In Portfolioticker today
- Today at the stock market
- The portfolio today
- Japan Update
- China Update
Today at the stock market
“U.S. stocks snapped a two-day slide to close at fresh records as technology shares rebounded from the worst drop of the year. The dollar weakened and Treasuries were steady as the Federal Reserve policy meeting kicked off.
The Dow Jones Industrial Average and the S&P 500 Index ended at all-time highs, while the Nasdaq 100 Index bounced back from its biggest two-day drop since September. European and emerging-market equities advanced:
- The S&P 500 added 0.5% to 2,440.35 as of 4 p.m. in New York.
- The Dow rose 92.80 points to 21,328.47.
- The Nasdaq 100 climbed 0.8%, rebounding from its worst 2-day drop of the year. It’s still 2.3% below its all-time high.
- The Stoxx Europe 600 Index rose 0.6%, after dropping 1% on Monday. Tech shares rose 1.6%.
- MSCI’s Emerging Markets Index added 0.1%.
10-year Treasury yields held near 2.21% and the USD slipped versus major peers before the Fed is projected to raise rates Wednesday.
Britain’s GBP rose for the first time since the U.K. election.” Bloomberg
“Large investors, whose high exposure to large-cap technology stocks boosted their returns during the first quarter of the year, are doubling down on their investments even as stocks like Apple Inc and Facebook Inc stumble.
Fund managers such as T Rowe Price and Federated Investors, who were already overweight the sector, said they were buying beaten-down so-called ‘FANG’ stocks – Facebook, Amazon.com Inc, Netflix Inc and Google-parent Alphabet Inc – during a 2-day selloff that marked the largest tech sector decline in nearly a year.
Analysts expect the S&P 500 technology index to grow its earnings by 12.4% this year, better than the S&P 500′s 11.6% expected growth, according to Thomson Reuters I/B/E/S.
About 40% of the stocks in the S&P 500 information technology index rose on Monday, including Qualcomm Inc and International Business Machines Corp (IBM), which have lagged in 2017.” Reuters
The S&P500 Index closed on a record high of 2,440.35 – up 9.00% YTD
The Dow Jones Industrial Average Index closed on a record high of 21,328.47 – up 7.92% YTD
Although it is below its record, because of the selldown of tech stocks over the past few week, the NASDAQ Composite Index is up 15.55% YTD
Index Ticker Today Change 31 Dec 16 YTD S&P 500 SPX (INX) 2,440.35 +0.45% 2,238.83 +9.00% DJIA INDU 21,328.47 +0.43% 19,762.60 +7.92% NASDAQ IXIC 6,220.37 +0.72% 5,383.12 +15.55%
The portfolio today
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting
Index Currency Today Change 31 Dec 16 YTD USD-denominated Index USD 2.650 +1.01% 2.105 +25.93% Valuation Rate USD/AUD 0.75883 -0.08% 0.72663 +4.43% AUD-denominated Index AUD 3.494 +1.08% 2.895 +20.67%
Portfolio stock prices
Stock Ticker Today Change 31 Dec 16 YTD Alphabet A GOOGL $970.50 +0.90% $792.45 +22.46% Alphabet C GOOG $953.40 +1.11% $771.82 +23.52% Apple AAPL $146.59 +0.80% $115.82 +26.56% Amazon AMZN $980.79 +1.65% $749.87 +30.79% Ebay EBAY $34.47 +0.94% $29.69 +16.09% FB $150.68 +1.51% $115.05 +30.96% PayPal PYPL $52.04 -0.23% $39.47 +31.84% TWTR $16.97 -0.41% $16.30 +4.11% Visa V $95.08 +1.69% $78.02 +21.86% VMware VMW $88.81 +1.66% $78.73 +12.80%
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg
“The Bloomberg Dollar Spot Index (DXY) fell by 0.2%.
Britain’s GBP strengthened 0.8% to USD 1.2755 after sliding 0.7% on Monday; it stayed higher as U.K. data showed inflation resumed its upward march last month.
The EUR was flat at USD 1.1209.
Japan’s JPY dropped 0.1% to 110.05 per USD, after Monday’s 0.3% gain. ” Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
“West Texas crude futures rose 0.8% to settle at $46.46, as OPEC reported rising production, offsetting expectations of a further decline in U.S. stockpiles.” Bloomberg
Prices are as at 15:49 ET
- NYMEX West Texas Intermediate (WTI): $46.47/barrel +0.85% Chart
- ICE (London) Brent North Sea Crude: $48.73/barrel +0.91% Chart
- NYMEX Natural gas futures: $2.96/MMBTU -2.08% Chart
Verizon Closes Yahoo! Acquisition, Mayer resigns
“Verizon Communications Inc said on Tuesday it closed its $4.48 billion acquisition of Yahoo Inc’s core business and that Marissa Mayer, chief executive of the internet company, had resigned. The completion of the acquisition marked the end of Yahoo as a stand-alone internet company, a tech pioneer once valued at more than $100 billion.
Verizon, the No. 1 U.S. wireless operator, is combining Yahoo with AOL, which it bought 2 years ago, to form a venture called Oath, led by AOL CEO Tim Armstrong. Oath’s more than 50 brands include HuffPost, TechCrunch and Tumblr.
Reuters reported last week that Verizon planned to cut about 2,000 jobs, or 15%, of the 14,000 employees at its Yahoo and AOL units. Verizon is expected to make cuts as early as Wednesday. Yahoo cut 15% of its workforce last year and AOL cut 500 jobs.
On Friday, the remainder of Yahoo not acquired by Verizon will be renamed Altaba Inc, a holding company whose primary assets will be its 15.5% stake in Alibaba Group Holding Ltd and a 35.5% holding in Yahoo Japan Corp. Thomas McInerney, a Yahoo board member, will become Altaba’s chief executive officer.
Verizon shares closed down 1.6% on Tuesday and are down nearly 13% YTD in 2017.” Reuters
AU: Gross federal Debt Approaches AUD 500 Bn
“On Tuesday, gross Commonwealth debt reached more than AUD 499 billion, after growing by more than AUD 2 billion since Friday and AUD 9 billion since early May 2017. The record level of debt has sparked calls from within the Turnbull government and the Senate crossbench to restore the formal debt limit abolished under a deal struck between the Coalition and the Greens in 2013.
Under current regulations, Treasurer Scott Morrison only has to request the Australian Office of Financial Management (AOFM) to raise the gross debt limit, the total face value of government securities on issue. In May 2017, Mr Morrison pre-empted the looming breach by ordering the Office of Financial Management to raise the gross debt level to AUD 100 billion above the threshold set by former treasurer Joe Hockey.
In 2013, Mr Hockey justified increasing the ceiling to half-a-trillion dollars to move it “beyond any doubt”. But Mr Morrison faces authorising yet another increase before 2020 when the nation’s debt hits AUD 663 billion.
A spokeswoman for Mr Morrison said the increase was needed to support infrastructure and defence capability and to avoid drawing down on the Future Fund.” Eryk Bagshaw, The Age
EU: ECB Unlikely to Include Greece in QE
“The European Central Bank (ECB) is unlikely to include Greek bonds in its asset-purchase program (quantitative easing (QE) program) for the foreseeable future, a person familiar with the matter said, as European creditors aren’t prepared to offer substantially easier repayment terms on bailout loans to improve the nation’s debt outlook.
The Eurogroup (Euro-area finance ministers) will meet in Luxembourg on Thursday 15 Jun 2017 to discuss additional debt-relief measures that the ECB has said are needed before it will consider purchasing Greek bonds. The Eurogroup is also expected to complete a review of Athens’s rescue program that would allow for the disbursement of at least EUR 7.4 billion (USD 8.3 billion) in aid needed for a similar amount of bond repayments in Jul 2017.
An agreement among the ministers will likely allow the International Monetary Fund (IMF) – whose participation in the rescue program is a requirement for many nations – to commit in principle to a conditional loan, said the person, who asked not to be named because the discussions are private. But the extent and wording of debt-relief commitments probably won’t convince the Governing Council of the ECB to buy Greek bonds.
While Thursday’s meeting should unlock the next tranche of aid to Athens, a failure to reach an agreement with the IMF over the easing of repayment terms for Greece will cast doubts about the sustainability of the country’s debt, making it more difficult for the ECB to include it in its its asset purchases program and ease the country’s return to international markets.
An ECB spokesperson referred to recent comments by ECB Executive Board member Benoit Coeure and ECB President Mario Draghi on the institution’s approach toward inclusion of Greece in QE.
Disagreements between the IMF and Greece’s euro-area creditors over the outlook for the country’s debt and the extent of the relief needed have not yet been resolved, an EU official with knowledge of the talks said on Tuesday, damping expectations for a full deal later this week that would see the IMF immediately disbursing more loans.” Bloomberg
US: Producer Price Indexes. May 2017
Press Release Extract [ser_33]
“The Producer Price Index for final demand was unchanged in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.5 percent in April and edged down 0.1 percent in March. On an unadjusted basis, the final demand index increased 2.4 percent for the 12 months ended in May.
Within final demand in May, a 0.3-percent increase in the index for final demand services offset a 0.5- percent decline in prices for final demand goods.
Prices for final demand less foods, energy, and trade services fell 0.1 percent in May, the first decline since a similar 0.1-percent decrease in May 2016. For the 12 months ended May 2017, the index for final demand less foods, energy, and trade services moved up 2.1 percent.
Final demand services: Prices for final demand services rose 0.3 percent in May following a 0.4-percent advance in April. The May increase can be attributed to the index for final demand trade services, which moved up 1.1 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) In contrast, prices for final demand services less trade, transportation, and warehousing fell 0.1 percent, and the index for final demand transportation and warehousing services declined 0.5 percent.
Product detail: About half of the May increase in the index for final demand services can be traced to margins for fuels and lubricants retailing, which rose 16.1 percent. The indexes for apparel, footwear, and accessories retailing; machinery and equipment wholesaling; residential real estate loans (partial); automobiles and automobile parts retailing; and food wholesaling also moved higher. Conversely, prices for guestroom rental decreased 5.2 percent. The indexes for airline passenger services and food retailing also moved lower.
Final demand goods: Prices for final demand goods moved down 0.5 percent in May, the largest decrease since a 0.6-percent drop in February 2016. Most of the May decline can be attributed to the index for final demand energy, which fell 3.0 percent. Prices for final demand foods decreased 0.2 percent. In contrast, the index for final demand goods less foods and energy edged up 0.1 percent.
Product detail: The May decrease in the index for final demand goods was led by an 11.2-percent drop in gasoline prices. The indexes for fresh and dry vegetables, jet fuel, fresh fruits and melons, motor vehicles, and home heating oil also fell. Conversely, the index for pharmaceutical preparations rose 0.6 percent. Prices for beef and veal and for electric power also increased.
Intermediate Demand by Commodity Type
Within intermediate demand in May, prices for processed goods inched up 0.1 percent, the index for unprocessed goods fell 3.0 percent, and prices for services were unchanged.
Processed goods for intermediate demand: The index for processed goods for intermediate demand rose 0.1 percent in May, the ninth consecutive increase. Most of the advance is attributable to prices for processed materials less foods and energy, which climbed 0.2 percent. Additionally, the index for processed foods and feeds rose 0.5 percent. In contrast, prices for processed energy goods moved down 0.3 percent. For the 12 months ended in May, the index for processed goods for intermediate demand increased 4.8 percent.
Product detail: Within the index for processed goods for intermediate demand in May, prices for thermoplastic resins and materials rose 2.7 percent. The indexes for diesel fuel, commercial electric power, beef and veal, and lubricating oil base stocks also moved higher. Conversely, prices for gasoline fell 11.2 percent. The indexes for jet fuel, prepared animal feeds, and primary basic organic chemicals also declined.
Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand decreased 3.0 percent in May following a 3.3-percent rise in April. The decrease can be traced primarily to prices for unprocessed energy materials, which fell 9.3 percent. The index for unprocessed nonfood materials less energy moved down 0.7 percent. In contrast, prices for unprocessed foodstuffs and feedstuffs advanced 1.8 percent. For the 12 months ended in May, the index for unprocessed goods for intermediate demand climbed 7.5 percent.
Product detail: Leading the May decline in the index for unprocessed goods for intermediate demand, prices for crude petroleum decreased 19.6 percent. The indexes for coal, fresh and dry vegetables, raw milk, berries, and wastepaper also moved lower. Conversely, prices for slaughter steers and heifers jumped 9.1 percent. The indexes for natural gas and aluminium base scrap also increased.
Services for intermediate demand: The index for services for intermediate demand was unchanged in May after advancing 0.9 percent in April. In May, margins for trade services for intermediate demand increased 1.1 percent. In contrast, prices for services less trade, transportation, and warehousing for intermediate demand decreased 0.3 percent, and the index for transportation and warehousing services for intermediate demand inched down 0.1 percent. For the 12 months ended in May, prices for services for intermediate demand climbed 2.8 percent, the largest rise since moving up 2.9 percent for the 12 months ended December 2012.
Product detail: In May, margins for paper and plastics products wholesaling jumped 5.4 percent. The indexes for portfolio management; hardware, building materials, and supplies retailing; building materials, paint, and hardware wholesaling; and legal services also moved higher. Conversely, prices for services related to securities brokerage and dealing fell 4.5 percent. The indexes for deposit services (partial), business loans (partial), machinery and equipment parts and supplies wholesaling, and airline passenger services also declined.”
Bureau of Labor Statistics, “Producer Price Indexes. May 2017“, 13 Jun 2017 (08:30) More
^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com
Stockmarket: Nikkei 225
^ Nikkei N225 movements over the past week Chart: Google Finance
^ CNY movements against the USD over the past month (mouseover for inverse) Chart: xe.com
^ Shanghai CSI300 movements over the past week Chart: Google Finance
Shortage of Safe Havens for Global Wealth
“There’s a dark cloud building behind the world’s best period of synchronous growth among developed and emerging economies this decade — one that in time could rain down volatility in global markets.
The problem, identified by strategist and hedge fund manager Stephen Jen, is a deepening imbalance in the lack of new safe-haven assets as the world’s output expands.
China and other developing nations are accumulating wealth, but failing to create sophisticated local markets that feature their own risk-free instruments. That’s left a dangerous reliance on U.S. Treasuries, according to Jen’s argument, perpetuating a bond bubble and pushing investors into riskier assets.
It’s a tweaked version of the “savings glut” argument that then-Federal Reserve Governor Ben S. Bernanke put forward in 2005 to explain why American borrowing costs were stuck at low levels even as the U.S. hiked interest rates. These days, current account imbalances among the U.S., China and Japan have come down, and Asia’s biggest economies are carrying higher debt loads, undermining the idea that there’s too much savings.
Instead, the problem is that emerging markets haven’t yet been able to develop assets that investors are willing to hold as stores of value and collateral when times get tough. Doing that requires strong levels of confidence in the rule of law, equitable regulation and belief that money can be withdrawn by the investor whenever needed.
“The local capital markets in EM still lack the sophistication to match the real sectors in these economies,” Jen and colleague Nicolo Bandera wrote in a note last week. The continued growth of emerging markets while their financial systems lag behind produces “a situation whereby the genuine safe-haven assets such as the U.S. Treasuries, German bunds, and the British gilts become increasingly rare and in short supply,” they wrote.
Fed and other central bank purchases of their own government bonds have even further limited the supply of such assets, Jen and Bandera highlighted. The Fed is widely forecast to raise borrowing costs for the second time in 2017 this week, with attention zooming in on plans to dial back its $4.5 trillion balance sheet.
China, as the world’s second-largest economy, offers the best chance to develop an alternative to the U.S. Treasuries market, though its capital controls have left foreign investors wary to take full advantage of new avenues to invest in its government bonds.
Demand dynamics have also contributed to the shortage of haven assets.
Scarred by past purchases of developed-nation bonds that turned out to be less than safe in the global crisis, and investing in a world with a more subdued growth path since, investors have piled into assets seen as low risk, says Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong.
As Chinese markets join global indexes, their assets will increasingly gain global acceptance, argues Luke Spajic, head of portfolio management for emerging Asia at Pacific Investment Management Co. in Singapore. It will just take time.
In the meantime, Jen and Bandera worry about the unusual configuration of asset prices and their reaction — or lack thereof — to news and shocks. ‘The aggressive monetary policies have pushed the world into a cul-de-sac, the exit from which may not be orderly, we fear.’” Bloomberg