose value had dropped 20% in 2 years.

Still, a vast majority of WMPs have been profitable for both investors and the institutions who manage them. Chinese lenders earned CNY 117 billion from the products last year, according to the nation’s clearing agency. Demand for WMPs has remained buoyant after this year’s stock market crash and a wave of failures at peer-to-peer lenders made the products look safer by comparison, according to Shujin Chen, a banking analyst at DBS Vickers Hong Kong Ltd.

The industry’s ability to meet its return targets thus far may overstate its stability. The most common source of funds for repayment of WMPs is the issuance of new WMPs, Fitch analysts Jack Yuan and Grace Wu wrote in Mar 2016. That leaves the products vulnerable to any sudden drop in demand, a risk alluded to in 2012 by Xiao Gang, then chairman of Bank of China Ltd., when he warned of “Ponzi scheme” dangers for the industry.Bloomberg

Currency: USD/CNY

The CNY dropped 0.3% to a 4-month low in Shanghai after the People’s Bank of China weakened its daily fixing by 0.45%. With the U.S. poised to raise interest rates and pressure building on China to ease monetary policy, cash outflows will accelerate, said Song Yu, China economist for Goldman Sachs/Gao Hua Securities Co. in Beijing.Bloomberg

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

Stockmarket: CSI300

CSI300 movements
^ Shanghai CSI300 movements over the past week (Chart: Yahoo Finance)