Fri 11 Aug 2017


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In Portfolioticker today

Today at the stock market

bull/bearU.S. stocks rose and volatility eased as markets showed signs of stabilizing after days of verbal sparring between the U.S. and North Korea. The USD fell after American inflation remained subdued.

The S&P 500 Index rebounded from its worst day since May 2017 as a measure of calm returned to global equity markets roiled by tensions on the Korean peninsula. The latest reading on core prices showed a below-forecast rise, making it tougher for the Federal Reserve to stay on its tightening course. That pushed the USD lower and boosted gold.

  • The S&P 500 rose 0.13% to 2,441.32, paring its weekly slide to 1.43%, the most since Mar 2017.
  • The Dow Jones Industrial Average Index rose 0.07% to 21,858.32.
  • The NASDAQ Composite Index rose 0.64% to 6,256.56.
  • The Stoxx Europe 600 Index declined 1%, for 5-day retreat of 2.7%, the most since 4 Nov 2017.
  • The MSCI All-Country World Index fell 0.1% Friday and 1.5% in the week.
  • The CBOE Volatility Index fell 2.7%, after yesterday’s 44% rise.

The calm on Friday wasn’t enough to undo the damage done by the geopolitical confrontation that rattled markets all week. The S&P 500 had its worst period since Mar 2017, European shares fell the most since Trump’s election and the credit had its deepest slump in a year. While the CBOE Volatility Index slipped Friday, it’s still higher by almost 50% in the week, the most since Jan 2016. Gold stood at a 2-month high and the JPY briefly pushed through 109 per USD.

The week of angst continued a sobering pattern for financial markets in Aug 2017, when volatility tends to rise even as many investors head for vacation. The latest sabre rattling has some firms preparing contingencies for the weekend — just in case, especially with little in the way of economic data or central bank action to focus on in the coming week.

Some big investors have been warning now would be a good time to reduce levels of risk in portfolios. Ray Dalio, who leads the world’s largest hedge fund at Bridgewater Associates, recommends investors consider placing 5% to 10% of their assets in gold as a hedge against current political and economic risks.Bloomberg

Market indices

MARKET

Index Ticker Today Change 31 Dec 16 YTD
S&P 500 SPX (INX) 2,441.32 +0.12% 2,238.83 +9.04%
DJIA INDU 21,858.32 +0.06% 19,762.60 +10.60%
NASDAQ IXIC 6,256.56 +0.63% 5,383.12 +16.22%

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 2.786 +1.18% 2.105 +32.37%
Valuation Rate USD/AUD 0.79442 +0.14% 0.72663 +9.32%
AUD-denominated Index AUD 3.510 +1.03% 2.895 +21.24%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 16 YTD
Alphabet A GOOGL $930.09 +0.70% $792.45 +17.36%
Alphabet C GOOG $914.39 +0.79% $771.82 +18.47%
Apple AAPL $157.48 +1.39% $115.82 +35.96%
Amazon AMZN $967.99 +1.16% $749.87 +29.08%
Ebay EBAY $35.05 +0.17% $29.69 +18.05%
Facebook FB $168.08 +0.41% $115.05 +46.09%
PayPal PYPL $58.04 +0.03% $39.47 +47.04%
Twitter TWTR $15.92 +1.08% $16.30 -2.34%
Visa V $100.09 +0.60% $78.02 +28.28%
VMware VMW $91.95 -0.05% $78.73 +16.79%

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 0.4%, sparked by the latest CPI report.
The EUR jumped 0.5% to USD 1.1833.
Britain’s GBP rose 0.3% to USD 1.3015.
Japan’s JPY increased 0.2% to 109.016 per USD, the strongest in more than 15 weeks.
Bloomberg

AUD

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

Oil and Gas Futures

Futures prices

Prices are as at 15:49 ET

  • NYMEX West Texas Intermediate (WTI): $48.77/barrel +0.37% Chart
  • ICE (London) Brent North Sea Crude: $52/barrel +0.19% Chart
  • NYMEX Natural gas futures: $2.98/MMBTU -0.03% Chart

flag_australia AU: RBA Governor’s Statement to the House of Representatives Standing Committee on Economics

It is a pleasure to be here in Melbourne to explain our thinking on the Australian economy. My colleagues and I view this as an important part of the accountability process for the Reserve Bank. As usual, we look forward to answering your questions.

Since we last met in February, the global economy has strengthened. As a result, in most advanced economies, economic growth has been sufficient to push unemployment rates down further. A number of countries now have unemployment rates that are close to, or below, conventional estimates of full employment. Conditions have also improved in many emerging market economies, partly due to an increase in global trade. Commodity prices have mostly risen over recent months.

In China, growth has surprised on the upside a little of late. The main challenge there continues to be containing the risks from the build-up of debt, while at the same time keeping growth on a steady path. This remains a work in progress. Economic growth has also picked up in the euro area, with conditions the best they have been since the euro area crisis in 2012. On the other side of the ledger, though, in the United States the earlier optimism that the new administration’s fiscal policies would spur stronger growth has dissipated.

Since we last met, the Federal Reserve has increased interest rates twice and the policy rate in the United States now stands at 1¼ per cent. Despite this, the US dollar has depreciated in global markets, which has surprised many observers. The Bank of Canada has also increased its interest rate, reversing some of the policy insurance it took out earlier when the outlook was less positive. Elsewhere, there is no longer an expectation that central banks will announce yet further monetary stimulus and some central banks have indicated that they may scale back some of the current stimulus if conditions continue to improve. This is a positive development.

As well as this change in the outlook for global monetary policy, another prominent theme in discussions of the global economy of late has been the slow growth in wages. Despite the success that a number of countries have had in generating jobs, wage growth remains low. This is contributing to a continuation of inflation rates that are below target in most advanced economies, although in headline terms they are mostly higher than a year ago.

The reasons for the low growth in wages are complex. The fact that it is a common experience across countries suggests some global factors are at work. One possibility is that workers feel a heightened sense of potential competition; either from advances in technology or from international competition. More competition means less opportunity to put your price up. In the case of workers, it means slower rates of increase in wages. At the same time, many workers feel an increased sense of uncertainty and they feel less secure. This too is contributing to slow aggregate wage growth. The slow growth in wages is underpinning the low inflation outcomes in much of the world. It is possible that these effects will pass and that the normal relationship between tighter labour markets and higher wages will reappear. It is also possible that the current environment turns out to be quite persistent. How things turn out on this front is likely to have a significant bearing on the next stage in the global economic cycle.

I would now like to turn to the Australian economy.

The most recent GDP data are quite dated now and are for the March quarter. They showed growth weaker than we had earlier expected. This, however, partly reflected temporary factors, including weather-related disruptions to production and quarter-to-quarter volatility in resource exports. Since then, the recent run of data has been consistent with a pick-up in growth. There has been an improvement in survey-based measures of business conditions and capacity utilisation has increased. Employment growth has also picked up and retail spending has been a bit stronger of late. Financial conditions remain favourable, with interest rates remaining low and banks willing to lend.

The Reserve Bank released its latest forecasts for the economy last Friday. In summary, our central scenario is for GDP to grow at an average of around 3 per cent over the next couple of years. This would be better than we have seen for some time. The transition to lower levels of mining investment following the mining investment boom is now almost complete. This means that falling levels of mining investment will not be a drag on the economy for much longer. Instead, with some large LNG projects reaching completion soon, GDP growth is expected to be boosted by a lift in LNG exports.

For some time we have been looking for a strong pick-up in private business investment outside the resources sector. This is taking longer to occur than expected. While we do see positive signs in parts of the economy, many firms still show some reluctance to commit to significant investment, often citing a range of uncertainties. It is possible that this reluctance will continue for a while yet. But it is also possible that the improvement in business conditions that we have seen will give firms the confidence to invest more, after a period of under-investment. We have incorporated a middle path into our own forecasts.

On the investment front a positive development has been an increase in spending on public infrastructure, particularly transport. This is directly supporting aggregate demand and is having some positive spin-offs elsewhere in the economy. It is also addressing earlier under-investment and should improve the supply side of the economy.

Another factor that has a bearing on the outlook is the behaviour of households. There is an adjustment going on, with many people getting used to lower growth in their real wages. Many now see this as more than just a temporary development, with wage increases of 2 point something per cent now the norm. In my view, the underlying drivers of the slower wage growth in Australia are much the same as we are seeing overseas. At the same time, the household sector is also dealing with higher levels of debt relative to income. Higher electricity prices are also affecting household budgets. This all means that consumer spending behaviour is something we continue to watch carefully.

One positive development in this area over recent times has been a pick-up in employment growth, which should boost incomes. A little while ago, employment growth was on the weak side and the unemployment rate had ticked up. In contrast, in recent months employment growth has been noticeably stronger and more people have entered the labour force. Encouragingly, the gain in jobs is evident in all states, including in Western Australia and Queensland, which have been adjusting to lower levels of mining investment. Our central scenario is for the national unemployment rate to move gradually lower, although it is likely to be some time before we reach what could be considered full employment in Australia.

Another area that we continue to watch closely is the housing market. Conditions continue to vary significantly across the country. The Melbourne and Sydney markets have been much stronger than elsewhere. There are some signs of slowing in these two markets, although these signs are not yet definitive. In some markets, a large increase in the supply of new dwellings is expected over the next year as new buildings are completed. This increase in supply is expected to have an effect on prices.

In terms of inflation, when we last met I suggested that inflation was at a trough and was expected to increase gradually. Recent outcomes have been consistent with this. Both headline and underlying inflation have risen and are currently running a little under 2 per cent. Inflation is likely to continue to move higher gradually, with the headline measure boosted by higher prices for tobacco, electricity and gas. A consideration working in the other direction is increased competition in the retail sector, particularly from new entrants. This is likely to continue for a while yet. The low wage increases are also contributing to the subdued inflation outcomes.

One factor that is influencing the outlook for both economic growth and inflation is the exchange rate. The recent appreciation means lower prices for imported goods and it is weighing on the outlook for domestic output and employment. Further appreciation, all else constant, would cause a slower pick-up in inflation and slower progress in reducing unemployment.

Since August last year, the Reserve Bank Board has held the cash rate steady at 1.5 per cent. This setting of monetary policy is supporting employment growth and a return of inflation to around its average rate of the past couple of decades. The Board is seeking to do this in a way that does not add to the medium-term balance-sheet risks facing the economy. It has been conscious that a balance needs to be struck between the benefits of monetary stimulus and the medium-term risks associated with rising levels of debt relative to our incomes.

As a result, the Board has been prepared to be patient. The fact that the unemployment rate has been broadly steady has allowed us this patience. We have preferred a prudent approach, which is most likely to promote both macroeconomic and financial stability consistent with the medium-term inflation target.

The Reserve Bank has continued to work closely with APRA through the Council of Financial Regulators to address financial risks. Our assessment is that the various supervisory measures – including a focus on lending standards and placing limits on investor and interest-only lending – will work to strengthen household balance sheets over time. Financial institutions have adjusted to the new requirements and these requirements are contributing to the resilience of the system as a whole.

I would now like to briefly mention three matters related to the Bank’s other functions that may be of interest to the Committee.

The first is that the banking industry is in the final stretch of developing the New Payments Platform (NPP). As we have spoken about previously, this new payments infrastructure will provide Australians with the ability to make real-time, information-rich payments on a 24/7 basis. It will also make addressing of payments much simpler, using email addresses and mobile phone numbers, rather than BSB and account numbers. It has been a complex project and the Reserve Bank has played an important role, both in policy terms and as a provider of a key part of the infrastructure. As the government’s bank, the Reserve Bank will also make the new payment capabilities available to its government banking customers. The new system is expected to commence processing payments later this year. It is likely to start off small and gradually ramp up next year as financial institutions gain experience with a new way of operating 24/7.

The second matter is that when we met in February, I said that I had commissioned an external review of the efficiency of the Bank’s operations. That review has now been completed. It concluded that our support areas were functioning well and assisted the achievement of the Bank’s important public policy objectives. At the same time, it suggested some areas for us to focus on. One was the development of a shared internal services centre to drive continuous improvement. Another was further evolution in our approach to IT as some of our major IT-related projects come to an end. These projects are in the banking and payments areas and have been undertaken in the national interest. As these projects wind down we are looking to make sure that the size and structure of our IT function remains appropriate. More broadly, as some of these projects finish this year, the Bank’s overall staff numbers will decline.

Finally, I would like to take this opportunity to announce that we will be releasing the new $10 banknote next month, on 20 September. Printing of the new notes has been completed at our printing works in outer Melbourne. The new notes contain the same world-leading security features as the new $5 note that we issued last September, including the clear top-to-bottom window, and the tactile feature so that it can be recognised by vision-impaired members of the community. Construction has also recently been completed on our new banknote storage and processing facility at Craigieburn, which will soon commence operations.

Philip Lowe, Governor RBA, “Opening Statement to the House of Representatives Standing Committee on Economics“, Opening Statement Hansard

flag_usa AU: Lending Finance, Australia, June 2017

ny_debt

Press Release Extract [ser_abs]

Housing finance for owner occupation:

  • The total value of owner occupied housing commitments excluding alterations and additions rose 0.5% in trend terms.
  • The seasonally adjusted series rose 0.3%.

Personal finance:

  • The trend series for the value of total personal finance commitments fell 1.8% in June 2017 compared with May 2017. Fixed lending commitments fell 2.6% and revolving credit commitments fell 0.5%.
  • The seasonally adjusted series for the value of total personal finance commitments rose 1.5%. Revolving lending commitments rose 7.6% while fixed lending commitments fell 2.1%.

Commercial finance:

  • The trend series for the value of total commercial finance commitments rose 1.8% in June 2017 compared with May 2017. Fixed lending commitments rose 1.8% and revolving credit commitments rose 1.8%.
  • The seasonally adjusted series for the value of total commercial finance commitments rose 13.7% in June 2017, after a fall of 6.9% in May 2017. Revolving lending commitments rose 25.9%, after a fall of 12.7% in the previous month. Fixed lending commitments rose 10.8%, after a fall of 5.5% in the previous month.
  • The value of commitments for the purchase of dwellings by individuals for rent or resale (trend) fell 1.5% in June 2017 and the seasonally adjusted series fell 2.0%.

Lease finance:

  • The trend series for the value of total lease finance commitments fell 3.2% in June 2017.
  • The seasonally adjusted series rose 2.2%, after being flat in May 2017.
May 2017 Jun 2017 Change
TREND ESTIMATES
Housing finance for owner occupation(a) $20.472 bn $20.582 bn 0.5%
Personal finance $5.909 bn $5.803 bn -1.8%
Commercial finance $43.200 bn $43.985 bn 1.8%
Lease finance $0.614 bn $0.595 bn -3.2%
SEASONALLY ADJUSTED ESTIMATES
Housing finance for owner occupation(a) $20.673 bn $20.738 bn 0.3%
Personal finance $5.857 bn $5.947 bn 1.5%
Commercial finance $40.387 bn $45.906 bn 13.7%
Lease finance $0.607 bn $0.620 bn 2.2%

Australian Bureau of Statistics, “5671.0 – Lending Finance, Australia, June 2017“, 11 Aug 2017 More

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

Press Release Extract [ser_27]

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

us_cpi_month_20170811

us_cpi_year_20170811

The indexes for shelter, medical care, and food all rose in July, leading to the seasonally adjusted increase in the all items index. The energy index declined slightly in July, with its major component indexes mixed. The index for natural gas declined, while the electricity index rose and the gasoline index was unchanged. The food index increased 0.2 percent, with the indexes for food at home and food away from home both rising.

The index for all items less food and energy rose 0.1 percent, the fourth month in a row it increased by that amount. The indexes for shelter, medical care, recreation, apparel, motor vehicle insurance, and airline fares all rose in July. These increases more than offset declines in the indexes for new vehicles, communication, used cars and trucks, and household furnishings and operations.

The all items index rose 1.7 percent for the 12 months ending July, a slightly larger increase than for the 12 months ending June. The index for all items less food and energy also rose 1.7 percent for the 12 month period, the same increase as for the 12 months ending May and June. The energy index rose 3.4 percent over the last year, while the food index increased 1.1 percent.

Food

The food index rose 0.2 percent in July after being unchanged in June. The index for food at home, which declined in June, rose 0.2 percent in July. Major grocery store food group index movements were mixed in July. The index for meats, poultry, fish, and eggs rose 0.7 percent following a 0.6-percent rise the prior month, as the beef index continued to increase. The index for fruits and vegetables rose 0.5 percent after declining in June. The index for dairy and related products also turned up in July, rising 0.3 percent after a 0.5-percent decrease in June.

In contrast, the index for cereals and bakery products declined 0.4 percent in July, and the index for nonalcoholic beverages fell 0.3 percent. The index for other food at home was unchanged in July after falling in May and June.

The index for food at home rose 0.3 percent over the last 12 months, the first 12-month increase since the period ending November 2015. Five of the six major grocery store food group indexes rose over the last 12 months, though none more than 1.0 percent. The index for cereals and bakery products was the only group to decline over the past year, falling 0.5 percent. The index for food away from home increased 0.2 percent in July and rose 2.1 percent over the past year.

Energy

The energy index decreased 0.1 percent in July, its third consecutive decline. The gasoline index, which declined in May and June, was unchanged in July. (Before seasonal adjustment, gasoline prices decreased 2.3 percent in July.) The index for natural gas fell 2.3 percent in July, its largest decline since April 2015. The electricity index rose 0.4 percent in July after declining in June.

The major energy component indexes all increased over the past 12 months. The index for natural gas rose 7.5 percent, the gasoline index increased 3.0 percent, and the index for electricity advanced 2.6 percent.

All items less food and energy

The index for all items less food and energy increased 0.1 percent in July. The shelter index rose 0.1 percent in July, its smallest increase since March. The rent index increased 0.2 percent, while the index for owners’ equivalent rent rose 0.3 percent. However, the index for lodging away from home fell sharply, declining 4.2 percent. The medical care index rose 0.4 percent in July, the same increase as in June. The index for prescription drugs continued to rise, increasing 1.3 percent in July after rising 1.0 percent in June. The index for hospital services rose 0.5 percent, and the physicians’ services index advanced 0.1 percent.

The recreation index rose 0.3 percent in July, its largest increase since February. The index for apparel rose 0.3 percent after declining in each of the past four months. The index for airline fares also turned up in July, rising 0.7 percent following 3 months of declines. The index for motor vehicle insurance continued to increase, rising 0.3 percent.

In contrast, several indexes declined in July. The index for new vehicles fell 0.5 percent, its largest decline since August 2009. The communication index continued to fall, declining 0.2 percent as the index for wireless telephone services fell 0.3 percent. The index for used cars and trucks fell 0.5 percent, its seventh consecutive decline, and the index for household furnishings and operations fell 0.2 percent.

The index for all items less food and energy rose 1.7 percent over the past 12 months, similar to its 1.8 percent average annual increase over the past 10 years. The shelter index rose 3.2 percent over the year, and the index for medical care rose 2.6 percent.

Not seasonally adjusted CPI measures

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.7 percent over the last 12 months to an index level of 244.786 (1982-84=100). For the month, the index decreased 0.1 percent prior to seasonal adjustment.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.6 percent over the last 12 months to an index level of 238.617 (1982-84=100). For the month, the index decreased 0.1 percent prior to seasonal adjustment.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 1.5 percent over the last 12 months. For the month, the index decreased 0.1 percent on a not seasonally adjusted basis. Please note that the indexes for the past 10 to 12 months are subject to revision.

Bureau of Labor Statistics, “Consumer Price Index (CPI). Jul 2017“, 11 Aug 2017 (08:30) More

flag_usa US: Real Earnings. Jul 2017

Press Release Extract [ser_28]

All employees

Real average hourly earnings for all employees increased 0.2 percent from June to July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.3-percent increase in average hourly earnings being partially offset by a 0.1-percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

us_realer_20170811

Real average weekly earnings increased 0.2 percent over the month due to the increase in real average hourly earnings combined with no change in the average workweek.

Real average hourly earnings increased 0.7 percent, seasonally adjusted, from July 2016 to July 2017. The increase in real average hourly earnings combined with a 0.3-percent increase in the average workweek resulted in a 1.1-percent increase in real average weekly earnings over this period.

Production and nonsupervisory employees

Real average hourly earnings for production and nonsupervisory employees increased 0.2 percent from June to July, seasonally adjusted. This result stems from a 0.3-percent increase in average hourly earnings being partially offset by a 0.1-percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

us_realer_ns_20170811

Real average weekly earnings increased 0.2 percent over the month due to the increase in real average hourly earnings combined with no change in average weekly hours.

From July 2016 to July 2017, real average hourly earnings increased 0.8 percent, seasonally adjusted. The increase in real average hourly earnings combined with no change in the average workweek resulted in a 0.7-percent increase in real average weekly earnings over this period.

Bureau of Labor Statistics, “Real Earnings. Jul 2017“, 11 Aug 2017 (08:30) 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

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