Wednesday 29 Oct 2014

USA

Economy

Metropolitan area employment and unemployment – Sep 2014 Opinion

Extract

Unemployment rates were lower in September than a year earlier in 339 of the 372 metropolitan areas, higher in 26 areas, and unchanged in 7 areas, the U.S. Bureau of Labor Statistics reported today. Six areas had jobless rates of at least 10.0 percent and 118 areas had rates of less than 5.0 percent. Nonfarm payroll employment increased over the year in 314 metropolitan areas, decreased in 53 areas, and was unchanged in 5 areas. The national unemployment rate in September was 5.7 percent, not seasonally adjusted, down from 7.0 percent a year earlier.

Bureau of Labor Statistics, “Metropolitan area employment and unemployment – Sep 2014“, 29 Oct 2014 (10:00) More

Federal Open Market Committee meeting: 28-29 Oct 2014 Opinion

Extract

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. 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. Market-based measures of inflation compensation have declined somewhat; 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 and inflation 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. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. 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.

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. The Committee anticipates, based on its current assessment, 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 this month, 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.

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, “Press Release“, 29 Oct 2014 (14:00) More

Comment

The exit protocol has been so well documented for the last nine months that the market has fully priced it in. I don’t anticipate any movement. I feel as though this is one meeting where they almost don’t need to hold it because they have made it perfectly clear.
Barbara J. Cummings, Portfolio Manager, Boston Private Wealth Management (Boston Private Bank & Trust Company) ($3.5bn) More

The statement was a little bullish on the economy and if anything, on the hawkish side, just because of the nod to the improvement in the labor market. The expectation going in was the Fed would probably be dovish to minimize market reaction but instead they’re optimistic, which has resulted in slightly higher bond yields and equities down here.
Anthony Valeri, Market Strategist, Lpl Financial LLC More

The Fed’s decision is a surefire indication that the U.S. economy is continuing to move along at a robust pace. The liquidity program has been a major stimulant to the market, and investors will now have to readjust to the new environment.
Chad Morganlander, Money Manager, Stifel Nicolaus & Co. ($160bn) More

Anybody who was holding out hope that QE would continue now has to throw in the towel. Just like a kid moving out for the first time, until they actually have to pay those first bills, it hasn’t really registered.
Joe Kinahan, Chief Strategist, TD Ameritrade Holding Corp. ($666bn) More

I was pleasantly surprised that they removed the reference to there being significant underutilization of labor resources. I think that is a hat tip to some of the progress being made in the labor market.
Brian Jacobsen, Chief Portfolio Strategist, Wells Fargo Funds Management More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,982.30 -0.14% 1,848.36 +7.25%
DJIA INDU 16,974.31 -0.18% 16,576.66 +2.40%
NASDAQ IXIC 4,549.23 -0.33% 4,176.59 +8.92%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 29 Oct 2014 Watch Read
Comment

The Fed’s announcement is exactly what everyone expected. The Fed sees enough improvement in economic activity to end QE, but at the same time, it will keep low rates because it isn’t yet seeing what it wants to see as far as inflation goes. Stocks are falling a bit because the recent rally brought us to very overbought levels, so we need to consolidate a little bit.
Wayne Kaufman, Chief Market Analyst, Phoenix Financial Services More

PORTFOLIO

Index values Opinion

Facebook fell on yesterday’s outlook for Q4 2014 and an announcement of increased spending in 2015. LinkedIn fell ahead of its earnings announcement. The market was generally down because of the FOMC’s decision to end QE. However that decision strengthened the USD, which lifted our AUD index.

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.699 -0.01% 1.399 +21.45%
Valuation Rate USD/AUD 0.88479 -0.70% 0.89789 -1.46%
Portfolio Index AUD 1.921 +0.70% 1.558 +23.25%

52-week performance Opinion

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

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

Stock price movements

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

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

Portfolio stock prices

Another record high for Apple today.

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $107.34 +0.56% $80.1457 +33.93%
Amazon AMZN $294.12 -0.50% $398.79 -26.25%
Ebay EBAY $51.33 +0.25% $54.865 -6.44%
Facebook FB $75.86 -6.08% $54.649 +38.81%
Google A GOOGL $558.45 -0.09% $560.365 -0.34%
Google C GOOG $549.33 +0.08% $560.365 -1.97%
Linkedin LNKD $199.51 -2.84% $216.83 -7.99%
VMware VMW $83.81 -1.86% $89.71 -6.58%

FX: USD/AUD

The USD strengthened after the FOMC's decision to end QE. (Chart: xe.com)

The USD strengthened after the FOMC’s decision to end QE. (Chart: xe.com)

Tuesday 28 Oct 2014

USA

Economy

Advance report on durable goods – Sep 2014 Opinion

Extract

New Orders

New orders for manufactured durable goods in September decreased $3.2 billion or 1.3 percent to $241.6 billion, the U.S. Census Bureau announced today. This decrease, down two consecutive months, followed an 18.3 percent August decrease. Excluding transportation, new orders decreased 0.2 percent. Excluding defense, new orders decreased 1.5 percent. Transportation equipment, also down two consecutive months, led the decrease, $2.8 billion or 3.7 percent to $73.4 billion.

Shipments

Shipments of manufactured durable goods in September, up three of the last four months, increased $0.1 billion or 0.1 percent to $245.6 billion. This followed a 1.8 percent August decrease. Fabricated metal products, up eight of the last nine months, drove the increase, $0.2 billion or 0.6 percent to $30.5 billion.

Unfilled Orders

Unfilled orders for manufactured durable goods in September, up seventeen of the last eighteen months, increased $3.8 billion or 0.3 percent to $1,168.7 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.6 percent August increase.
Transportation equipment, up twelve of the last thirteen months, led the increase, $1.0 billion or 0.1 percent to $742.7 billion.

Inventories

Inventories of manufactured durable goods in September, up seventeen of the last eighteen months, increased $1.8 billion or 0.4 percent to $404.8 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 0.4 percent August increase. Transportation equipment, also up seventeen of the last eighteen months, led the increase, $1.0 billion or 0.8 percent to $130.9 billion.

Capital Goods

Nondefense new orders for capital goods in September decreased $4.6 billion or 5.4 percent to $82.0 billion. Shipments increased $0.4 billion or 0.5 percent to $80.2 billion. Unfilled orders increased $1.8 billion or 0.2 percent to $733.3 billion. Inventories increased $1.1 billion or 0.6 percent to $184.9 billion. Defense new orders for capital goods in September increased $0.6 billion or 7.4 percent to $9.4 billion. Shipments decreased $0.1 billion or 1.3 percent to $9.7 billion. Unfilled orders decreased $0.3 billion or 0.2 percent to $157.8 billion. Inventories decreased $0.3 billion or 1.2 percent to $23.6 billion.

US Census Bureau, “Advance report on durable goods – Sep 2014“, 28 Oct 2014 (08:30) More

Comment

Clearly businesses seem a little worried, not so much about U.S. growth but global growth, so they’re being very cautious. The worry is they retreat back into their shells.
Nariman Behravesh, Chief Economist, IHS Inc. More

Housing vacancies and home ownership – Q3 2014 Opinion

The homeownership rate in the U.S. fell to the lowest in more than 19 years as the market shifted toward renting and tight credit blocked some potential buyers. The share of Americans who own their homes was 64.4 percent in the third quarter, down from 64.7 percent in the previous three months, the Census Bureau said in a report today. The rate was at the lowest level since the first quarter of 1995.More

Extract

National vacancy rates in the third quarter 2014 were 7.4 percent for rental housing and 1.8 percent for homeowner housing, the Department of Commerce’s Census Bureau announced today. The rental vacancy rate of 7.4 percent was 0.9 percentage points (+/-0.4) lower than the rate in the third quarter 2013 and 0.1 percentage point (+/-0.3) lower than the rate last quarter. The homeowner vacancy rate of 1.8 percent was 0.1 percentage point lower than the rate in the third quarter 2013 (+/-0.1) and the rate last quarter (+/-0.1).

The homeownership rate of 64.4 percent was 0.9 percentage points (+/-0.4) lower than the third quarter 2013 rate (65.3 percent) and 0.3 percentage points (+/-0.4) lower than the rate last quarter (64.7 percent).

US Census Bureau, “Residential vacancies and homeownership – Q3 2014“, 28 Oct 2014 (10:00) More

Comment

The homeownership rate hasn’t bottomed yet. Something like 64 percent seems like a reasonable floor. But that floor is now in sight.
Paul Diggle, U.S. Property Economist, Capital Economics Ltd (London) More

Conference Board consumer confidence index – Oct 2014 Opinion

Extract

The Conference Board Consumer Confidence Index®, which had decreased in September, rebounded in October. The Index now stands at 94.5 (1985=100), up from 89.0 in September. The Present Situation Index edged up from 93.0 to 93.7, while the Expectations Index increased sharply to 95.0 from 86.4 in September.

Conference Board, “Conference Board consumer confidence index – Oct 2014“, 28 Oct 2014 (10:00) More

Comment

It appears as though we’ll have an extended period of lower energy prices, which should be helpful. It should boost confidence, give individuals a bit more discretionary income, so it’s a clear plus for the economy.
Michael Moran, Chief Economist, Daiwa Capital Markets America Inc. More

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

Extract

Data through August 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, continue to show a deceleration in home price gains. The 10-City Composite gained 5.5% year-over- year and the 20-City 5.6%, both down from the 6.7% reported for July. The National Index gained 5.1% annually in August compared to 5.6% in July.

S&P Dow Jones Indices, “20-City Composite House Price Index – Aug 2014“, 28 Oct 2014 More

Comment

We’re going to see a slower pace of increase, prices still going up, but at a slower pace, and that will help pull some of that sideline demand in. I do expect prices to continue to slow in order to allow for new demand to come into the marketplace.
Lindsey Piegza, Chief Economist, Sterne Agee & Leach Inc. More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,985.05 +1.19% 1,848.36 +7.40%
DJIA INDU 17,005.75 +1.12% 16,576.66 +2.59%
NASDAQ IXIC 4,564.29 +1.75% 4,176.59 +9.28%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 28 Oct 2014 Watch Read

PORTFOLIO

Index values Opinion

:-| About square Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.699 +1.54% 1.399 +21.46%
Valuation Rate USD/AUD 0.89100 +0.63% 0.89789 -0.77%
Portfolio Index AUD 1.907 +0.91% 1.558 +22.40%

52-week performance Opinion

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

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

Stock price movements

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

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

Portfolio stock news

Facebook Q3 2014 earnings

Extract: Earnings Opinion

Third Quarter 2014 Financial Summary

  • Daily active users (DAUs) were 864 million on average for September 2014, an increase of 19% year-over-year.
  • Mobile DAUs were 703 million on average for September 2014, an increase of 39% year-over-year.
  • Monthly active users (MAUs) were 1.35 billion as of September 30, 2014, an increase of 14% year-over-year.
  • Mobile MAUs were 1.12 billion as of September 30, 2014, an increase of 29% year-over-year.

Third Quarter 2014 Financial Highlights

Revenue – Revenue for the third quarter of 2014 totaled $3.20 billion, an increase of 59%, compared with $2.02 billion in the third quarter of 2013. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 58%.

  • Revenue from advertising was $2.96 billion, a 64% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 63%.
  • Mobile advertising revenue represented approximately 66% of advertising revenue for the third quarter of 2014, up from approximately 49% of advertising revenue in the third quarter of 2013.
  • Payments and other fees revenue was $246 million, a 13% increase from the same quarter last year.

Costs and expenses – GAAP costs and expenses for the third quarter of 2014 were $1.81 billion, an increase of 41% from the third quarter of 2013. Non-GAAP information for 2013 has been updated to exclude amortization of intangible assets to conform to our current period presentation. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP costs and expenses were $1.38 billion in the third quarter of 2014, up 39% compared to $992 million for the third quarter of 2013.

Income from operations – GAAP income from operations for the third quarter of 2014 was $1.40 billion, up 90% compared to $736 million in the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP income from operations for the third quarter of 2014 was $1.82 billion, up 78% compared to $1.02 billion for the third quarter of 2013.

Operating margin – GAAP operating margin was 44% for the third quarter of 2014, compared to 37% in the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP operating margin was 57% for the third quarter of 2014, compared to 51% for the third quarter of 2013.

Provision for income taxes – GAAP income tax expense for the third quarter of 2014 was $530 million, representing a 40% effective tax rate. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, the non-GAAP effective tax rate would have been approximately 35%.

Net income and EPS – GAAP net income for the third quarter of 2014 was $806 million, up 90% compared to $425 million for the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, and income tax adjustments, non-GAAP net income for the third quarter of 2014 was $1.15 billion, up 73% compared to $666 million for the third quarter of 2013. GAAP diluted EPS was $0.30 in the third quarter of 2014, up 76% compared to $0.17 in the third quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, and income tax adjustments, non-GAAP diluted EPS for the third quarter of 2014 was $0.43, up 59% compared to $0.27 in the third quarter of 2013.

Capital expenditures – Capital expenditures for the third quarter of 2014 were $482 million.

Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $14.25 billion at the end of the third quarter of 2014.

Free cash flow – Free cash flow for the third quarter of 2014 was $766 million.

Facebook, “Facebook Reports Third Quarter 2014 Results“, 28 Oct 2014 (16:00) More

Comment

This (Q3 2014) was an above-consensus outcome, but only slightly, and to the extent that expectations are generally above-consensus figures, there wasn’t a major surprise.
Brian Wieser, Analyst, Pivotal Research Group More

They continue to show that there is a lot of demand for their product, both in terms of users wanting to spend time there and advertisers wanting to spend money
Ben Schachter, Analyst, Macquarie Research (NY) More

Q4 outlook Opinion

In after hours trading Facebook dropped 11% (recovering to a loss of 7.64% at 8pm) when Chief Financial Officer David Wehner warned that Q4 2014 would be more difficult than Q4 2013. Q4 2014 is likely to be “only” 40% to 47% higher than Q4 2013, indicating sales of $3.6bn to $3.8bn, with the midpoint being below analysts’ expectations of $3.73bn. Wehner said that Q4 2013 had been boosted by a large scale rollout of ads in members’ News Feeds, and that with Q4 2014 ““We’re comparing against a really outstanding quarter last year.More

Comment

Lloyd says: “I’m not worried by that.

Advertisers are intrigued by Facebook’s latest initiatives, such as the relaunch of Atlas and the purchase of LiveRail. It’s becoming much more ambitious in offering digital services far beyond what the company was initially created to do as a social network.
Debra Aho Williamson, Analyst, EMarketer More

Portfolio stock prices

:-) New record high close prices were achieved by Apple and Facebook. And at those prices, the market caps are: Apple (founded Apr 1976) $639bn and Facebook (founded Feb 2004) $210bn.

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $106.74 +1.55% $80.1457 +33.18%
Amazon AMZN $295.59 +1.94% $398.79 -25.88%
Ebay EBAY $51.20 +0.02% $54.865 -6.68%
Facebook FB $80.77 +0.61% $54.649 +47.80%
Google A GOOGL $558.94 +1.65% $560.365 -0.25%
Google C GOOG $548.90 +1.50% $560.365 -2.05%
Linkedin LNKD $205.35 +2.68% $216.83 -5.29%
VMware VMW $85.40 +1.72% $89.71 -4.80%

Monday 27 Oct 2014

Donner und blitzen!  Lightning over Port Melbourne

Donner und blitzen! Lightning overhead at Port Melbourne (1:50am)

Melbourne experienced a sustained thunderstorm this morning with around 80,000 lightning strikes recorded. A lightning surge shut down Melbourne City’s rail network this morning, disrupting peak commuter transport. Melbourne’s Tullamarine domestic and international airport was closed by lightning and rain. A direct hit destroyed a house at Prahran. 3,154 houses were blacked out and traffic lights were disabled by lightning. More

EUROPE

ECB Quantitative Easing Opinion

According to Vítor Constâncio, Vice-President of the European Central Bank … “The ECB spent 1.704 billion euros last week on covered bonds under a new purchase program with which it hopes to foster lending to businesses and thereby support the euro zone economy. The purchases of covered bonds – debt backed by pools of home or commercial properties – are a new front in the ECB’s battle to revive the euro zone economy and keep deflation at bay. Inflation in the bloc is running at just 0.3 percent.More

Comment

This is bigger than we expected. These figures tell us that the ECB is being aggressive about expanding its balance sheet.
Agustin Martin, Head of European Credit Research, Banco Bilbao Vizcaya Argentaria SA (London) More

Monetary developments in the euro area – Sep 2014 Opinion

Extract

The annual growth rate of the broad monetary aggregate M3 increased to 2.5% in September 2014, from 2.1% in August 2014.1 The three-month average of the annual growth rates of M3 in the period from July 2014 to September 2014 increased to 2.1%, from 1.8% in the period from June 2014 to August 2014.

European Central Bank, “Monetary developments in the euro area – Sep 2014“, 27 Oct 2014 More

Germany: Ifo Business Climate Index – Oct 2014 Opinion

Germany’s Ifo institute’s business climate index fell to 103.2 in Oct 2014 from 104.7 in Sep 2014, its lowest level since Dec 2012, and below expectations of 104.5.

Extract

The Ifo Business Climate Index for industry and trade in Germany fell in October to 103.2 points from 104.7 points in the previous month. Assessments of the current business situation were once again less favourable than last month. Expectations with regard to the six-month business outlook continued to cloud over. The outlook for the German economy deteriorated once again.

In manufacturing the business climate deteriorated significantly. Assessments of the current business situation were markedly less favourable and are now only marginally higher than the long-term average. Business expectations also continued to deteriorate. Capacity utilisation rates fell by 0.3 percentage points to 83.7 percent. Export business expectations, however, was the only area in which manufacturers did express mild confidence.

In wholesaling the business climate index rose. After three consecutive decreases, assessments of the current business situation improved considerably. Business expectations remained slightly pessimistic. In retailing the business climate continued to cloud over. Retailers were markedly less satisfied with their current business situation. Their expectations, by contrast, brightened somewhat.

In construction the business climate indicator dropped marginally, but remains at a very good level. Construction firms assessed their current business situation as slightly more favourable. Business expectations, however, fell to their lowest level in a year.

CES Ifo business indices - Oct 2014 (Source: IFO Institute)

CES Ifo business indices – Oct 2014 (Source: IFO Institute)

CES IFO Institute, “Ifo Business Climate Germany – Results of the Ifo Business Survey for October 2014“, 27 Oct 2014 More

Comment

The latest numbers from the industrial sector are very worrisome. The third quarter was probably worse than expected, the economy may have stagnated at best.
Joerg Kraemer, Chief Economist, Commerzbank AG (Frankfurt) More

USA

Economy

Crude oil has fallen 25% from its Jun 2014 high to an intra-day low of less than $80 today before bouncing back to close at $81. The cost of petrol at the pump is at a 4-year low. This is good news for consumers, but may lead to less oil industry investment and employment.

Markit Flash US Services PMI – Oct 2014 Opinion

Extract

At 57.3 in October, down from 58.9 in September the Markit Flash U.S. Services PMI Business Activity Index signalled the slowest rate of output growth for six months. The index – which is based on approximately 85% of usual monthly replies – remained well above the 50.0 mark that separates expansion from contraction, but the latest reading signalled a further moderation in overall activity growth from the post-crisis peak seen in June.

Service providers attributed higher levels of business activity to supportive domestic economic conditions and an associated upturn in incoming new work. However, in line with the trend for output levels, the rate of new business growth eased to a three-month low in October and was softer than the post-crisis high recorded in June.

Service providers boosted their payroll numbers in response to rising sales volumes and pressures on operating capacity during October. The rate of job creation was unchanged from the three-month high seen in September.

Markit Economics, “Markit Flash US Services PMI – Oct 2014“, 27 Oct 2014 (09:45am EDT) More

Comment

The flash PMI survey data show the pace of economic growth easing for a fourth consecutive month in October. The weakened growth of new orders and downturn in business optimism suggest that growth and hiring could slow further in coming months. Having signalled an annualised rate of GDP growth of approximately 3.5% in the third quarter, the October readings indicate that the pace of economic growth looks set to moderate in the fourth quarter, down to perhaps 2.5% or less if the PMI falls further in coming months. There are clearly many concerns, ranging from worries about the impact of Ebola, the Ukraine crisis, the ongoing plight of the Eurozone , signs of further weakness in emerging markets and the Fed starting to tighten policy
Chris Williamson, Chief Economist, Markit Economics More

Pending home sales – Sep 2014 Opinion

The NAR’s pending home sales increased 0.3% to 105.0 in Sep 2014, below the 1% gain expected by economists. More

Extract

Pending home sales rose slightly in September and are now above year-over-year levels for the first time in 11 months, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.3 percent to 105.0 in September from 104.7 in August, and is now 1.0 percent higher than September 2013 (104.0). The index is above 100 for the fifth consecutive month and is at the second-highest level since last September.

National Association of Realtors, “Pending Home Sales Hold Steady in September“, 27 Oct 2014 (10:00am) More

Comment

Housing just doesn’t look like it has that stamina to be a significant driver for growth. The housing rebound will probably be just enough to get by, but not spectacular by any means.
Kim Fraser Chase, Economist at BBVA Research More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,961.63 -0.15% 1,848.36 +6.13%
DJIA INDU 16,817.94 +0.07% 16,576.66 +1.46%
NASDAQ IXIC 4,485.93 +0.05% 4,176.59 +7.41%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 27 Oct 2014 Watch Read

Questioning the drivers of earnings growth

Earnings have grown at an annual rate of 14 percent since 2009, about three times faster than sales, as companies cut costs. Rather than investing to meet demand that might not come, executives juiced returns by spending near record amounts on buybacks … Investors are concerned that the money was made via means that are nearing depletion.More

Comment

You can’t do a whole lot more cost cutting and you can’t buy back a whole lot more stock. The big disconnect where companies have been able to grow their earnings significantly faster than top-line revenue growth is coming to an end.
David Lafferty, Chief Market Strategist, Natixis Global Asset Management ($930 billion) More

PORTFOLIO

Index values Opinion

:-| About square Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.674 -0.05% 1.399 +19.62%
Valuation Rate USD/AUD 0.88044 +0.08% 0.89789 -1.39%
Portfolio Index AUD 1.890 -0.13% 1.558 +21.30%

52-week performance Opinion

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

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

Stock price movements

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

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

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $105.11 -0.10% $80.1457 +31.15%
Amazon AMZN $289.97 +1.01% $398.79 -27.29%
Ebay EBAY $51.19 +0.14% $54.865 -6.70%
Facebook FB $80.28 -0.48% $54.649 +46.90%
Google A GOOGL $549.88 +0.18% $560.365 -3.50%
Google C GOOG $540.77 +0.18% $560.365 -3.50%
Linkedin LNKD $199.99 -1.04% $216.83 -7.77%
VMware VMW $83.96 +0.14% $89.71 -6.41%

Week: 20-26 Oct 2014

Holland America's Oosterdam visiting Port Melbourne on Sunday

Holland America’s Oosterdam visiting Port Melbourne on Sunday

EUROPE

ECB stress test fails 25 eurozone banks

The European Central Bank and European Banking Authority have released the “Aggregate Report on the Comprehensive Assessment” of eurozone banks’ ability to survive a defined crisis Report. The assessment involved a stress test (including asset quality and capital adequacy) of 130 eurozone banks Process FAQ.

Of the 25 banks that failed the test, 13 have subsequently addressed their capital shortfall. The remaining 12 are required to raise EUR 9.47bn (Source: Table 1):

Bank Country Shortfall (€bn) Raised (€bn) Remaining (€bn)
Banca Monte dei Paschi di Siena S.p.A. Italy 4.25 2.14 2.11
Eurobank Ergasias, S.A. Greece 4.63 2.86 1.76
Banco Comercial Português, SA Portugal 1.14 -0.01 1.15
National Bank of Greece, S.A. Greece 3.43 2.50 0.93
Österreichische Volksbanken-AG Austria 0.86 0.00 0.86
Permanent tsb plc. Ireland 0.85 0.00 0.85
Banca Carige S.P.A. – Cassa di Risparmio di Genova e Imperia Italy 1.83 1.02 0.81
Dexia NV Belgium 0.34 0.00 0.34
Banca Popolare di Vicenza – Società Cooperativa per Azioni Italy 0.68 0.46 0.22
Hellenic Bank Public Company Ltd Cyprus 0.28 0.10 0.18
Banca Popolare Di Milano – Società Cooperativa A Responsabilità Limitata Italy 0.68 0.52 0.17
Nova Ljubljanska banka d. d., Ljubljana Slovenia 0.03 0.00 0.03
Nova Kreditna Banka Maribor d.d. Slovenia 0.03 0.00 0.03
Total (EUR billion) 24.62 18.59 9.47
Comment

I definitely think the banking crisis is behind us. I am never free of worry, so I do feel that banks have to keep on working managing their risks, strengthening their capital ratios where necessary also in the future … Banks have been quite successful since the start of this process in the summer of last year to go to capital markets. So there has been appetite to invest once again in European banks. I think the outcome of the stress test will also support that appetite.
Jeroen Dijsselbloem, President, Eurogroup and Finance Minister, Netherlands More

The capital shortfall is at the lower end of expectations. It was always going to be a challenge for the ECB to convince the market of its credibility if it was going to be a small number which failed and capital to be raised.
Jon Peace, Banking Analyst, Nomura Holdings Inc. (London) More

Deutsche Welle Business Editorial (Extract)

The International Monetary Fund has provided altogether different figures (to those provided by the ECB) after it looked at 300 big banks in industrialized countries. Measured according to total assets, 40 percent of the banks were found to be in a position where lending was not economically feasible. In the eurozone, a whopping 70 percent of banks had the same problem. The head of the IMF’s Monetary and Capital Markets Department, José Viñals, has unequivocally stated that he considers these banks superfluous.

Ignoring this inconvenient truth, ECB head Mario Draghi has begun scooping up the largest credit risks of the southern banks, including those in France. These bad loans amount to 879 billion euros, according to the ECB. By doing this, the ECB is doing precisely what our politicians promised would never happen: the pooling of debt.

So while the stress test may have provided bankers with more clarity over the volume of toxic assets circulating in Europe, it has not made Europe’s banking landscape the least bit safer or more stable.

Rolf Wenkel, Business Editor, Deutsche Welle More

USA

Upcoming mid-term elections

The mid-term general election is scheduled for Tuesday 4 Nov 2014. The scope of mid-term elections includes all 435 seats in the House of Representatives and 33 of the 100 seats in the Senate as well as 38 state and territorial governorships, 46 state legislatures (except Louisiana, Mississippi, New Jersey and Virginia), and four territorial legislatures. More

Two years later, on 8 Nov 2016, the Presidency will be decided by another election – however the leadup to party conventions in Jun-Jul 2016 will be a major distraction to market (investor) certainty. It seems a long wait for USA whose President currently has an approval rating of just 40%.

US Federal government debt

Public debt growth slowing Impact

It’s been a long time since we looked at US debt. Under Public Law 113-83, Temporary Debt Limit Extension Act passed in mid Feb 2014, the statutory debt limit was suspended through March 15, 2015. At the end of Feb 2014, debt subject to limit was $17,416bn. At the end of Sep 2014 that figure had risen only 2% ($365bn) to 17,781bn.

US public debt history (Sep 2014) (Source: US Treasury)

US public debt history (Sep 2014) (Source: US Treasury) More

Public debt / GDP flattening Impact

With USA’s GDP rising and public debt growth slowing, USA’s public debt to GDP ratio of 101%, while more than 70% above its historical normal, is hopefully flattening.

US Debt/GDP Long Term (Source: Federal Reserve Bank of St Louis)

US Debt/GDP Long Term (Source: Federal Reserve Bank of St Louis) More

US Debt/GDP 5-year focus  (Source: Federal Reserve Bank of St Louis)

US Debt/GDP 5-year focus (Source: Federal Reserve Bank of St Louis) More

Upcoming holiday shopping season

Early critical dates are:

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

UPS (Kurt Kuehn, CFO) expects an 11% increase in shipping volumes in Dec 2014, while Fedex expects an increase of almost 9%. In 2013 UPS was surprised by an unexpected peak in shipment demand – it has taken action to ensure delivery, and may even turn down peak delivery requests.

US market indices Impact

This was the best week for stocks so far this calendar year: NASDAQ up 5.29% (best week since Dec 2011), S&P500 up 4.12%, and the Dow up 2.59%.

Index 24 Oct 2014 Week 17 Oct 2014 Month 30 Sep 2014 Year 31 Dec 13
S&P 500 1,964.58 +4.12% 1,886.76 -0.39% 1,972.29 +6.29% 1,848.36
DJIA 16,805.41 +2.59% 16,380.41 -1.39% 17,043.12 +1.38% 16,576.66
NASDAQ 4,483.71 +5.29% 4,258.44 -0.22% 4,493.39 +7.35% 4,176.59

The shape of the week

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

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

Comment

Ebola is something you want to keep an eye on, but the probability of widespread infection is pretty small, and I think that’s what the market believes. Stocks were oversold. Investors were over-worried about global growth, they were over-worried about Ebola.
Scott Wren, Senior Equity Strategist, Wells Fargo Advisors More

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 24 Oct 2014 Week 17 Oct 2014 Month 30 Sep 2014 Year 31 Dec 13
USD Index 1.674 +6.16% 1.577 +1.43% 1.651 +19.68% 1.399
Trading USD/AUD 0.88473 +0.39% 0.88126 +0.48% 0.88048 -1.47% 0.89789
AUD Index 1.893 +5.75% 1.790 +0.94% 1.875 +21.46% 1.558

Portfolio stocks

Apple AAPL +7.73%

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

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

Amazon AMZN -5.46%

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

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

Ebay EBAY +6.61%

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

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

Facebook FB +6.21%

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

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

Google Class A GOOGL +4.96%

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

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

  • Friday close: $548.90 +4.96% from $522.97.
  • P/E (historical): 28.78 Change from 27.42
  • P/E (1 year fwd): 26.23 Change from 24.42
  • Target (1 year): NASDAQ consensus $650Change, range $530Change ↔ $750.
  • SEC filings (CIK 0001288776): Edgar Search (New, Beta)

Google Class C GOOG +5.60%

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

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

  • Friday close: $539.78 +5.60% from $511.17.
  • P/E (historical): 22.47 Change from 21.28
  • Analyst recommendations: 8Change strong buy, 3 buy, 0 hold.

Linkedin LNKD +3.13%

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

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

VMware VMW -6.17%

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

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

USD/AUD

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

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

Friday 24 Oct 2014

Celebrity's Century visiting Port Melbourne on a humid 30C day

Celebrity’s Century visiting Port Melbourne on a humid 30C day

EUROPE

EU budget contribution demands

The EU has developed new calculations that determine backdated amendments to the amounts each member must contribute to its budget. New calculations create winners and losers.

The winners include:

  • France: -EUR 1,011m (-GBP 801m)
  • Germany: -EUR 775m (-GBP 614m)
  • Denmark: -EUR 319m (-GBP 253m)

The losers include:

  • UK: +EUR 2,115m (+GBP 1,676m)
  • Netherlands: +EUR 642m (+GBP 506m)
  • Italy: +EUR 338m (+GBP 268m)
France is the biggest winner from revised EU budget contributions

France is the biggest winner from revised EU budget (Arc de Triomphe, Oct 2014)

The UK and Netherlands have indicated that they will not pay the backdated surcharge. More

UK Prime Minister David Cameron is also rejecting claims by outgoing European Commission President Jose Manuel Barroso that the UK risks alienating other member states and putting its EU membership in doubt with its plan to curb the rights of EU migrants to work in the UK (e.g. limit the number of national insurance numbers given to low-skilled immigrants). More

France: Unemployment reaches a new record high

The number of unemployed in France reached a new record high of 3.43 million in Sep 2014. Yesterday Markit Economics reported business activity in France fell during Sep 2014 at the fastest rate since Feb 2014 – declining for a sixth successive month.

Let’s be honest, we are failing.” François Rebsamen, Labor Minister (interview with Le Parisien) More

USA

Ebola

A New York City doctor tested positive for Ebola after returning from aid work in West Africa. Authorities are tracing his contacts while assuring the public the risk of contracting the disease is minimal. It’s the first case of Ebola diagnosed in the nation’s most populous city.More

Economy

New residential sales – Sep 2014 Opinion

Extract

Sales of new single-family houses in September 2014 were at a seasonally adjusted annual rate of 467,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent (±15.7%) above the revised August rate of 466,000 and is 17.0 percent (±20.6%) above the September 2013 estimate of 399,000.

The median sales price of new houses sold in September 2014 was $259,000; the average sales price was $313,200. The seasonally adjusted estimate of new houses for sale at the end of September was 207,000. This represents a supply of 5.3 months at the current sales rate.

U.S. Census Bureau, “New residential sales – Sep 2014“, 24 Oct 2014 (10:00am) More

Comment

We expected this was going to be a very lengthy recovery for the housing sector and we still have a long way to go. The low mortgage rates are very helpful. The job growth is very, very helpful. But we’re still seeing relatively tight mortgage credit and relatively weak growth in average wages.
Scott Brown, Chief Economist, Raymond James & Associates Inc More

We expect the housing market recovery to remain relatively gradual over the coming months.
Gennadiy Goldberg, Economist, TD Securities More

Usual weekly earnings of wage and salary workers – Sep 2014 Opinion

Extract

Median weekly earnings of the nation’s 107.9 million full-time wage and salary workers were $790 in the third quarter of 2014 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported today. This was 2.5 percent higher than a year earlier, compared with a gain of 1.8 percent in the Consumer Price Index for All Urban Consumers (CPI-U) over the same period.

Bureau of Labor Statistics, “Usual weekly earnings of wage and salary workers – Sep 2014“, 24 Oct 2014 (10:00am) More

Comment

The Labor Department said median usual pay for Americans employed full-time was $790 per week in the third quarter. That’s about a dollar less per week than in the third quarter of 2007, using the department’s adjustment for inflation. There’s been no net gain (in median wages in real terms) since 1999.Bloomberg

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,964.58 +0.71% 1,848.36 +6.29%
DJIA INDU 16,805.41 +0.76% 16,576.66 +1.38%
NASDAQ IXIC 4,483.71 +0.69% 4,176.59 +7.35%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 24 Oct 2014 Watch Read
Comment

I remain unconvinced that this is a back to the races environment. Sentiment got way too complacent in September and we’ve had overseas weakness concerns about Europe and China, earnings are solid but revenue growth is down from the second quarter, and Ebola has been another snowflake in that avalanche.
James Abate, Chief Investment Officer, Centre Funds ($1bn) More

We’re still close to all-time highs, and the market is very sensitive to these highly valued stocks like Amazon. If valuations aren’t getting justified by earnings when the stock market may not be supported by quantitative easing in five days’ time, these companies that miss estimates are going to get pummelled.
Jasper Lawler, Market Analyst, CMC Markets Plc (London) More

Bloomberg notes that “Markets started to turn around on Oct. 16 after St. Louis Federal Reserve Bank President James Bullard said policy makers should consider delaying the end of quantitative easing. The S&P 500 (SPX) is up about 5 percent since then, recouping about half of the drop since its record in mid-September.More (Lloyd says: I wouldn’t count on the Fed maintaining QE).

Earnings have been very good. A large part of this market rise since the decline has been on the idea the Fed will be here to protect you.
Mark Spellman, Portfolio Manager, Alpine Funds ($4.3bn) More

PORTFOLIO

Index values Opinion

:-( Underperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.674 -0.21% 1.399 +19.68%
Valuation Rate USD/AUD 0.88473 +0.48% 0.89789 -1.47%
Portfolio Index AUD 1.893 -0.68% 1.558 +21.46%

52-week performance Opinion

Our AUD index fell to 1.893, not far below yesterday’s 1.906, mainly because of

  • Amazon’s 8.34% fall, and continuing decline in Google and Linkedin, and
  • the AUD’s rise against the USD today.
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

New record highs for Apple and Facebook could not offset losses by AMZN (from yesterday’s earnings report) and continuing decline of Google (decline in price per click) and LNKD (probably also concerns about advertising revenue).

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

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

Portfolio stock prices

It’s disappointing to note that only Apple and Facebook have produced positive gains this calendar year to date. The broader market has been feeling the drag too: the Dow Jones Industrial Average is up just 1.36% YTD, having been in negative territory too.

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $105.22 +0.37% $80.1457 +31.29%
Amazon AMZN $287.06 -8.34% $398.79 -28.02%
Ebay EBAY $51.12 +0.65% $54.865 -6.83%
Facebook FB $80.67 +0.79% $54.649 +47.61%
Google A GOOGL $548.90 -0.86% $560.365 -2.05%
Google C GOOG $539.78 -0.77% $560.365 -3.67%
Linkedin LNKD $202.10 -0.26% $216.83 -6.79%
VMware VMW $83.84 +1.59% $89.71 -6.54%

Thursday 23 Oct 2014

EUROPE

Economy

Flash consumer confidence indicator for EU and euro area – Oct 2014 Opinion

Confident consumers at Les Deux Magots, Paris, France

Confident consumers at Les Deux Magots, Paris (Oct 2014)

Extract

In October 2014, after four months of decline, the DG ECFIN flash estimate of the consumer confidence indicator increased slightly in the EU (by 0.6 points to -7.4) and remained broadly stable in the euro area (+0.3 points to -11.1) compared to September.

Consumer confidence indicators for EU and Eurozone (Source: EC DGFIN)

Consumer confidence indicators for EU and Eurozone (Source: EC DGFIN)

European Commission – DG Economic and Financial Affairs “Flash Consumer Confidence Indicator Oct 2014“, 23 Oct 2014 More

Markit Flash Eurozone PMI Opinion

Stable PMI masks steepest fall in output prices since global crisis and renewed job losses

  • Flash Eurozone PMI Composite Output Index(1) at 52.2 (52.0 in September). 2-month high.
  • Flash Eurozone Services PMI Activity Index(2) at 52.4 (52.4 in September). Unchanged.
  • Flash Eurozone Manufacturing PMI(3) at 50.7 (50.3 in September). 2-month high.
  • Flash Eurozone Manufacturing PMI Output Index(4) at 51.9 (51.0 in September). 3-month high.

The Eurozone saw a marginal upturn in growth of business activity in October, according to the flash PMI results. The headline Markit PMI rose from September’s ten-month low of 52.0 to 52.2, signalling the first upturn in the pace of expansion for three months. However, the index remained below the average seen in the third quarter, and was the second-weakest reading seen so far this year.

Manufacturing output expanded at the fastest rate for three months, while growth of service sector activity was unchanged on the six-month low seen in September. In both cases, rates of growth remained historically weak and below the averages seen in the year to date.

Furthermore, although output rose at a slightly faster rate, new orders barely rose in October, registering the smallest monthly improvement since orders began rising in August of last year. Manufacturers reported a second consecutive monthly drop in new orders, albeit again only modest, while inflows of new business in the service sector showed the smallest rise since January.
Backlogs of work fell at the fastest rate since June of last year, dropping in both services and, to a lesser extent, manufacturing.

Subdued demand prompted firms to cut staffing evels. Although only marginal, the reduction in headcounts was notable in being the first since November of last year. Service providers reported the first cut in payroll numbers since March, though manufacturers reported a slight upturn in employment.

Prices were increasingly being cut in order to help boost sales. Average prices charged for goods and services showed the largest monthly fall since February 2010, having now fallen almost continually for just over two-and-a-half years.

Charges for services fell at the steepest rate since January 2010 while a more modest decline was seen in the manufacturing sector, where prices fell only marginally and to a lesser extent than in September.

Price cuts occurred despite overall input costs rising in October, pointing to a further squeeze on operating margins. That said, manufacturing input prices fell for the second month running.

Finally, business optimism about the year ahead in the service sector fell to the lowest since June of last year. The outlook is perhaps a little brighter in manufacturing, where the amount of goods purchased for use in production rose for the first time in three months.

By country, France saw business activity fall for a sixth successive month, deteriorating at the fastest rate since February. More Rates of decline accelerated slightly in both manufacturing and services. New business and employment suffered the largest falls since June and April of last year respectively. French selling prices dropped at the fastest rate since October 2009.

There was better news out of Germany, where the PMI rose to its highest for three months More. While services saw the slowest pace of expansion since June, growth of manufacturing output rebounded to a three-month high. However, German companies also reported that new business rose at the slowest pace since September of last year, while employment growth slowed and prices charged were cut to the greatest extent since September 2012.

Elsewhere across the region, output growth partially recovered from the slide to a ten-month low in September. But new business growth was the weakest for 11 months, employment barely rose and prices charged fell at the steepest pace since July of last year.

Markit Economics, “Markit Flash Eurozone PMI“, 23 Oct 2014 More

Comment

The rough patch is not over, with many details in the PMI survey warranting caution.
Christian Schulz, Economist, Berenberg Bank More

JAPAN

Economy

Markit/JMMA Flash Japan Manufacturing PMI Opinion

Extract

New order growth surges to highest in eight months

Key points:

  • Flash Japan Manufacturing PMI at 52.8 (51.7 in September). Modest improvement in business conditions in September.
  • Flash Japan Manufacturing Output Index at 52.3 (53.4 in September). Moderate growth for third successive month.

Markit Economics, “Markit/JMMA Flash Japan Manufacturing PMI“, 23 Oct 2014 More

CHINA

Economy

HSBC Flash China Manufacturing PMI Opinion

Extract

Slowest expansion of output in five months

Key points:

  • Flash China Manufacturing PMI at 50.4 in October (50.2 in September). Three-month high.
  • Flash China Manufacturing Output Index at 50.7 in October (51.3 in September). Five-month low.

Markit Economics, “HSBC Flash China Manufacturing PMI“, 23 Oct 2014 More

USA

Economy

Unemployment Insurance Weekly Claims Report: Week to 18 Oct 2014 Opinion

Extract

In the week ending October 18, the advance figure for seasonally adjusted initial claims was 283,000, an increase of 17,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 264,000 to 266,000. The 4-week moving average was 281,000, a decrease of 3,000 from the previous week’s revised average. This is the lowest level for this average since May 6, 2000 when it was 279,250. The previous week’s average was revised up by 500 from 283,500 to 284,000.

The advance seasonally adjusted insured unemployment rate was 1.8 percent for the week ending October 11, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 11 was 2,351,000, a decrease of 38,000 from the previous week’s unrevised level of 2,389,000. This is the lowest level for insured unemployment since December 23, 2000 when it was 2,340,000. The 4-week moving average was 2,381,000, a decrease of 22,750 from the previous week’s unrevised average of 2,403,750. This is the lowest level for this average since May 20, 2006 when it was 2,377,750.

U.S. Employment and Training Administration, “Unemployment Insurance Weekly Claims Report – Week to 18 Oct 2014“, 23 Oct 2014 (08:30am) More

Comment

The labor market is continuing to get better. We’re going to get another solid number for payrolls in October. Companies are very reluctant to lay off the workers they already have on the payroll. They expect demand to pick up and they expect more of what we call plow-horse economic growth – slow and steady.
Robert Stein, Deputy Chief Economist, First Trust Portfolios LP More

There’s no let-up in the labor-market improvement. There’s no sign of any spillover from the turmoil in the markets and the global slowdown. The U.S. economy is chugging along despite the global turmoil.
Jim O’Sullivan, Chief U.S. Economist, High Frequency Economics More

A lot of this latest uptick in confidence is also associated with the decline in gasoline prices, which has heavy influence on consumer psychology. The decline in gas prices leaves them in a better position heading into the holiday-shopping season.
Michelle Girard, Chief U.S. Economist, RBS Securities Inc. More

Markit Flash U.S. Manufacturing PMI Opinion

Extract

U.S. Manufacturing PMI hits three-month low in October amid weakest pace of new business growth since January

At 56.2 in October, down from 57.5 in September, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ IndexTM (PMI) indicated a slower improvement in overall business conditions across the manufacturing sector. Although still comfortably above the neutral 50.0 value, the index was the lowest since July and notably weaker than the average seen during the third quarter as a whole (57.1).
Softer new business growth was the main negative influence on the headline PMI in October, as the latest rise in new orders was much weaker than in September and the slowest for nine months. A number of survey respondents commented on more cautious spending patterns among clients, especially in relation to export sales. October data pointed to only a moderate expansion of new orders from abroad, with the pace of growth easing sharply to a three-month low.
In line with softer new business gains, manufacturing output growth also slowed in October. The latest increase in production volumes was the weakest since March. Moreover, the rate of output growth has now moderated for two months in a row, which represents the first back-to-back slowdown since May 2013.
October data pointed to resilient manufacturing payrolls trends, despite a continued moderation in both output and new business growth. The rate of job creation was little-changed from September’s two-and-a-half year high and much sharper than the average seen since the survey began in May 2007. Survey respondents generally pointed to increasing backlogs of work at their plants and positive sentiment towards the long-run business outlook.

Markit Economics, “Markit Flash U.S. Manufacturing PMI“, 23 Oct 2014 (09:45am) More

Mortgage interest rates Opinion

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates hitting fresh lows for the year for the second consecutive week amid declining bond yields. At 3.92 percent the average 30-year fixed rate is at its lowest level since the week of June 6, 2013.

30-year fixed-rate mortgage (FRM) averaged 3.92 percent with an average 0.5 point for the week ending October 23, 2014, down from last week when it averaged 3.97 percent. A year ago at this time, the 30-year FRM averaged 4.13 percent.

15-year FRM this week averaged 3.08 percent with an average 0.5 point, down from last week when it averaged 3.18 percent. A year ago at this time, the 15-year FRM averaged 3.24 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.91 percent this week with an average 0.5 point, down from last week when it averaged 2.92 percent. A year ago, the 5-year ARM averaged 3.00 percent.

1-year Treasury-indexed ARM averaged 2.41 percent this week with an average 0.4 point, up from last week when it averaged 2.38 percent. At this time last year, the 1-year ARM averaged 2.60 percent.

Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac), “Mortgage Rates Decline Further“, 23 Oct 2014 More

Comment

The dip in rates here are for people who were looking at the numbers throughout the summer and saying ‘It’s pretty close’. And now you have a place where that refinance might make sense.
Keith Gumbinger, Vice President, HSH.com (mortgage-data company) More

Stock market indices Opinion

Caterpillar Inc (CAT.N) and 3M Co (MMM.N) led the market up today after reporting their earnings. Caterpillar, which also raised its full-year profit view, was up 5.2 percent at $99.52 while 3M added 6 percent to $147.34.

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,950.82 +1.23% 1,848.36 +5.54%
DJIA INDU 16,677.90 +1.32% 16,576.66 +0.61%
NASDAQ IXIC 4,452.79 +1.60% 4,176.59 +6.61%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 23 Oct 2014 Watch Read
Comment

It’s good to see good numbers in any company, but if we’re looking at headwinds like currency and slowing global growth, seeing multinationals like Caterpillar and 3M post solid beats gives us confidence that economic growth is holding on and probably better than the market is currently expecting.
Phil Orlando, Chief Equity Market Strategist, Federated Investors More

We’re seeing some peace here in earnings and better macro data, which is helping to fuel investor confidence. That trend in jobless claims suggests we are going to see another good job increase for October.
Alan Gayle, Director of Asset Allocation, RidgeWorth Investments ($45bn) More

The fundamental focus is on earnings. The bigger picture fear of global growth slowdown is going to remain with us. That’s going to prevent any meaningful market appreciation. Investors should be prepared for a choppy ride.
Leo Grohowski, Chief Investment Officer, BNY Mellon Wealth Management ($187bn) More

PORTFOLIO

Index values Opinion

:-) Our AUD-denominated index closed above 1.9 today for the first time.

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.678 +1.71% 1.399 +19.92%
Valuation Rate USD/AUD 0.88048 -0.24% 0.89789 -1.94%
Portfolio Index AUD 1.906 +1.96% 1.558 +22.29%

52-week performance Opinion

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

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

Stock price movements

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

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

Portfolio stock news

Investors dump Amazon after Q3 earnings miss Opinion

In after-hours trading AMZN was down 10.6% (to $279.80) after reporting a Q3 2014 net loss of $437m or $0.95 per share compared with a loss of $41 million or $0.09 per share in Q3 2013. This was Amazon’s largest quarterly loss in 14 years. More Investors have long complained about Bezos’ disregard for investors’ calls for positive earnings, and have trashed the stock. However some funds, e.g. Hennessy Technology Fund, maintain a significant holding (about 4.5% of the portfolio). The Bunting Technology Portfolio has 5.1% allocated to Amazon, and – yes – we’re as unimpressed as Hennessy’s Co-Portfolio Manager Skip Aylesworth about Amazon’s performance in 2014: down 20% (probably 28% tomorrow) so far this calendar year.

We look at Amazon in terms of online retail, media (movie) delivery, and cloud services. Google considers Amazon as its main competitor (outside of search). It is a good investment – but we just wish it wouldn’t reinvest every cent (and more) of profit into “future growth”. But then it was Bezos who said, so long ago, “Get Big Fast”, and he hasn’t stopped.

Comment

The biggest component is the expense side of the equation. They’ve got a big checkbook they keep writing upon, which all results in a top line that is less robust than thought.
Scott Tilghman, Analyst, B. Riley & Co. More

Even if Bezos is unconcerned about institutional investors’ near term, he needs to care how the stock impacts his ability to attract and retain talent, particularly given the broadening tech expertise he needs. If the stock continues to get hit, we could even end up in a situation with activists calling for significant changes.
Ben Schachter, Senior Analyst, Macquarie Group (NY) More

They’re becoming much too distracted in all these other efforts outside core businesses like online retailing and web services. They are their own worst enemy to success. They really need to do some soul searching and get focused.
Matthew Benkendorf, Portfolio Manager, Vontobel Asset Management More

We are at the point where they’re getting sick of it. They’re using a cash conversion cycle – meaning, they take your money in today when you buy something, but they don’t pay their supplier for 75 days. That is what creates cash flow and that’s what everyone on the Street looks at. That’s an entirely fallacious way of valuing a company. If Amazon were to exit China and use the savings to buy back stock, we could easily get far more optimistic. But we are not holding our breath.
John Thompson, Chief Executive, Vilas Capital Management More

Portfolio stock prices

:-) New record closing prices for Apple and Facebook. Apple peaked at $105.05 before closing at $104.83. Facebook peaked at $80.63 before closing at $80.04.

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $104.83 +1.79% $80.1457 +30.80%
Amazon AMZN $313.18 +0.07% $398.79 -21.47%
Ebay EBAY $50.79 +1.32% $54.865 -7.43%
Facebook FB $80.04 +2.13% $54.649 +46.46%
Google A GOOGL $553.65 +2.02% $560.365 -1.20%
Google C GOOG $543.98 +2.12% $560.365 -2.92%
Linkedin LNKD $202.62 +2.07% $216.83 -6.55%
VMware VMW $82.53 +0.71% $89.71 -8.00%

USD/AUD

The USD strengthened against the AUD today (Chart: xe.com)

The USD strengthened against the AUD today (Chart: xe.com)

Wednesday 22 Oct 2014

EUROPE

Monetary Policy

The European Central Bank bought Spanish covered bonds in a third day of asset purchases that has seen it acquire notes from Italy to Germany, according to people familiar with the matter.

The ECB is adding to French and Portuguese securities it bought this week, said the people, who asked not to be identified they’re not authorized to talk about it. The central bank will reveal the amount of debt purchased on Oct. 27.

The ECB entered the 2.6 trillion-euro ($3.3 trillion) covered bond market as part of efforts to improve companies’ and households’ access to financing. While policy makers could embark on further stimulus after purchasing the securities, there’s no specific plan to buy corporate bonds, ECB Governing Council member Luc Coene said in an interview with L’Echo newspaper today.

Bloomberg Businessweek, “ECB Said to Expand Covered Bond Purchases“, 22 Oct 2014 More

USA

Economy

Consumer price index (CPI) – Sep 2014

Extract

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in September on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

Increases in shelter and food indexes outweighed declines in energy indexes to result in the seasonally adjusted all items increase. The food index rose 0.3 percent as five of the six major grocery store food group indexes increased. The energy index declined 0.7 percent as the indexes for gasoline, electricity, and fuel oil all fell.

The index for all items less food and energy increased 0.1 percent in September. Along with the shelter index, the index for medical care increased, and the indexes for alcoholic beverages and for personal care advanced slightly. Several indexes were unchanged, and the indexes for airline fares and for used cars and trucks declined in September.

The all items index increased 1.7 percent over the last 12 months, the same increase as for the 12 months ending August. The 12-month change in the index for all items less food and energy also remained at 1.7 percent. The 12-month change in the shelter index has been gradually increasing, and reached 3.0 percent for the first time since January 2008. The food index has also risen 3.0 percent over the span, while the energy index has declined 0.6 percent.

Bureau of Labor Statistics, “Consumer price index (CPI) – Sep 2014“, 22 Oct 2014 (08:30) More

Comment

Inflation remains very tame. For now, it gives the Fed the green light to keeping monetary policy accommodative. Over the long haul, they’d prefer to see inflation go up a little.
Jim O’Sullivan, Chief U.S. Economist, High Frequency Economics More

There are very few price pressures throughout the economy. It’s generally positive for consumer spending.
Gus Faucher, Economist, PNC Financial Services Group Inc. More

The ongoing inflation weakness will give the Fed leeway to take a restrained approach to tightening monetary conditions.
Robert Hughes, Senior Research Fellow, American Institute for Economic Research More

Real earnings – Sep 2014

Extract

Real average hourly earnings for all employees fell 0.2 percent from August to September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from unchanged average hourly earnings combined with a 0.1 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased by 0.2 percent over the month due to a 0.3 percent increase in the average workweek more than offsetting the decline in real average hourly earnings.

Real average hourly earnings increased by 0.3 percent, seasonally adjusted, from September 2013 to September 2014. This gain in real average hourly earnings, combined with a 0.3 percent increase in the average workweek, resulted in a 0.6 percent increase in real average weekly earnings over this period.

Bureau of Labor Statistics, “Real earnings – Sep 2014“, 21 Oct 2014 (08:30) More

Comment

It is hard to have strong economic growth when spending power is largely flat.
Joel Naroff, Chief Economist, Naroff Economic Advisors More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,927.11 -0.73% 1,848.36 +4.26%
DJIA INDU 16,461.32 -0.92% 16,576.66 -0.70%
NASDAQ IXIC 4,382.85 -0.83% 4,176.59 +4.94%

The shape of the day

Markets were distracted by terrorist shootings in Ottawa commencing at about 9:52am (22 minutes into the trading session) today More and by continuing falls in the price of crude oil More

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 22 Oct 2014 Watch Read
Comment

If markets can connect the dots that this (the Ottawa shootings) is a wider-ranging concern on domestic terrorism, it’ll put weight on the markets along with global growth. If it’s unrelated to terrorism, markets can probably move on and focus on fundamentals.
John Canally, Chief Economic and Investment Strategist, LPL Financial More

The (reporting) season has been mixed, and the global economy is a concern for big multinational companies, but the fact that the market can shake off some bad reports is indicative of what good footing it is on right now.
Bruce Bittles, Chief Investment Strategist, Robert W. Baird & Co More

PORTFOLIO

Index values Opinion

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.650 +0.15% 1.399 +17.90%
Valuation Rate USD/AUD 0.88261 -0.05% 0.89789 -1.70%
Portfolio Index AUD 1.869 +0.20% 1.558 +19.95%

52-week performance Opinion

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

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

Stock price movements

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

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

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $102.99 +0.51% $80.1457 +28.50%
Amazon AMZN $312.97 -0.75% $398.79 -21.52%
Ebay EBAY $50.13 -1.44% $54.865 -8.63%
Facebook FB $78.37 -0.41% $54.649 +43.41%
Google A GOOGL $542.69 +0.87% $560.365 -3.15%
Google C GOOG $532.71 +1.17% $560.365 -4.94%
Linkedin LNKD $198.52 -3.34% $216.83 -8.44%
VMware VMW $81.95 -7.08% $89.71 -8.65%

AUSTRALIA

Economy

Inflation – Consumer Price Index

Extract

The Consumer Price Index (CPI) rose 0.5% in the September quarter 2014, following a rise of 0.5% in the June quarter 2014.

The most significant price rises this quarter were for fruit (+14.7%), new dwelling purchase by owner-occupiers (+1.1%), property rates and charges (+6.3%) and other services in respect of motor vehicles (+5.8%). These rises were partially offset by falls in electricity (-5.1%) and automotive fuel (-2.5%).

The CPI rose 2.3% through the year to the September quarter 2014, following a rise of 3.0% through the year to the June quarter 2014.

Australian Bureau of Statistics, “ABS CPI September quarter 2014 rises 0.5%“, 22 Oct 2014 More

Comment

Aside from the carbon tax impact, the outlook for inflation is not greatly changed. Over the past year, inflation has eased in several areas, including clothing, transport – thanks to lower petrol prices – and communications, as phone plans increasingly offer more data and calls for the same or lower price.

However, there are several areas where price increases remain strong – largely due to increases in taxes and fees – such as education, health services and alcohol and tobacco. Food inflation has also been accelerating, as has the cost of housing.

With the economy’s rebalancing act progressing slowly, domestic wage growth having slowed, oil prices falling and global inflation subdued, the risk would seem to be that inflation remains well contained from here.

Paul Bloxham, Chief Economist, HSBC More

The CPI report had no significant impact on the AUD (Chart: xe.com)

The CPI report had no significant impact on the AUD (Chart: xe.com)

Tuesday 21 Oct 2014

GLOBAL

Credit Suisse Global Wealth Report 2014 More

Luzern, Switzerland

Luzern, Switzerland (Sep 2014)

The CS report identifies countries with the highest average wealth per adult:

  1. Switzerland: USD 581,000
  2. Australia: USD 431,000
  3. Norway: USD 359,000
  4. USA: USD 348,000
  5. Sweden: USD 333,000
  6. France: USD 317,000
  7. UK: USD 293,000
  8. Singapore: USD 290,000

Recognising that there are major wealth differences at the extremes (wealth inequality) which can distort an average, CS also ranks countries by median wealth. Australia: USD 225,000 remains at the top of the ranking (it has been at the top for the last 5 years), followed by Belgium: USD 173,000.

Beach at Port Melbourne, Australia

Beach at Port Melbourne, Australia (Oct 2014)

Switzerland and Australia are at the top of the wealth per adult lists because they are at the top of the GDP per adult lists:

  • Switzerland (highest mean wealth per adult):
    • total wealth: USD 3.6 trillion
    • adult population: 6 million
    • GDP per adult: USD 99,725
    • USD millionaires: 663,000
    • most (56%) household wealth is held in financial assets
  • Australia (highest median wealth per adult):
    • total wealth: USD 7.2 trillion
    • adult population: 17 million
    • GDP per adult: USD 95,397
    • USD millionaires: 1,252,000
    • most (60%) household wealth is held in real assets (property)

Looking forward 5 years, CS concludes:

The United States will remain by far the wealthiest country, with aggregate wealth in excess of USD 114.5 trillion in 2019. Wealth in the Eurozone countries will likely reach USD 80 trillion from USD 58 trillion today. China has reduced the wealth deficit with Japan from USD 14.7 trillion in 2000 to USD 1.7 trillion in 2014, and is predicted to become the world’s second wealthiest economy by 2019. In terms of wealth per adult, Switzerland will remain the undisputed leader, followed by Australia and Sweden. Measured by median wealth, however, Australia will remain the world number one and Belgium the world number two.

There are 34.837m millionaires in the world in 2014, and this will rise to 53.162m by 2019. At the top of the distribution list are:

  1. USA has 14.166 million in 2014, and will have 19.705 million by 2019.
  2. France has 2.444m in 2014 and will have 4.160m by 2019.
  3. UK has 2.043m in 2014 and will have 3.381m by 2019.
  4. Germany has 1.964m in 2014 and will have 3.262m in 2019.

CHINA

Economy

China’s gross domestic product rose 7.3% in Q3 2014 quarter from Q3 2013, the slowest growth since Q1 2009. This exceeded economists’ expectations of a 7.2% rise.

Comment

Decent exports and the fact that there is more to China’s domestic demand than real estate dampen the overall slowdown. Barring a major further slowdown we expect the policy stance to remain relatively restrained.
Louis Kuijs, Chief Greater China Economist, Royal Bank of Scotland Group Plc (HK) More

The weakest part of China’s economy is still the property sector. The government has relaxed some controls recently and property sales may pick up in the fourth quarter. However, we may not see improvement in sectors like heavy industry and we expect the economy to continue to slow down.
Wang Tao, Analyst, UBS (HK) More

It’s hard to square the GDP print with the industrial production numbers for the quarter. There are confusing things going on. You have credit growing at the slowest pace since 2002. You have real estate investment slowing on a monthly basis and you have industrial production averaging slightly above 8 percent on a quarterly basis, slightly down from Q2. With that being the most reliable component of GDP on a quarterly basis, 7.3 percent seems a bit high to me.
Andrew Polk, Economist, the Conference Board (Beijing) More

The government has reiterated that no broad stimulus will be implemented, and I think today’s data will further bolster and strengthen that trend
Zhu Haibin, Chief China Economist, JPMorgan Chase & Co. (HK) More

USA

Economy

US producer price index – Sep 2014

Extract

The Producer Price Index for final demand decreased 0.1 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in August and advanced 0.1 percent in July. On an unadjusted basis, the index for final demand increased 1.6 percent for the 12 months ended in September.

In September, the 0.1-percent decrease in final demand prices can be traced to the indexes for both goods and services, which moved down 0.2 percent and 0.1 percent, respectively.

Within intermediate demand, prices for processed goods inched up 0.1 percent, the index for unprocessed goods rose 0.6 percent, and prices for services were unchanged.

Bureau of Labor Statistics, “US producer price index – Sep 2014“, 21 Oct 2014 (08:30) More

Existing home sales – Sep 2014 Opinion

Sales of previously owned U.S. homes advanced 2.4 percent in September to a 5.17 million annual rate, the National Association of Realtors reported today in Washington. A gain of 1 percent was forecast in a Bloomberg News survey of economists. More

Extract

After a modest decline last month, existing-home sales bounced back in September to their highest annual pace of the year, according to the National Association of Realtors®. All major regions except for the Midwest experienced gains in September.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.4 percent to a seasonally adjusted annual rate of 5.17 million in September from 5.05 million in August. Sales are now at their highest pace of 2014, but still remain 1.7 percent below the 5.26 million-unit level from last September.

The median existing-home price for all housing types in September was $209,700, which is 5.6 percent above September 2013. This marks the 31st consecutive month of year-over-year price gains.

Total housing inventory at the end of September fell 1.3 percent to 2.30 million existing homes available for sale, which represents a 5.3-month supply at the current sales pace. Despite fewer homes for sale in September, unsold inventory is still 6.0 percent higher than a year ago, when there were 2.17 million existing homes available for sale.

All-cash sales were 24 percent of transactions in September, up slightly from August (23 percent) but down from 33 percent in September of last year. Individual investors, who account for many cash sales, purchased 14 percent of homes in September, up from 12 percent last month but below September 2013 (19 percent). Sixty-three percent of investors paid cash in September.

National Association of Realtors, “Existing home sales – Sep 2014“, 21 Oct 2014 (10:00am) More

Comment

We’re on a pretty stable trajectory. Borrowing costs are pretty contained. The rate of payroll growth is a modest positive for the housing market.
Guy LeBas, Managing Director, Janney Montgomery Scott LLC More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,941.28 +1.96% 1,848.36 +5.03%
DJIA INDU 16,614.81 +1.31% 16,576.66 +0.23%
NASDAQ IXIC 4,419.48 +2.40% 4,176.59 +5.82%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 21 Oct 2014 Watch Read
Comment

Now we can finally focus on earnings in the U.S. Apple’s numbers were stunning, so that should help markets. So far, earnings numbers look OK.
Kully Samra, Charles Schwab Corp. (UK) ($2.4 trillion) More

This was strong across all sectors, and Apple gave a good guidance. Any fund manager who is underweight on Apple is probably rethinking that position today.
Michael Binger, Senior Portfolio Manager, Gradient Investments More

PORTFOLIO

Index values Opinion

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.647 +2.52% 1.399 +17.73%
Valuation Rate USD/AUD 0.88305 -0.17% 0.89789 -1.65%
Portfolio Index AUD 1.865 +2.69% 1.558 +19.71%

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)

Portfolio stock news

VMware Q3 2014 earnings More

VMW’s Q3 revenue was $1,52bn, just above expectations of $1.5bn. EPS were $0.87, ahead of expectations $0.83. However analysts were concerned about a fall in profit margin from 22% of sales to 16% of sales in Q3 2014. In after hours trading VMW dropped 1.32% to $86.50.

VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the third quarter of 2014:

  • Revenues for the third quarter were $1.52 billion, an increase of 18% from the third quarter of 2013.
  • Operating income for the third quarter was $242 million, a decrease of 16% from the third quarter of 2013, reflecting the impact of the AirWatch acquisition. Non-GAAP operating income for the third quarter was $460 million, an increase of 5% from the third quarter of 2013, also reflecting the impact of the AirWatch acquisition, as expected.
  • Net income for the third quarter was $194 million, or $0.45 per diluted share, down 26% per diluted share compared to $261 million, or $0.60 per diluted share, for the third quarter of 2013. Non-GAAP net income for the quarter was $377 million, or $0.87 per diluted share, up 3% per diluted share compared to $363 million, or $0.84 per diluted share, for the third quarter of 2013. Both GAAP and Non-GAAP results on a year-over- year basis primarily reflect the acquisition of AirWatch, completed in the first quarter of 2014, as expected
  • Cash, cash equivalents and short-term investments were $7.09 billion, and unearned revenues were $4.37 billion as of September 30, 2014.

Stock price movements

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

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

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $102.47 +2.72% $80.1457 +27.85%
Amazon AMZN $315.33 +2.98% $398.79 -20.93%
Ebay EBAY $50.86 +3.37% $54.865 -7.30%
Facebook FB $78.69 +2.26% $54.649 +43.99%
Google A GOOGL $538.04 +1.06% $560.365 -3.98%
Google C GOOG $526.54 +1.09% $560.365 -6.04%
Linkedin LNKD $205.38 +3.50% $216.83 -5.28%
VMware VMW $88.19 +0.60% $89.71 -1.69%

Monday 20 Oct 2014

Port Melbourne's 2014/2015 cruise ship season is underway.

Port Melbourne’s 2014/2015 cruise ship season is underway.

Eurozone

Economy

Euro area balance of payments – Aug 2014

Extract

In August 2014 the seasonally adjusted current account of the euro area recorded a surplus of €18.9 billion. In the financial account, combined direct and portfolio investment recorded net outflows of €19 billion (non-seasonally adjusted).

Current account

The seasonally adjusted current account of the euro area recorded a surplus of €18.9 billion in August 2014. This reflected surpluses for goods (€15.3 billion), services (€7.8 billion) and income (€4.2 billion), which were partly offset by a deficit for current transfers (€8.4 billion).

The seasonally adjusted 12-month cumulated current account for the period ending in August 2014 recorded a surplus of €242.9 billion (2.5% of euro area GDP), compared with €202.2 billion (2.1% of euro area GDP) for the 12 months to August 2013 (see Table 1 and Chart 1). The increase in the 12-month cumulated current account surplus was due mainly to increases in the surpluses for goods (€183.6 billion, up from €147.9 billion) and services (€120.1 billion, up from €102.6 billion), which were partly offset by a decrease in the surplus for income (€54.3 billion, down from €69.3 billion). The deficit for current transfers remained broadly stable.

Financial account

In the financial account, combined direct and portfolio investment recorded net outflows of €19 billion in August 2014, mainly as a result of net outflows for portfolio investment (€28 billion) which were partly offset by net inflows for direct investment (€9 billion).

The net inflows for direct investment were a result of net inflows for both other capital (mostly inter-company loans) (€5 billion) and for equity capital and reinvested earnings (€3 billion).

The net outflows for portfolio investment were accounted for almost entirely by net outflows for debt instruments (€49 billion), particularly for bonds and notes (€40 billion), which were partly offset by net inflows for equity (€21 billion).

The financial derivatives account recorded net outflows of €13 billion.

Other investment recorded net inflows of €17 billion, which mainly reflected net inflows for other sectors (€24 billion) and, to a lesser extent, for the Eurosystem (€6 billion), which were partly offset by net outflows for MFIs excluding the Eurosystem (€7 billion) and general government (€5 billion).

The Eurosystem’s stock of reserve assets increased by €9 billion in August 2014 (from €585 billion to €594 billion), mainly on account of valuation effects (transactions contributed to an increase of €1 billion in overall reserve assets).

In the 12 months to August 2014 combined direct and portfolio investment recorded cumulated net inflows of €39 billion, compared with net inflows of €33 billion in the 12 months to August 2013. This change resulted from lower net outflows for direct investment (€53 billion, after €84 billion) and lower net inflows for portfolio investment (€92 billion, after €117 billion).

European Central Bank, “Euro area balance of payments (August 2014)” 20 Oct 2014 More

USA

Economy

Unemployment

Bloomberg considers that “Federal Reserve policy makers are missing a key element as they assess the health of the labor market: data that includes whether those who are employed are overqualified for their job or would like to work more hours. As a result, the “significant underutilization of labor resources” that Fed officials highlighted last month as they renewed a pledge to keep interest rates low for a “considerable period” is probably even more severe than currently estimated. And the information gap means policy makers may have more difficulty gauging the right moment to raise rates off zero.More

Stock market indices Opinion

Index Ticker Today Change 31 Dec 13 YTD
S&P 500 SPX (INX) 1,904.01 +0.91% 1,848.36 +3.01%
DJIA INDU 16,399.67 +0.12% 16,576.66 -1.07%
NASDAQ IXIC 4,316.07 +1.35% 4,176.59 +3.34%

The shape of the day

Market indices today (Chart: Yahoo)

Market indices today (Chart: Yahoo)

Nightly Business Report: 20 Oct 2014 Watch Read
IBM takes a dive

IBM dropped 7.11% today on worse than expected software sales and lower productivity in services in Q3:

  • Revenue was $22.4bn, down 4% from $23.34bn in Q3 2013, (10th straight quarterly fall), due to declines in its hardware division and in emerging markets. Analysts had expected $23.37bn.
  • Adjusted EPS from continuing operations were $3.68, down from $4.08 in Q3 2013. Analysts had expected $4.31.

CEO Ginni Rometty had hoped for a strong second half of the year, but following the Q3 outcome has abandoned her 2015 operating earnings target. IBM’s chip-manufacturing division has performed so badly that IBM will pay Globalfoundries $1.5bn to take the operation off its hands. This follows the recent $2.1bn sale of IBM’s low-end server unit to Lenovo Group Ltd. More

We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry.
Ginni Rometty, chairman, president and chief executive officer, IBM More

Comment

It’s all about earnings today. Yes, IBM (IBM) earnings were a big miss, but other company earnings are coming in better than expected and that’s good news. The growth rate for the third quarter has been ratcheted up and that’s some good news for the market.
Karyn Cavanaugh, Senior Market Strategist, Voya Investment Management LLC. ($215bn) More

PORTFOLIO

Index values Opinion

:-) Outperformed Currency Today Change 31 Dec 13 YTD
Portfolio Index USD 1.607 +1.88% 1.399 +14.84%
Valuation Rate USD/AUD 0.88452 +0.37% 0.89789 -1.49%
Portfolio Index AUD 1.817 +1.50% 1.558 +16.58%

52-week performance Opinion

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

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

Stock price movements

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

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

Portfolio stock news

Apple Q4 2014 earnings Opinion

Apple store at the Inverted Pyramid, the Louvre, Paris, France

Apple store at the Inverted Pyramid, the Louvre, Paris, France (Oct 2014)

Apple reported its Q4 results after market close today. In after-hours trading AAPL has risen more than 3.5% to above $101.

Extract

Apple® today announced financial results for its fiscal 2014 fourth quarter ended September 27, 2014. The Company posted quarterly revenue of $42.1 billion and quarterly net profit of $8.5 billion, or $1.42 per diluted share. These results compare to revenue of $37.5 billion and net profit of $7.5 billion, or $1.18 per diluted share, in the year-ago quarter. Gross margin was 38 percent compared to 37 percent in the year-ago quarter. International sales accounted for 60 percent of the quarter’s revenue.

Apple is providing the following guidance for its fiscal 2015 first quarter:

  • revenue between $63.5 billion and $66.5 billion
  • gross margin between 37.5 percent and 38.5 percent
  • operating expenses between $5.4 billion and $5.5 billion
  • other income/(expense) of $325 million
  • tax rate of 26.5 percent.”

Comment

Demand for the new iPhones has been staggering. We’re selling everything we’re making.
Tim Cook, CEO, Apple More

The guidance looks very strong. How good beyond the already good – that’s going to be one of the key questions we’re going to be asking ourselves.
Alex Gauna, Analyst, JMP Securities LLC More

Portfolio stock prices

Stock Ticker Today Change 31 Dec 13 YTD
Apple AAPL $99.76 +2.14% $80.1457 +24.47%
Amazon AMZN $306.21 +0.85% $398.79 -23.22%
Ebay EBAY $49.20 +2.61% $54.865 -10.33%
Facebook FB $76.94% +1.30% $54.649 +40.79%
Google A GOOGL $532.38 +1.80% $560.365 -4.99%
Google C GOOG $520.84 +1.89% $560.365 -7.05%
Linkedin LNKD $198.44 +1.27% $216.83 -8.48%
VMware VMW $87.66 -1.89% $89.71 -2.29%

FX: USD/AUD

The AUD rose strongly against the USD today (Chart: xe.com)

The AUD rose strongly against the USD today (Chart: xe.com)

Week: 13-19 Oct 2014

USA

US market indices Impact

Index 17 Oct 2014 Week 10 Oct 2014 Month 30 Sep 2014 Year 31 Dec 13
S&P 500 1,886.76 -1.02% 1,906.13 -4.34% 1,972.29 +2.08% 1,848.36
DJIA 16,380.41 -0.99% 16,544.10 -3.89% 17,043.12 -1.18% 16,576.66
NASDAQ 4,258.44 -0.42% 4,276.24 -5.23% 4,493.39 +1.96% 4,176.59

The shape of the week

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

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

Comment

This was a really spectacular week to watch. A lot of risks came into the minds of short-term orientated traders.
Herbert Perus, Head of Equities, Raiffeisen Capital Management (Vienna) ($36bn) More

The market got to a position where it was prone to weakness and it happened to occur at the same time that scary news such as Ebola was rolling out. It’s a confluence of factors coming together to lead to a very difficult two weeks in the market.
Robert Stimpson, Fund Manager, Oak Associates Ltd More

This should be it. The market should do well once we get by some of these geopolitical risks that are on top of us right now, the Ebola thing and the mid-cycle elections. I would think the market is going to be strong into the close this year.
Michael Mullaney, Chief Investment Officer, Fiduciary Trust Co ($11.3bn) More

PORTFOLIO

Long term (52-week) performance Impact

:-( Our fifth straight week of losses:

  • our weekly USD index is down 5.23% from 1.664 on 13 Sep 2014 to 1.577.
  • our weekly AUD index is down 4.38% from 1.872 on 27 Sep 2014 to 1.790.

Our losses are in the same ballpark as the market, which has suffered four straight weeks of losses since 20 Sep 2014:

  • The S&P500 index is down 6.12% from 2,010 to 1,887.
  • The DJIA index is down 4.93% from 17,230 to 16,380 and is negative 1.18% for the year to date.
  • The NASDAQ Composite is down 5.38% from 4,580 to 4,258.
USD and AUD denominated indices over the last 52 weeks (Chart: Bunting)

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

Looking at the risks to a return to positive growth:

  • European growth slowdown: The ECB is expected to begin US Fed style asset (private-sector debt instrument) purchases from banks next week More, and the ECB is likely to keep interest rates low to support growth.
  • China growth slowdown: Like Europe, there may be an economic policy response: China’s central bank may inject up to CNY200bn (USD32.6bn) into 20 large national and regional banks More. Hong Kong’s democracy campaign is unlikely to represent a threat to market performance. More
  • Emerging markets growth slowdown: We can’t evaluate this risk in relation to our portfolio. More
  • Ebola: This issue, first flagged in PortfolioTicker on 9 Aug 2014 and discussed in detail on 16 Aug 2007 and 28 Aug 2014 is worrying because the epidemic is not being quarantined in Africa and the death toll has now passed 6,000 More
  • Geopolitical: The Ukraine/Russia situation is quiet for now More, and while the ISIL situation is a current operation, it appears to be under control at present. More
  • US monetary policy: The issues are not “if” but “when”. The US economy is rising above the need to maintain asset buying (QE3: expected to end this month) and accommodative interest rates, but the Federal Reserve is very sensitive to market reactions to these policy areas. As a long term investor we’re not currently concerned about this issue.
  • US mid-term elections: We can’t evaluate this risk.
  • Falling oil prices: Appear to have found a bottom, closing at $82.75 (Nov 2014 crude)
  • Reporting season: The market is currently in reporting season, and outlooks (forecast revenue and earnings) represent the greatest area of risk.

This week’s performance Impact

Index 17 Oct 2014 Week 10 Oct 2014 Month 30 Sep 2014 Year 31 Dec 13
USD Index 1.577 -2.92% 1.625 -4.46% 1.651 +12.73% 1.399
Trading USD/AUD 0.88126 +0.93% 0.87314 +0.09% 0.88048 -1.85% 0.89789
AUD Index 1.790 -3.81% 1.861 -4.55% 1.875 +14.85% 1.558

Portfolio stocks

Apple AAPL -3.04%

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

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

Amazon AMZN -2.49%

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

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

Ebay EBAY -7.54%

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

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

Facebook FB +4.17%

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

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

Google Class A GOOGL -5.80%

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

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

  • Friday close: $522.97 -5.80% from $555.19.
  • P/E (historical): 27.42 Change from 28.68
  • P/E (1 year fwd): 24.42 Change from 25.91
  • Target (1 year): NASDAQ consensus $670Change, range $600 ↔ $750.
  • SEC filings (CIK 0001288776): Edgar Search (New, Beta)

Google Class C GOOG -6.12%

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

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

  • Friday close: $511.17 -6.12% from $544.49.
  • P/E (historical): 21.28 Change from 18.98
  • Analyst recommendations: 7Change strong buy, 3 buy, 0 hold.

Linkedin LNKD +0.89%

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

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

VMware VMW -1.25%

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

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

USD/AUD

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

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