Mon 19 Jun 2017


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In Portfolioticker today

Today at the stock market

bull/bearThe Nasdaq 100 Index jumped the most since November, as large-cap tech stocks rebounded from two weeks of declines, though not enough to recoup all of the losses that started 9 Jun 2017. The S&P 500 Index and Dow Jones Industrial Average ended at all-time highs.

  • The S&P 500 Index rose 0.8% to a record 2,453.25 as of 4 p.m. in New York. Tech shares in the measure jumped 1.7% while health-care shares added 1.1%.
  • The Dow Jones Industrial Average also closed at an all-time high, adding more than 140 points to 21,527.
  • The Nasdaq 100 jumped 1.6%, the most since 7 Nov 2016. It’s still about 2% short of its best ever finish on 8 Jun 2017.
  • Apple surged almost 2.9%, while chipmakers from Micron Technology Inc. to Advanced Micro Devices Inc. added more than 4%.
  • Small caps in the Russell 2000 Index rose 0.8%. That index sits about 0.5% below its record set 13 Jun 2017.
  • The Stoxx Europe 600 jumped 0.9% after falling 0.5% last week.

The rebound in tech shares exemplified the risk-on mood among investors as the week began, with Apple Inc. leading a rebound in the some of the year’s highest fliers – though the tech indexes remain about 2% below records achieved earlier this month. Commodities continued to slump, damping inflation expectations even as the Fed insists tighter policy remains appropriate. And a cloud of uncertainty remains over both U.K. leadership and the outlook for Brexit negotiations.

Treasuries fell after William Dudley said halting the tightening cycle now would imperil the economy. The USD rose to the highest versus the JPY since 2 Jun 2017, while gold slipped to a one-month low as haven demand ebbed.

In Asia, the focus is on the MSCI Inc. decision on whether to include China A shares in its global indexes; Hong Kong stocks surged in advance of Tuesday’s announcement. Oil continued to languish at about $45/barrel as U.S. drillers continue to add rigs, blunting OPEC-led efforts to rebalance an oversupplied market.

“Risk assets around the world are rallying again as the ‘carry party’ resumes,” Societe Generale SA strategist Kit Juckes wrote in a client note. Fed Chair Janet Yellen “did nothing to persuade the market” to take its hawkish outlook for the path of interest rates seriously, he said.Bloomberg

Market indices

:-) The S&P500 Index closed on a record 2,453.46.
:-) The Dow Jones Industrial Average Index closed on a record 21,528.99.

Index Ticker Today Change 31 Dec 16 YTD
S&P 500 SPX (INX) 2,453.46 +0.83% 2,238.83 +9.58%
DJIA INDU 21,528.99 +0.67% 19,762.60 +8.93%
NASDAQ IXIC 6,239.01 +1.41% 5,383.12 +15.89%

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 2.656 +2.28% 2.105 +26.18%
Valuation Rate USD/AUD 0.76471 -0.35% 0.72663 +5.24%
AUD-denominated Index AUD 3.474 +2.63% 2.895 +20.00%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 16 YTD
Alphabet A GOOGL $975.22 +1.73% $792.45 +23.06%
Alphabet C GOOG $957.37 +1.87% $771.82 +24.04%
Apple AAPL $146.34 +2.86% $115.82 +26.35%
Amazon AMZN $995.17 +0.76% $749.87 +32.71%
Ebay EBAY $34.90 +2.77% $29.69 +17.54%
Facebook FB $152.87 +1.48% $115.05 +32.87%
PayPal PYPL $52.93 +2.10% $39.47 +34.10%
Twitter TWTR $17.06 +2.34% $16.30 +4.66%
Visa V $94.79 +0.66% $78.02 +21.49%
VMware VMW $88.78 +0.77% $78.73 +12.76%

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) advanced 0.4%. The measure added to gains after Dudley said he is confident that the economic expansion has a way to run and that wage growth is likely to quicken, though inflation is lower than the Fed would like.
Japan’s JPY declined 0.7% to 111.595 per USD.
Britain’s GBP fell 0.4% to $1.2732. The EUR dropped 0.4% to $1.1153.
Bloomberg

AUD

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

Oil and Gas Futures

Futures prices

There’s yet another concern growing as oil prices continue to erode: A record U.S. fracklog. There were 5,496 drilled-but-uncompleted wells in the nation’s oilfields at the end of May, the most in at least 3 years, according to estimates by the U.S. Energy Information Administration. In the last month alone, explorers drilled 125 more wells in the Permian Basin than they would open. That represents about 96,000 barrels/day of output hovering over the market.

If OPEC thought shale was a thorn in its side before, just wait until U.S. explorers turn their spigots on full blast. Wells waiting to be fracked and flowing are an overhang that could mean a burst of new supply in the second half of the year and into 2018, according to Luke Lemoine an analyst at Capital One Securities Inc. in New Orleans.

“Even though rig counts have gone through the roof in the Permian, we really haven’t even felt the full production implications. We’ve only felt 70% of the rise in drilling,” said William Foiles, an analyst at Bloomberg Intelligence in New York.Bloomberg

West Texas Intermediate oil slipped 1.2% to settle at $44.20/barrel. Crude has fallen four weeks straight as U.S. drillers continue to add rigs, blunting OPEC-led efforts to rebalance an oversupplied market.Bloomberg

Prices are as at 15:48 ET

  • NYMEX West Texas Intermediate (WTI): $44.11/barrel -1.41% Chart
  • ICE (London) Brent North Sea Crude: $46.87/barrel -1.06% Chart
  • NYMEX Natural gas futures: $2.89/MMBTU -4.74% Chart

flag_australia AU: Moody’s Downgrades Australian Banks

Press Report: Bloomberg [ser_moodys]

Moody’s Investors Service cut the long-term credit rating of Australia’s 4 biggest banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.

Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp. were all downgraded to Aa3 from Aa2, Moody’s said in a statement released Monday. The ratings outlook for all 4 lenders is stable, Moody’s said.

“Risks associated with the housing market have risen sharply in recent years,” Moody’s said in the statement. While a sharp housing downturn isn’t its core scenario, “the tail risk represented by increased household sector indebtedness becomes a material consideration in the context of the very high ratings assigned to Australian banks,” Moody’s said.

The AUD fell as much as 0.5% following the announcement, and was trading at USD 0.7602 at 6:37 p.m. Sydney time.

On 22 May 2017 S&P Global Ratings downgraded the credit ratings of almost all of Australia’s financial institutions on similar concerns about the risks of a property market downturn. However, it spared the 4 biggest banks on the expectation of government support in the event of a crisis. 22 May 2017

Residential mortgages account for more than 60% of the Australian banks’ loan books. The banks have recently tightened lending standards under pressure from regulators. The combination of soaring house prices and stagnant wage growth has pushed the ratio of household debt to disposable income to 189% – one of the highest levels in the world.Bloomberg

The decision by Moody’s Investors Service to downgrade the ratings of Australia’s largest banks has focused attention on the risks lurking in the country’s A$1.51 trillion ($1.15 trillion) of mortgage loans.

“The resilience of household balance sheets and, consequently, bank portfolios to a serious economic downturn has not been tested at these levels of private sector indebtedness,” Moody’s said in the statement accompanying the downgrade of Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp.

The banks are already bracing themselves for an announcement in coming days from the Australian Prudential Regulatory Authority, which is due to say whether it will require the banks to hold more capital against their mortgage books as part of a wider update on capital requirements. Despite recent steps to rein in their exposure to the riskier areas of mortgage lending, Australian banks still sit on by far the largest property lending books of any banks in the world, measured as a proportion of total loans.Bloomberg

Press Comments: 20 Jun 2017

Australian Financial Review: “The downgrade by Moody’s of the long-term credit ratings of 12 domestic banks including the four majors banks on Monday evening – due to elevated levels of debt in Australian households – will not have an impact on funding costs, an analyst said. Deutsche Bank analyst Andrew Triggs told clients “we expect no impact on funding costs” as a result of the Moody’s downgrade of the major banks’ long-term rating to Aa3 from Aa2, because it merely brings to Moody’s equivalent to fellow ratings agencies Standard & Poor’s and Fitch.AFR

Reuters: “The Reserve Bank of Australia (RBA) ramped up its rhetoric on financial stability risks amid runaway property prices and soaring household debt, a threat that prompted ratings agency Moody’s to downgrade the country’s biggest banks this week. Fears over the effects of a sharp correction in the housing market mean interest rates in Australia are likely to stay at an all-time low of 1.50% for a considerable time – even as some global central banks turn hawkish.

The RBA last cut interest rates in Aug 2016. It has since stood pat, juggling the risks of record household debt, tepid inflation and weak consumer spending.

Australia’s household sector is under severe strain with debt-to-income at a record high 189% while wages are crawling at the slowest pace ever. The share of national income going to households has shrunk to its smallest since 1964 while the savings rate has fallen to a 10-year low. That is one reason the RBA is unlikely to hike official rates in coming months because to do so would push up mortgage costs for already indebted Australian families. Yet it fears easing further might only encourage more borrowing by investors to speculate in the housing market.

Australia’s super-easy policy stance contrasts with global central banks in the mood to nudge interest rates higher.Reuters

Market Reaction: 20 Jun 2017

Australian banks were sold down, although they have already been losing value for many reasons including:

  • recognition quite some time ago of the risks mentioned by S&P and Moodys
  • requirement to build capital reserves
  • Federal government introduction of a tax on deposits

Losses for major bank share prices on 20 Jun 2017 were:

  • Australia & New Zealand Banking Group Ltd (ANZ): -1.34% to $28.00 (52-week high: $32.95)
  • Commonwealth Bank of Australia (CBA: -0.66% to $82.24 (52-week high: $87.74)
  • National Australia Bank Limited (NAB): -1.09% to $29.94 (52-week high: $34.09)
  • Westpac Banking Corporation (WBC): -1.85% to $30.31 (52-week high: $35.39)

flag_europe EU: Macron’s REM Party Wins Government

Emmanuel Macron’s Republic en Marche Party won government in Sunday’s election.

French Prime Minister Edouard Philippe tendered the government’s resignation as a post-election formality on Monday to President Emmanuel Macron who asked him to form a new cabinet, Macron’s office said. The new government is to be named on Wednesday some time before 6:00 pm (1600 GMT), the presidency said in a statement. The government’s resignation was widely expected as a traditional formality after a legislative election on Sunday in which Macron’s party won a commanding majority in parliament.Reuters

flag_japan Japan update

Trade Statistics (Provisional). May 2017

Press Comment: Bloomberg

Japan had a surprise trade deficit in May, as stronger-than-expected imports overpowered the best export growth in more than two years.

Japan’s trade has seen a sustained pickup since the start of the year, with five consecutive months of growth in both exports and imports. It’s indicative of an increasingly healthy global economy and a relatively competitive yen. The Bank of Japan has expressed optimism that private consumption will join exports in helping drive Japan’s economic recovery.

“Exports are solid. Today’s report confirms that the shipments will continue to drive Japan’s economy in coming months, feeding gradually to capital spending and household spending. Japanese exporters are benefiting from a global production recovery, and the trade deficit is mainly because of a rise in imports, reflecting Japan’s resilient economy,” said Takeshi Minami, chief Japan economist at Norinchukin Research Institute.Bloomberg

Press Release Extract [ser_170]
May 2017 (JPY bn) May 2016 (JPY bn) Change
Exports 5,851.360 5,091.944 14.9%
Imports 6,054.727 5,139.283 17.8%
Balance (deficit) -203.367 -47.339 -329.6%

Ministry of Finance – Customs and Tariff Bureau, “Trade Statistics (Provisional). May 2017“, 19 Jun 2017 More

Currency: USD/JPY

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

Stockmarket: Nikkei 225

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

flag_china China update

Currency: USD/CNY

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

Stockmarket: CSI300

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