Nightly Business Report. Bloomberg Technology.
Bloomberg: Tobias Levkovich, chief U.S. equity strategist at Citigroup Global Markets, discusses rising tensions between U.S. and North Korea, and its impact on investors.
In Portfolioticker today
- Today at the stock market
- The portfolio today
- Japan Update
- China Update
Today at the stock market
“Rising geopolitical tension rattled financial markets around the world Thursday, sending U.S. stocks to the biggest loss since May 2017 and stoking demand for haven assets.
The S&P 500 Index halted an unprecedented stretch of calm on American equity markets and the CBOE Volatility Index spiked to its highest since Apr 2017 after President Donald Trump dialed up his warning to North Korea on threats to American allies. Risk assets succumbed Thursday to a third day of sabre rattling by Trump and Kim Jong Un, as the spat threatened to boil over into military confrontation. The selloff in U.S. stocks halted a streak of 15 days without a swing of 0.3% in either direction for the S&P 500 and jolted the VIX above 16 for only the fourth time this year. Gold futures neared $1,300 and crude slumped toward $48/barrel.
- The S&P 500 Index fell 1.45% to close at 2,438.21 That’s the steepest slide since 17 May 2017 and the lowest close since 11 Jul 2017.
- The Dow Jones Industrial Average lost 200 points to close at 21,844.01, down 0.93%.
- The Nasdaq Composite Index sank 2.13% to close at 6,216.87.
- The VIX rose 45% to 16.12, its highest closing price of Donald Trump’s presidency.
- The Stoxx Europe 600 Index declined 1% to the lowest since 27 Mar 2017.
- The MSCI Emerging Market Index fell 1.4%.
“The markets in general are very on edge and they’re very leery about risk,” said Mariann Montagne, a portfolio manager at Gradient Investments LLC, which oversees about $1.4 billion. “When earnings are not beating expectations there’s a sell off in the companies, and we’re just not seeing that money reinvested because of the geopolitical risks.”
Geopolitical tensions may be the trigger for the latest bout of risk aversion, but with global equities trading near record highs and yield premiums on high-yield debt creeping up, some of the biggest names in the asset management industry have already been warning that it’s time to take risk off the table.
Pimco told investors to pare U.S. equities and junk bonds, but keep exposure to real assets, such as inflation-linked debt, commodities and gold. T. Rowe Price cut its stock allocation to the lowest level since 2000. Morgan Stanley strategists said investors should consider betting against U.S. junk-bonds as recent price weakness may be the beginning of a correction.” Bloomberg
|Index||Ticker||Today||Change||31 Dec 16||YTD|
|S&P 500||SPX (INX)||2,438.21||-1.45%||2,238.83||+8.90%|
The portfolio today
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting
|Index||Currency||Today||Change||31 Dec 16||YTD|
Portfolio stock prices
|Stock||Ticker||Today||Change||31 Dec 16||YTD|
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg
“The Bloomberg Dollar Spot Index (DXY) fell 0.1%.
The EUR rose 0.1% to USD 1.1772.
Britain’s GBP fell 0.2% to USD 1.2978.” Bloomberg
^ Bloomberg Dollar Spot Index (DXY) movements over the past 5 years Chart: Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
“OPEC forecast higher demand for its crude in 2018 on Thursday due to rising global consumption, and pointed to signs of a stronger oil market that suggest an OPEC-led production cut is getting rid of price-sapping excess supply.
In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) said the world would need 32.42 million barrels per day (bpd) of its oil next year, up 220,000 bpd from the previous forecast.
OPEC also said physical oil markets in Europe and West Africa had firmed and that an increase in the price of Brent crude oil for immediate delivery compared to later supplies indicated the glut was easing.
“The entire forward curve has flattened for Brent amid some bullish indicators in the physical market,” OPEC said. “Crude differentials strengthened notably for a range of key grades in the Mediterranean, North Sea and West African markets.”
Oil LCOc1 rose to more than $53 a barrel, shrugging off data in the report showing another jump in OPEC output and suggesting the market will remain in surplus next year.
OPEC is curbing output by about 1.2 million bpd, while Russia and other non-OPEC producers cut half as much, until March 2018.
The deal is aimed at getting rid of excess stocks and in a sign it is working, OPEC said inventories in developed economies declined in June and have fallen by 87 million barrels compared to the five-year average since the cut started in January.
“Further declines in U.S. crude stocks are likely, given the record rates at which U.S. refineries are running,” OPEC said.
U.S. refinery use has hit a 12-year high, official figures showed on Wednesday.
OPEC raised its forecasts for global oil demand growth in 2017 and 2018, saying consumption would rise by 1.28 million bpd next year. It was also upbeat about the global economy.
“World economic growth has gained momentum,” OPEC said. “With the ongoing growth momentum and an expected continued dynamic in second-half 2017, there is still some room to the upside.”
But the report showed the 14-country group’s oil output in July came in above the demand forecast, led by gains in Libya and Nigeria, two members exempt from the cuts.
OPEC said its oil output rose by 173,000 bpd in July to 32.87 million bpd, led by the exempt producers plus top exporter Saudi Arabia, citing figures it collects from secondary sources.
Saudi Arabia told OPEC it cut output to 10.01 million bpd last month, from 10.07 million bpd in June, meaning its production fell back below its OPEC target of 10.058 million bpd.
The figures mean OPEC has complied 86 percent with its output-cutting pledge, according to a Reuters calculation, down from 96 percent initially reported for June but still high by OPEC standards.
Supply is rising outside the group as well, although not quite as fast as OPEC thought.
OPEC estimated supply from non-OPEC next year would rise by 1.10 million bpd, down 40,000 bpd from the previous forecast, citing downward revisions to the United States and Canada.
Should OPEC keep pumping at July’s rate, the market would see a 450,000-bpd surplus next year, the report indicated, although this was less than the surplus implied by last month’s report.” Reuters
“Oil prices fell more than 1.5 percent on Thursday, as a bruising day on Wall Street bolstered fears of slowing demand amid lingering concerns over a global oversupply of crude.” Reuters
Prices are as at 15:49 ET
- NYMEX West Texas Intermediate (WTI): $48.48=/barrel -2.18% Chart
- ICE (London) Brent North Sea Crude: $51.80/barrel -1.71% Chart
- NYMEX Natural gas futures: $2.98/MMBTU +3.30% Chart
PayPal buys Swift Financial
“Payments firm PayPal Holdings Inc (PYPL.O) has agreed to acquire online lending company Swift Financial in a bid to expand its business that provides working capital to merchants.
The acquisition will allow PayPal to offer loans to the larger businesses that process payments through its platform and better provide credit to firms that are not yet users of its services, the company said on Thursday.
San Jose, California–based PayPal did not disclose terms of the deal, which is subject to regulatory approval.
Founded in 2006, Delaware-based Swift Financial extends credit to businesses through loans and advances.
PayPal has been offering short-term loans to its smaller merchants through a division called PayPal Working Capital since 2013. It uses data on the payments it processes for its merchants to assess their credit-worthiness.
The company has lent more than $3 billion to 115,000 small businesses in loans of up to $125,000 since inception.
The deal will enable PayPal to start offering term loans of up to $500,000 to its larger merchants and take advantage of Swift Financial’s data capabilities to lend to companies that may not be long-time users of its services.
“This is an area where customers have been asking for more,” Darrell Esch, vice president and commercial officer of global credit at PayPal, said in an interview.
Since breaking off from eBay Inc in 2015, PayPal has been expanding partnerships and acquiring new services to gain advantage over rivals in a highly competitive digital payments market.
Online lenders say they are better at servicing new types of e-commerce companies because their business models may not fit the established underwriting parameters used by traditional financial institutions such as banks.” Reuters
NZ: RBNZ Monetary Policy. Jul 2017
Press Release Extract [ser_nz_ocr]
“The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 1.75 percent.
Global economic growth has become more broad-based in recent quarters. However, inflation and wage outcomes remain subdued across the advanced economies, and challenges remain with on-going surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are at record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.
The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker US dollar. A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.
GDP in the March quarter was lower than expected, adding to the softening in growth observed at the end of 2016. Growth is expected to improve going forward, supported by accommodative monetary policy, strong population growth, an elevated terms of trade, and the fiscal stimulus outlined in Budget 2017.
House price inflation continues to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions. This moderation is expected to persist, although there remains a risk of resurgence in prices given continued strong population growth and resource constraints in the construction sector.
Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate. The outlook for tradables inflation remains weak. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2 percent.
Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.“
Reserve Bank of New Zealand, “Monetary Policy Statement August 2017“, 10 Aug 2017 Full Statement
AU: Labour Costs, Australia, 2015-16
Press Release Extract [ser_abs]
“SUMMARY OF FINDINGS
The key findings from the Major Labour Costs survey conducted in respect of the 2015-16 financial year are presented below.
Total labour costs incurred by employers during 2015-16 were $760.9 billion. Employee earnings accounted for 87.3% of total labour costs. Superannuation was the next largest component of total labour costs at 8.0%.
1. Major Labour Costs (AUD millions), Sector, 2015-16
(Super = Superannuation,PRT = Payroll Tax, WCI = Workers’ Compensation, FBT = Fringe Benefits Tax)
Earnings Super PRT WCI FBT Total Private Sector 517,259.6 45,015.9 18,336.4 8,148.5 2,598.5 591,359.0 Public Sector 147,296.5 15,872.2 3,501.9 2,490.7 420.4 169,581.7 Australia 664,556.2 60,888.1 21,838.3 10,639.2 3,018.9 760,940.6
Total labour costs for the private sector accounted for 77.7% of the labour costs for all employers. Total labour costs for the public sector were 22.3% of the labour costs for all employers. Public sector organisations include Commonwealth and state/territory government organisations, local government authorities, public corporations, universities, non-profit institutions controlled by the government, government marketing boards, legislative courts, municipal authorities and other statutory authorities.
2. Major Labour Costs, States and territories, 2015-16
(Super = Superannuation,PRT = Payroll Tax, WCI = Workers’ Compensation, FBT = Fringe Benefits Tax)
Earnings Super PRT WCI FBT Total NSW 219,074.2 19,468.3 7,546.5 3,654.3 1,072.2 250,815.4 Vic 159,580.7 14,346.0 5,377.6 2,478.0 735.7 182,518.0 QLD 120,562.3 11,505.4 3,538.4 1,588.4 476.3 137,670.9 SA 40,326.8 3,760.3 1,079.7 891.3 128.1 46,186.1 WA 88,992.1 7,838.9 3,302.0 1,317.0 449.1 101,899.1 Tas 10,648.2 1,043.0 319.5 214.8 26.9 12,252.4 NT 7,941.7 729.5 283.8 132.4 48.9 9,136.2 ACT 17,430.3 2,196.7 390.8 363.0 81.6 20,462.4 Australia 664,556.2 60,888.1 21,838.3 10,639.2 3,018.9 760,940.6
Earnings, which includes gross wages and salaries, the ungrossed value of fringe benefits, and severance, termination and redundancy payments, is the largest component of labour costs. During 2015-16, earnings totalled $664.6 billion (87.3% of total labour costs).
The value of employer superannuation contributions paid on behalf of employees in Australia was $60.9 billion, or 8.0% of total labour costs.
When comparing across states and territories, the Australian Capital Territory had the highest superannuation costs as a proportion of total labour costs (10.7%). The Australian Capital Territory has a larger proportion of Commonwealth employees, many of whom receive higher superannuation entitlements.
Payroll tax paid by employers totalled $21.8 billion, representing 2.9% of total labour costs. The private sector accounted for 84.0% of total payroll tax, and the public sector 16.0%.
As a proportion of total labour costs, payroll tax was highest in Western Australia (3.2%) and lowest in the Australian Capital Territory (1.9%).
Workers’ compensation costs during 2015-16 were $10.6 billion, representing 1.4% of total labour costs.
As a proportion of total labour costs, workers’ compensation costs were highest in South Australia (1.9%) and lowest in Queensland (1.2%).
FRINGE BENEFITS TAX
Fringe benefits tax paid by employers during 2015-16 totalled $3.0 billion, representing 0.4% of total labour costs.
Fringe benefits tax as a proportion of total labour costs ranged from 0.2% in Tasmania to 0.5% in the Northern Territory.”
Australian Bureau of Statistics, “6348.0 Labour Costs, Australia, 2015-16“, 10 Aug 2017 More
US: Producer Price Indexes. Jul 2017
Press Comment: Reuters
“U.S. producer prices unexpectedly fell in Jul 2017, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate hike.
Other data on Thursday showed an increase in the number of Americans filing for unemployment benefits last week. The trend in weekly jobless claims, however, remained consistent with a tightening labor market.
“Another twist of the screw tighter for this labor market but inflation is not able to gain a foothold in this economy,” said Chris Rupkey, chief economist at MUFG in New York. “The pot is on the stove boiling but no inflation steam is coming out.”
The Labor Department said its producer price index for final demand slipped 0.1% in Jul 2017, weighed by decreasing costs for services. That was the largest decline since Aug 2016 and reversed the 0.1% gain in Jun 2017.
In the 12 months through Jul 2017, the PPI increased 1.9% after rising 2.0% in the year through Jun 2017. Economists had forecast the PPI to tick up 0.1% in Jul 2017 and 2.2% from Jul 2016.
A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month. The so-called core PPI gained 0.2% in June. The core PPI increased 1.9% in the 12 months through Jul 2017 after advancing 2.0% in Jun 2017.
Though the correlation between the PPI and the consumer price index has weakened, last month’s drop in producer prices could worry Fed officials who have long argued that the moderation in inflation was temporary.” Reuters
Press Release Extract [ser_33]
“The Producer Price Index for final demand declined 0.1 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices inched up 0.1 percent in June and were unchanged in May. On an unadjusted basis, the final demand index increased 1.9 percent for the 12 months ended in July.
Over 80 percent of the July decrease in final demand prices is attributable to the index for final demand services, which fell 0.2 percent. Prices for final demand goods edged down 0.1 percent.
The index for final demand less foods, energy, and trade services was unchanged in July following a 0.2-percent advance in June. For the 12 months ended in July, prices for final demand less foods, energy, and trade services rose 1.9 percent.
Final demand services: The index for final demand services moved down 0.2 percent in July, the first decline since a 0.3-percent drop in February. Most of the July decrease can be traced to margins for final demand trade services, which fell 0.5 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Additionally, prices for final demand transportation and warehousing services declined 0.8 percent. In contrast, the index for final demand services less trade, transportation, and warehousing advanced 0.2 percent.
Product detail: About 60 percent of the July decrease in prices for final demand services is attributable to a 5.8-percent drop in margins for chemicals and allied products wholesaling. The indexes for machinery and equipment wholesaling; portfolio management; apparel, footwear, and accessories retailing; airline passenger services; and fuels and lubricants retailing also moved lower. Conversely, prices for traveler accommodation services rose 2.2 percent. The indexes for apparel wholesaling and hospital outpatient care also increased.
Final demand goods: Prices for final demand goods edged down 0.1 percent in July after inching up 0.1 percent in June. In July, the index for final demand energy fell 0.3 percent, and prices for final demand goods less foods and energy declined 0.1 percent. The index for final demand foods was unchanged.
Product detail: A major factor in the July decrease in prices for final demand goods was the index for gasoline, which moved down 1.4 percent. Prices for beef and veal, utility natural gas, motor vehicles, and basic organic chemicals also fell. In contrast, the index for grains jumped 17.1 percent. Prices for diesel fuel; pork; and consumer, institutional, and commercial plastic products also moved higher.
Intermediate Demand by Commodity Type
Within intermediate demand in July, prices for processed goods moved down 0.1 percent, the index for unprocessed goods fell 0.4 percent, and prices for services decreased 0.3 percent.
Processed goods for intermediate demand: The index for processed goods for intermediate demand edged down 0.1 percent in July after declining 0.2 percent in June. Most of the July decrease is attributable to prices for processed materials less foods and energy, which moved down 0.3 percent. Additionally, the index for processed foods and feeds fell 0.5 percent. Conversely, prices for processed energy goods increased 0.8 percent. For the 12 months ended in July, the index for processed goods for intermediate demand rose 3.5 percent.
Product detail: Leading the July decline in the index for processed goods for intermediate demand, prices for basic organic chemicals fell 3.3 percent. The indexes for beef and veal, natural gas to electric utilities, gasoline, and residual fuels also moved lower. Conversely, the index for diesel fuel jumped 9.8 percent. Prices for industrial electric power, inedible fats and oils, and soybean cake and meal also increased.
Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand declined 0.4 percent in July following a 1.5-percent advance in June. The decrease can be attributed to prices for unprocessed energy materials, which fell 5.1 percent. In contrast, the indexes for unprocessed foodstuffs and feedstuffs and for unprocessed nonfood materials less energy moved up 2.4 percent and 1.2 percent, respectively. For the 12 months ended in July, the index for unprocessed goods for intermediate demand climbed 5.2 percent.
Product detail: Leading the July decline in the index for unprocessed goods for intermediate demand, prices for crude petroleum decreased 8.1 percent. The indexes for slaughter steers and heifers, natural gas, slaughter cows and bulls, raw cotton, and unprocessed finfish also fell. Conversely, prices for grains jumped 17.1 percent. The indexes for coal and copper ores also rose.
Services for intermediate demand: The index for services for intermediate demand fell 0.3 percent in July, the largest decline since a 0.5-percent decrease in October 2015. Over 60 percent of the July drop can be traced to prices for services less trade, transportation, and warehousing for intermediate demand, which moved down 0.2 percent. The index for transportation and warehousing services for intermediate demand fell 0.4 percent, and margins for trade services for intermediate demand declined 0.3 percent. For the 12 months ended in July, the index for services for intermediate demand rose 2.2 percent.
Product detail: Nearly half of the July decline in the index for services for intermediate demand can be traced to prices for portfolio management, which fell 3.2 percent. The indexes for chemicals and allied products wholesaling; business loans (partial); securities brokerage, dealing, and investment advice; airline passenger services; and television advertising time sales also moved down. In contrast, margins for metals, minerals, and ores wholesaling increased 3.5 percent. The indexes for architectural and engineering services and for legal services also increased.”
Bureau of Labor Statistics, “Producer Price Indexes. Jul 2017“, 10 Aug 2017 More
US: Unemployment Insurance Weekly Claims Report
Press Release Extract [ser_4]
“In the week ending August 5, the advance figure for seasonally adjusted initial claims was 244,000, an increase of 3,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 240,000 to 241,000. The 4-week moving average was 241,000, a decrease of 1,000 from the previous week’s revised average. The previous week’s average was revised up by 250 from 241,750 to 242,000.
The advance seasonally adjusted insured unemployment rate was 1.4 percent for the week ending July 29, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 29 was 1,951,000, a decrease of 16,000 from the previous week’s revised level. The previous week’s level was revised down by 1,000 from 1,968,000 to 1,967,000. The 4-week moving average was 1,965,000, an increase of 500 from the previous week’s revised average. The previous week’s average was revised down by 250 from 1,964,750 to 1,964,500.“
Employment and Training Administration, “Unemployment Insurance Weekly Claims Report“, 10 Aug 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