Wed 14 Jun 2017


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FOMC FOMC Press Conference (Janet Yellen)
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In Portfolioticker today

Today at the stock market

bull/bearThe USD all but erased losses while most U.S. stocks slipped from records after Federal Reserve Chair Janet Yellen suggested weak readings on inflation won’t persist as the central bank continued its path of tightening. Treasuries rallied on slower price acceleration.

The USD was little changed versus the EUR after weakening as much as 0.8% during the session. Technology stocks led declines on equity benchmarks, as Yellen reiterated the central bank’s intention of continuing to raise rates as data improve, even as inflation readings fall short of expectations. Data earlier Wednesday showing a deceleration in price gains sparked a Treasury rally that shaved as many as 11 basis points from the 10-year yield.

  • The S&P 500 fell 0.1% to 2,437.91 at 4 p.m. in New York, after fluctuating for most of the session.
  • The Dow Jones Industrial Average edged higher to a fresh record, led by gains in Home Depot Inc. and Travelers Cos.
  • The tech-heavy Nasdaq indexes fell 0.4%, while small caps lost 0.6%.
  • The Stoxx Europe 600 Index erased gains to close lower by 0.3%.
  • MSCI’s emerging-market index added 0.3 percent, paring gains after the Fed decision.

“Everyone is concerned about the path of interest rate increases as well as the methodology for reducing the balance sheet, and this is creating a little bit of volatility intraday,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey, said by phone. “The volatility should creep higher in the course of the summer months as Fed moves further in adjusting the balance sheet.”

The Fed’s actions and words struck a careful balance between showing resolve to continue tightening in response to falling unemployment while acknowledging the persistence of unexpectedly low inflation this year. Policy makers agreed to raise their benchmark lending rate for the third time in six months, maintained their outlook for one more hike in 2017 and set out some details for how they intend to shrink their $4.5 trillion balance sheet this year.

Central banks in Japan, Switzerland and Britain are also scheduled to weigh in with policy decisions this week. Investors have reined in expectations for a Bank of England interest-rate increase after the election shock.Bloomberg

Market indices

:-) The Dow Jones closed on a record high of 21,374.56

Index Ticker Today Change 31 Dec 16 YTD
S&P 500 SPX (INX) 2,437.92 -0.10% 2,238.83 +8.89%
DJIA INDU 21,374.56 +0.21% 19,762.60 +8.15%
NASDAQ IXIC 6,194.89 -0.41% 5,383.12 +15.07%

The portfolio today

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

Index values

Index Currency Today Change 31 Dec 16 YTD
USD-denominated Index USD 2.631 -0.75% 2.105 +24.99%
Valuation Rate USD/AUD 0.76425 +0.71% 0.72663 +5.17%
AUD-denominated Index AUD 3.443 -1.44% 2.895 +18.94%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 16 YTD
Alphabet A GOOGL $967.93 -0.26% $792.45 +22.14%
Alphabet C GOOG $950.76 -0.28% $771.82 +23.18%
Apple AAPL $145.16 -0.98% $115.82 +25.33%
Amazon AMZN $976.47 -0.44% $749.87 +30.21%
Ebay EBAY $34.50 +0.12% $29.69 +16.20%
Facebook FB $150.25 -0.29% $115.05 +30.59%
PayPal PYPL $51.90 -0.31% $39.47 +31.49%
Twitter TWTR $16.76 -1.24% $16.30 +2.82%
Visa V $95.32 +0.24% $78.02 +22.17%
VMware VMW $87.95 -0.97% $78.73 +11.71%

FX: USD/AUD

USD

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

The Bloomberg Dollar Spot Index (DXY) fell 0.2%, trimming a drop that reached 0.7%.
Japan’s JPY was 0.4% stronger at 109.649 per USD.
The EUR added 0.1% to 1.1219.
Britain’s GBP fell 0.1% to USD 1.2747 after it strengthened 0.8% Tuesday.
Canada’s CAD rose 0.1%, gaining for a fifth day.
Bloomberg

AUD

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

Oil and Gas Futures

Futures prices

Oil prices fell on Wednesday after industry data showed a build in U.S. crude stocks and OPEC reported a rise in its production despite a pledge to cut output.

Crude prices have fallen more than 10% since late May 2017, pulled down by heavy global oversupply that has persisted despite a move led by the Organization of the Petroleum Exporting Countries (OPEC) to curb production.

OPEC and other exporters such as Russia have agreed to keep production almost 1.8 million barrels per day (bpd) below the levels pumped at the end of last year and not to increase output until the end of the first quarter of 2018. But adherence to the cuts is under scrutiny and the producer group said this week that its output rose by 336,000 bpd in May to 32.14 million bpd.

Oil stocks are near record highs in some parts of the world, and producers that are not part of the OPEC deal are increasing output.

The International Energy Agency (IEA) on Wednesday said it expected growth in non-OPEC supply to be higher next year than growth in overall global demand.

Shale supply has pushed U.S. crude production up by about 10 percent over the last year to 9.3 million bpd – not far below the output of top exporter Saudi Arabia.

Data from the American Petroleum Institute showed on Tuesday that U.S. crude stocks rose by 2.8 million barrels in the week to 9 Jun 2017 to 511.4 million, compared with expectations for a decrease of 2.7 million barrels.Reuters

West Texas crude futures fell 3.7% to settle at $44.73/barrel, the lowest since Nov 2016. The U.S. government reported gasoline and other petroleum product stockpiles swelled last month. WTI has fallen 19% this year from its peak of $55.24 on 3 Jan 2017.Bloomberg

Prices are as at 15:49 ET

  • NYMEX West Texas Intermediate (WTI): $44.77/barrel -3.64% Chart
  • ICE (London) Brent North Sea Crude: $47.04/barrel -3.45% Chart
  • NYMEX Natural gas futures: $2.94/MMBTU -1.01% Chart

flag_europe EU: Industrial Production. Apr 2017

Press Release Extract [ser_31]

In April 2017 compared with March 2017, seasonally adjusted industrial production rose by 0.5% in the euro area (EA19) and by 0.2% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In March 2017 industrial production rose by 0.2% in euro area and by 0.3% in the EU28.

eu_production_20170614

In April 2017 compared with April 2016, industrial production increased by 1.4% in both the euro area and the EU28.

Monthly comparison by main industrial grouping and by Member State

The increase of 0.5% in industrial production in the euro area in April 2017, compared with March 2017, is due to production of energy rising by 4.7%, durable consumer goods by 0.6%, non-durable consumer goods by 0.2% and intermediate goods by 0.1%, while production of capital goods fell by 0.7%.

In the EU28, the increase of 0.2% is due to production of energy rising by 3.6% and non-durable consumer goods by 0.2%, while production of durable consumer goods fell by 0.1% and capital goods by 0.8%. Production of intermediate goods remained stable.

Among Member States for which data are available, the highest increases in industrial production were registered in Ireland (+7.7%), Malta (+2.9%) and Portugal (+2.0%), and the largest decreases in Slovakia (-10.9%), Luxembourg (-3.1%) and Greece (-2.9%).

The increase of 1.4% in industrial production in the euro area in April 2017, compared with April 2016, is due to production of durable consumer goods rising by 4.6%, intermediate goods by 3.0%, capital goods by 1.0% and non-durable consumer goods by 0.6%, while production of energy fell by 0.1%.

In the EU28, the increase of 1.4% is due to production of intermediate goods rising by 3.8%, durable consumer goods by 3.7%, capital goods by 1.7% and non-durable consumer goods by 0.2%, while production of energy fell by 0.9%.

Among Member States for which data are available, the highest increases in industrial production were registered in Latvia (+9.6%), Estonia (+9.5%) and Slovenia (+7.8%), and the largest decreases in Luxembourg (-3.3%) and Slovakia (-3.2%).

Eurostat, “Industrial Production. Apr 2017“, 14 Jun 2017 More

flag_europe EU: Employment (National Accounts). Q1/2017

Press Release Extract [ser_39]

The number of persons employed increased by 0.4% in both the euro area (EA19) and in the EU28 in the first quarter of 2017 compared with the previous quarter, according to national accounts estimates published by Eurostat, the statistical office of the European Union. In the fourth quarter of 2016, employment increased also by 0.4% in both areas. These figures are seasonally adjusted.

eu_employment_20170614

Compared with the same quarter of the previous year, employment increased by 1.5% in the euro area and by 1.4% in the EU28 in the first quarter of 2017 (after +1.4% and +1.1% respectively in the fourth quarter of 2016).

Eurostat estimates that, in the first quarter of 2017, 234.2 million men and women were employed in the EU28, of which 154.8 million were in the euro area, highest levels ever recorded in both areas. These figures are seasonally adjusted.

These quarterly data on employment provide a picture of labour input consistent with the output and income measure of national accounts.

Employment growth in Member States

eu_employment_states_20170614

Among Member States, Estonia (+2.8%), Malta (+1.7%), Sweden (+1.2%) and Ireland (+1.1%) recorded the highest increases in the first quarter of 2017 compared with the previous quarter. In contrast, decreases in employment were observed in Latvia (-1.9%), Romania (-1.2%), Croatia (-0.6%) and Lithuania (-0.5%).

Eurostat, “Employment (National Accounts). Q1/2017“, 14 Jun 2017 More

flag_usa US: Monthly Sales for Retail and Food Services (Advance Estimate). May 2017

Press Release Extract [ser_32]

Advance Estimates of U.S. Retail and Food Services

Advance estimates of U.S. retail and food services sales for May 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $473.8 billion, a decrease of 0.3 percent (±0.5 percent) from the previous month, and 3.8 percent (±0.9 percent) above May 2016. Total sales for the March 2017 through May 2017 period were up 4.4 percent (±0.7 percent) from the same period a year ago. The March 2017 to April 2017 percent change was unrevised at 0.4 percent (±0.1 percent).

Retail trade sales were down 0.3 percent (±0.5 percent) from April 2017, and up 4.0 percent (±0.7 percent) from last year. Building Material and Garden Equipment and Supplies Dealers were up 10.8 percent (±1.8 percent) from May 2016, while Nonstore Retailers were up 10.2 percent (±1.8 percent) from last year.

US Census Bureau, “Monthly Sales for Retail and Food Services (Advance Estimate). May 2017“, 14 Jun 2017 (08:30) More

flag_usa US: Consumer Price Index (CPI). May 2017

Press Release Extract [ser_27]

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.9 percent.

us_cpi_20170614

us_cpi_yearly_20170614

A decrease in the energy index was the main contributor to the monthly decrease in the all items index. The energy index fell 2.7 percent, led by a decline of 6.4 percent in the gasoline index. The food index rose 0.2 percent, due to increases in four of the six major grocery store food group indexes.

The index for all items less food and energy rose 0.1 percent in May, as it did in April. The shelter index increased 0.2 percent over the month. However, many indexes declined in May, including those for apparel, airline fares, communication, and medical care services.

The all items index rose 1.9 percent for the 12 months ending May, a smaller increase than the 2.2- percent rise for the 12 months ending April. This month’s increase is still a larger rise than the 1.6 percent average annual increase over the past 10 years. The index for all items less food and energy rose 1.7 percent over the previous 12 months; this compares to a 1.8 percent average annual increase over the past decade. The energy index rose 5.4 percent over the last year, while the food index increased 0.9 percent.

Bureau of Labor Statistics, “Consumer Price Index (CPI). May 2017“, 14 Jun 2017 (08:30) More

flag_usa US: Real Earnings. May 2017

Press Release Extract [ser_28]

All employees

Real average hourly earnings for all employees increased 0.3 percent from April to May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.2-percent increase in average hourly earnings combined with a 0.1-percent decrease in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased 0.3 percent over the month due to the increase in real average hourly earnings combined with no change in the average workweek.

us_realer_20170614

Real average hourly earnings increased 0.6 percent, seasonally adjusted, from May 2016 to May 2017. The increase in real average hourly earnings combined with no change in the average workweek resulted in a 0.6-percent increase in real average weekly earnings over this period.

Production and nonsupervisory employees

Real average hourly earnings for production and nonsupervisory employees increased 0.3 percent from April to May, seasonally adjusted. This result stems from a 0.1-percent increase in average hourly earnings combined with a 0.2-percent decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

us_realer_ps_20170614

Real average weekly earnings were unchanged over the month due to the increase in real average hourly earnings being offset by a 0.3-percent decrease in average weekly hours.

From May 2016 to May 2017, real average hourly earnings increased 0.7 percent, seasonally adjusted. The increase in real average hourly earnings combined with no change 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. May 2017“, 14 Jun 2017 (08:30) More

flag_usa US: FOMC Economic Projections

Press Release Extract [ser_35a]

us_fomc_projections_20170614

Federal Reserve, “Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy, June 2017“, 14 Jun 2017 (14:00) More

flag_usa US: FOMC Monetary Policy Release. FOMC 13 – 14 Jun 2017

Press Release Extract [ser_35]

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

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

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

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

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. The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. This program, which would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities, is described in the accompanying addendum to the Committee’s Policy Normalization Principles and Plans.

Federal Reserve, “FOMC Monetary Policy Release. FOMC 13 – 14 Jun 2017“, 14 Jun 2017 (14:00) More

flag_japan Japan update

Currency: USD/JPY

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

Stockmarket: Nikkei 225

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

flag_china China update

IMF Upgrades China GDP Forecast

Press Comment: Bloomberg

The International Monetary Fund raised its growth estimate for China for the second time this year while also cautioning that deep reforms are still needed to break away from debt-fueled expansion.

The world’s second-largest economy will expand by 6.7 percent in 2017, the Washington-based fund said in its annual report on Article IV consultations published Wednesday. That’s up from a 6.6 percent estimate in the economic outlook released in April and 6.5 percent forecast in January.

It’s unusual for the IMF to update forecasts outside of its scheduled global economic outlook series, though officials have signaled that a strong first quarter hadn’t fully been reflected in earlier releases. IMF First Deputy Managing Director David Lipton said in a statement Wednesday that China should use its current momentum to push reforms through.Bloomberg

Press Release Extract

“China continues to transition to a more sustainable growth path and reforms have advanced across a wide domain. Our discussions in the past two weeks focused on the policies needed to ensure China’s successful transition, which is vital to its own people and the rest of the world – and the urgency of accelerating pace of reforms.

Policy support, especially expansionary credit and public investment, has helped China maintain strong growth. Staff now project growth of 6.7 percent in 2017 and average annual growth of 6.4 percent between 2018-20. China has the potential to safely sustain strong growth over the medium term. As has been widely recognized, including in the government’s reform plans, this requires deep reforms to transition from the current growth model that relies on credit-fed investment and debt. It is critical to start now while growth is strong and buffers sufficient to ease the transition.

The Chinese authorities are fully aware of the challenges and have taken crucial and welcome measures. Important supervisory and regulatory action is being taken against financial sector risks. Corporate debt is growing more slowly, reflecting restructuring initiatives and overcapacity reduction. The house price boom is being gradually contained and excess inventory reduced. Local government borrowing frameworks are being improved and a blueprint for reforming central-local fiscal relations has been published. The creation of new businesses has tripled since the 2014 reform. Data weaknesses have been recognized and actions taken to improve integrity.

While some near-term risks have receded, reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to a sharp adjustment. This means switching faster from investment to consumption; increasing the role of market forces; implementing a more sustainable macro policies mix, continuing the regulatory tightening; tackling nonfinancial sector debt; and further improving policy frameworks. Our specific recommendations build on the progress achieved and the government’s existing reform agenda. In particular:

  • China needs to further boost consumption . Continued increases in public spending on health, pensions, education, and transfers to poor households would reduce excessive precautionary savings and, combined with making the tax system more progressive and greener, would boost growth while reducing China’s high income inequality and pollution.
  • To increase the role of market forces, the existing reform agenda for state-owned enterprises (SOE) should be accelerated and broadened to include phasing out implicit support and increasing tolerance for default and exit. Building on recent announcements, barriers to entry should be removed, especially in the highly closed service sector. Efforts to reduce overcapacity should have more ambitious targets both in the coal and steel sectors and in other sectors, with greater reliance on market forces.
  • A more sustainable macro-policy mix would include focusing more on the quality and sustainability of growth and less on quantitative targets, a gradual fiscal consolidation, and less accommodative monetary policy. To reduce nonfinancial sector debt, the focus should be on greater recognition of losses, especially of underperforming SOEs and zombie enterprises. Reducing the flow of new debt and increasing its efficiency requires cutting off-budget public investment and imposing hard budget constraints on SOEs.
  • The critically important recent focus on tackling financial sector risks should continue, even if it entails some financial tensions and slower growth. We will have more detailed analysis and recommendations on the financial sector in our five-yearly Financial Sector Assessment Program (FSAP) review, which we expect to be completed by the end of the year.
  • The monetary policy framework should continue to be strengthened over the medium term, including by phasing out monetary targets, resuming progress towards a flexible exchange rate, and improving communications. While China’s external position remains moderately stronger compared to the level consistent with medium-term fundamentals, the renminbi is assessed as broadly in line with fundamentals. Capital flow measures should be applied transparently and consistently. Further capital account liberalization should be carefully sequenced with the necessary supporting reforms, including an effective monetary policy framework, sound financial system, and exchange rate flexibility.
  • The government’s guidelines on reforming central-local fiscal relations are welcome. We recommend centralizing some expenditure responsibilities, such as social insurance, while local governments should be given more revenue-raising authority, as well as sufficient debt quotas to reduce their incentive to rely on off-budget borrowing and land sales.
  • China also needs to address remaining data gaps to further improve policy making and meet G20 commitments.

Given China’s record of successful reforms in the past decades, and the authorities’ strong commitment and determination, we are confident that China will once again find its way through the challenges ahead, and we wish them the best of success in their efforts.

International Monetary Fund, “IMF Staff Completes 2017 Article IV Mission to China“, 14 Jun 2017 More

Currency: USD/CNY

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

Stockmarket: CSI300

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