Wed 23 Aug 2017


watch Nightly Business Report. watch Bloomberg Technology.

In Portfolioticker today

Today at the stock market

bull/bearU.S. stocks closed lower as investors grappled with a threat from President Trump to shut down the government if Congress fails to fund a Mexico border wall. Investors have grown increasingly concerned about Trump’s ability to legislate his pro-growth agenda given the near-constant political turbulence in the White House.

  • The S&P 500 fell 8.44 points, or 0.34%, to 2,444.07.
  • The Dow Jones Industrial Average fell 87.8 points, or 0.4%, to 21,812.09
  • The Nasdaq Composite fell 19.07 points, or 0.3%, to 6,278.41.
  • About 5.04 billion shares changed hands in U.S. exchanges, below the 6.2 billion daily average over the last 20 sessions.

Stocks managed to briefly pare losses after comments from U.S. House Speaker Paul Ryan calling a government shutdown unnecessary. Yet that was not enough to calm nerves as the deadline to approve spending measures draws near and a fight looms over raising the cap on government borrowing.

Congress will have about 12 working days when it returns from its summer recess on 5 Sep 2017 to raise the debt ceiling before the U.S. Treasury exhausts the last of its options to remain current on all of the federal government’s obligations.

Credit ratings agency Fitch Ratings said a failure to raise the ceiling in a timely manner would prompt it to review its rating on U.S. sovereign debt, “with potentially negative implications.”

“What we’ve seen over this last week or so in financial markets has been a bit of wiggling around regarding the U.S. political situation,” said Paul Eitelman, multi-asset investment strategist at Russell Investments in Seattle. “Ultimately, I don’t think markets care that much about the noise coming out of Washington, D.C., but they’re trying to translate what that noise means for the potential for tax reform.”

Trump’s comments also affected the bond and currency markets, with the Bloomberg USD Spot Index (DXY) slipping 0.4 to 93.14 and 10-Year U.S. Treasury yields falling a touch below 2.17% on safety buying.

Investors looked towards a speech by Federal Reserve Chair Janet Yellen at a meeting of central bankers in Jackson Hole, Wyoming, on Friday, which will be scrutinized for clues on the U.S. central bank’s monetary policy.

Also weighing on sentiment was data showing sales of new U.S. single-family homes unexpectedly fell in Jul 2017 to a 7-month low.

“It seems like the story there is the affordability for housing is really what is weighing on the new-home market,” said Lindsey Bell, investment strategist at CFRA Research in New York.Reuters

Trump’s latest comments, which included talk of ending the North American Free Trade Agreement (NAFTA), rekindled concerns about the administration’s ability to deliver on its fiscal plans and heightened unease about the future of global trade. A day earlier, his treasury secretary said getting Congress to raise the debt ceiling and reforming the tax code were priorities, sparking a rally of 1 percent in the S&P.

“The increased prospects of a tax reform bill seemed to get most of the credit for the rally” Tuesday, Matt Maley, an equity strategist at Miller Tabak & Co., wrote in a note to clients. “At least some of that has gone out the window.” Contributing to the slump are reports that “the relationship between the President and Senate Majority Leader McConnell has broken down badly,” he said.Bloomberg

Market indices

Index Ticker Today Change 31 Dec 16 YTD
S&P 500 SPX (INX) 2,444.04 -0.35% 2,238.83 +9.16%
DJIA INDU 21,812.09 -0.41% 19,762.60 +10.37%
NASDAQ IXIC 6,278.41 -0.31% 5,383.12 +16.63%

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 2.824 -0.04% 2.105 +34.16%
Valuation Rate USD/AUD 0.79593 -0.01% 0.72663 +9.53%
AUD-denominated Index AUD 3.551 -0.03% 2.895 +22.65%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 16 YTD
Alphabet A GOOGL $942.58 +0.23% $792.45 +18.94%
Alphabet C GOOG $927.00 +0.25% $771.82 +20.10%
Apple AAPL $159.98 +0.13% $115.82 +38.12%
Amazon AMZN $958.00 -0.92% $749.87 +27.75%
Ebay EBAY $34.89 +0.23% $29.69 +17.51%
Facebook FB $168.71 -0.55% $115.05 +46.64%
PayPal PYPL $60.05 -1.30% $39.47 +52.14%
Twitter TWTR $16.96 +1.98% $16.30 +4.04%
Visa V $103.18 -0.86% $78.02 +32.24%
VMware VMW $100.39 +0.46% $78.73 +27.51%

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 0.3%, paring its first monthly gain since Feb 2017 to 0.2%.
Japan’s JPY rose 0.6% to 108.968 per USD.
Mexico’s MXP fell 0.1% to 17.7164 per USD, rebounding from a slide that reached 1% following Trump’s remarks..
The EUR rose 0.5% to USD 1.1819.
Britain’s GBP weakened to the lowest in more than 7 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

West Texas Intermediate crude rose more than 1% to settle at $48.41/barrel. Oil stockpiles have dropped every week since late Jun 2017 and gasoline inventories also fell, while crude production climbed for a second week, according to an EIA report Wednesday.Bloomberg

Prices are as at 15:47 EDT

  • NYMEX West Texas Intermediate (WTI): $48.35/barrel +1.09% Chart
  • ICE (London) Brent North Sea Crude: $52.54/barrel +1.29% Chart
  • NYMEX Natural gas futures: $2.93/MMBTU -0.37% Chart

flag_europe EU: Flash Consumer Confidence Indicator For EU and Euro Area. Aug 2017

Press Release Extract [ser_14]

In August 2017, the DG ECFIN flash estimate of the consumer confidence indicator remained broadly flat in the euro area (+0.2 points to -1.5) and unchanged in the EU (at -2.3) compared to July.

eu_cci_20170823

European Commission DG ECFIN, “Flash Consumer Confidence Indicator For EU and Euro Area. Aug 2017“, 23 Aug 2017 More

flag_europe EU: Flash Eurozone Composite PMI.
Aug 2017

Press Release Extract [ser_26]

Key findings:

  • Flash Eurozone PMI Composite Output Index at 55.8 (55.7 in July). 2-month high.
  • Flash Eurozone Services PMI Activity Index at 54.9 (55.4 in July). 7-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 58.1 (56.5 in July). 2-month high.
  • Flash Eurozone Manufacturing PMI(3) at 57.4 (56.6 in July). 2-month high.

The eurozone economy maintained growth momentum during August, according to PMI® survey data, with output across the currency area rising at a broadly similar pace to July. The expansion was supported by a strong rise in manufacturing production, while services business activity increased at a weaker pace.

The headline IHS Markit Eurozone PMI posted 55.8 in August, up fractionally from July’s reading of 55.7, according to the preliminary ‘flash’ estimate (based on approximately 85% of final replies). The index again signalled strong growth of the euro area private sector, with the rate of expansion remaining around the best seen over the past six years.

The manufacturing sector performed strongly, with both output and new orders rising at sharper rates in August. The latter was boosted by the fastest rise in exports for six-and-a-half years. The service sector, on the other hand, saw growth of activity ease to a seven-month low. That said, the rate of expansion remained solid amid a further increase in new orders.

The rate of accumulation in outstanding business eased to the slowest since January during August. This was reflective of trends in the service sector, however, as strong inflows of new work led manufacturing backlogs to increase at the strongest pace in over 11 years.

The rate of job creation remained solid during the latest survey period, but slower employment growth was recorded across both the manufacturing and service sectors.

The recent trend of easing inflationary pressures came to an end in August, with cost inflation picking up for the first time since February. A similar pattern was observed with regards to output prices, which rose at the fastest pace in three months. That said, the rate of charge inflation remained modest.

Business confidence continued to ease from the record high seen in May. Optimism was the lowest since last November, albeit still strong overall.

The big-two eurozone economies of Germany and France continued to register strong output growth in August. Germany posted a faster expansion than in July, while the increase in France was unchanged from the previous month. Notably, French manufacturing production rose at the fastest pace since April 2011.

The rest of the eurozone saw a slightly weaker increase in output during the month, albeit one that was still marked. A slower rise in services activity outweighed stronger growth of manufacturing output.

Commenting on the flash PMI data, Andrew Harker, Associate Director at IHS Markit said:

‘The latest PMI readings for the eurozone signal a continuation of the recent strong performance of the currency bloc’s economy. This stabilisation in the rate of expansion is pleasing, following signs of growth easing in recent months.

‘The survey data over the first two months of the quarter are consistent with only a fractional easing in the rate of growth of GDP from the 0.6% rise in Q2. There was further evidence of growth cooling in the service sector, where both business activity and new orders rose at the weakest rates since January. However, this was counterbalanced by further impressive manufacturing data as goods producers were able to secure new export orders at the fastest pace in six-and-a-half years. Stronger order inflows added to capacity pressures, with manufacturing backlogs increasing to the greatest extent since mid-2006. This bodes well for the labour market as firms will likely look to hire extra staff to deal with outstanding work.

‘Both input costs and output prices increased at faster rates in August. The rise in charges was modest and weaker than those seen earlier in the year, however, and will therefore be of little concern to the ECB. Overall, this is another positive set of numbers for the euro area, which continues to enjoy its best growth spell for a number of years.’

IHS Markit, “Flash Eurozone Composite PMI. Aug 2017“, 23 Aug 2017 More

flag_usa US: Trump Threatens Government ShutDown

Press Release Extract [ser_trump]

President Donald Trump’s threat to shut down the U.S. government to secure funding for a border wall rattled markets, drew criticism from his fellow Republicans and cast a shadow on Wednesday over congressional efforts to raise the country’s debt ceiling and pass spending bills.

Congress will have about 12 working days when it returns on 5 Sep 2017 from its summer break to approve spending measures to keep the government from shutting down, and a deadline also is closing in for raising the cap on the amount the federal government may borrow.

With those deadlines looming in late Sep 2017 – early Oct 2017, Trump raised the prospect in a speech on Tuesday evening of a shutdown if Congress does not agree to fund his long-promised wall along the border with Mexico. U.S. stocks and the USD weakened and investors pivoted to the safety of U.S. Treasury securities on Wednesday.Reuters

flag_usa US: Flash US Composite PMI. Aug 2017

Press Release Extract [ser_152]

Key findings:

  • Flash U.S. Composite Output Index at 56.0 (54.6 in July). 27-month high.
  • Flash U.S. Services Business Activity Index at 56.9 (54.7 in July). 28-month high.
  • Flash U.S. Manufacturing PMI at 52.5 (53.3 in July). 2-month low.
  • Flash U.S. Manufacturing Output Index at 52.2 (54.1 in July). 14-month low.

us_pmi_composite_20170823

US private sector companies signalled a sharp and accelerated increase in business activity during August. This was shown by the seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index rising from July’s reading of 54.6 to 56.0, to indicate the fastest growth of overall activity since May 2015.

Driving the headline composite index higher was a sharp increase in service sector business activity in August (‘flash’ business activity index at 56.9, up from 54.7 in July). This contrasted with a slowdown in manufacturing production growth (‘flash’ output index at 52.2 in August, down from 54.1).

In line with the trend for overall activity, total new orders also expanded at a quicker pace in August. Moreover, new business volumes grew at the quickest pace for just over two years.

At the same time, companies continued to add to their payroll numbers in August, with the rate of job creation unchanged from July’s seven-month record.

Input costs rose further at US companies in the latest survey period, with the rate of inflation picking up to a four-month high. This in turn contributed to a further hike in average selling prices, which rose at the fastest pace in nearly three years.

The composite index is based on original survey data from the IHS Markit U.S. Services PMI and the IHS Markit U.S. Manufacturing PMI.

IHS Markit Flash U.S. Services PMI™

The seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index posted 56.9 in August, up from 54.7 in July, to signal the quickest expansion of services activity for 28 months.
According to anecdotal evidence, strong economic conditions and an improvement in client demand had driven the latest upturn in activity. The latter was highlighted by a sharp and accelerated rise in new business received by services companies, with the rate of new order growth reaching a 25-month high in August.

Greater intakes of new work and rising activity levels led firms to hire more staff in August.

Furthermore, the rate of payroll expansion was only fractionally below July’s seven-month record.

Average input costs faced by services companies increased further in August. The rate of inflation quickened slightly from the previous month and remained solid overall. Reports from panellists indicated that greater costs for raw materials was a key driver of inflation in the latest survey period.

Prices charged for services also rose at a quicker pace in August. Notably, the rate of inflation was the fastest seen since September 2014, with some companies mentioning that stronger client demand had enabled them to raise their prices.

IHS Markit Flash U.S. Manufacturing PMI™

Business conditions continued to improve across the US manufacturing sector in August, albeit at a weaker pace. At 52.5, the seasonally adjusted IHS Markit Flash U.S. Manufacturing Purchasing Managers’ IndexTM (PMI™) remained above the 50.0 neutral value, but fell from 53.3 in July to signal only a modest rate of improvement.

Weaker increases in both output and new orders were key factors weighing on the headline manufacturing PMI in the latest survey period.

Production volumes expanded at the slowest rate for 14 months in August, while new business growth weakened from July’s four-month high. Consequently, purchasing activity rose at a softer pace while firms also registered slower increases in inventory levels.

Latest data signalled a further pick up in the rate of input price inflation at US goods producers. Moreover, average cost burdens rose at a solid pace that was the quickest recorded for four months. According to panellists, higher prices for raw materials such as metals, oil and electrical components had contributed to higher production costs. However, factory gate charges continued to rise at only a modest pace.

Commenting on the flash PMI data, Rob Dobson, Director at IHS Markit said:

‘The US economic growth story remained a tale of two sectors in August. The overall rate of expansion accelerated to a 27-month record, driven higher by strong and improved growth of business activity in the vast services economy. In contrast, the performance of manufacturing remained sluggish in comparison, with production volumes rising to the weakest extent in over a year.

‘Nonetheless, the acceleration signalled for the economy as a whole suggests that GDP growth is still gaining momentum during the third quarter. With new order inflows also strengthening and job creation equalling its best pace in the year-to-date, economic growth should remain on course to outperform relative to the second quarter.

‘The principal weak spot in the economy placing downside risk on that outcome remains exports. Foreign goods orders fell – albeit only marginally – for the second month in a row, often blamed on the strength of the dollar. The domestic demand picture should hopefully remain relatively bright to offset such risks, however.’

IHS Markit, “Flash US Composite PMI. Aug 2017“, 23 Aug 2017 (09:45) More

flag_usa US: New Residential Sales. Jul 2017

Press Comment: Reuters

New U.S. single-family home sales unexpectedly fell in July, dropping to their lowest in seven months amid a surge in prices, raising concerns of a slowdown in the housing market recovery.

Coming on the heels of data this month showing a tumble in home building and permits in July, the weak sales pace suggests that housing could remain a drag on economic growth in the third quarter.

“The third-quarter sales data are starting out significantly below the second-quarter average, and many other housing reports have also shown some recent weakening in their respective trends,” said Daniel Silver, an economist at JPMorgan in New York. “Today’s report strengthens our conviction that real residential investment will decline in the third quarter.”

The Commerce Department said on Wednesday new home sales declined 9.4 percent to a seasonally adjusted annual rate of 571,000 units last month, the lowest level since December 2016. The percentage drop was the largest since August 2016 and confounded economists’ expectations for a 0.3 percent gain.

June’s sales pace was revised up to 630,000 units from the previously reported 610,000 units. Home sales in May also were not as weak as previously reported, taking some of the sting from July’s report.

New home sales, which account for 9.4 percent of overall housing sales, are volatile month-to-month and are drawn from building permits. Still, sales declined 8.9 percent on a year-on-year basis, the first annual drop since February 2016.

July’s sales pace was below the second-quarter average of 613,000 units. Sales fell in the Northeast, South and West, but rose in the Midwest. In a separate report on Wednesday, the Mortgage Bankers Association said applications for loans to buy a house decreased last week to a six-month low.

U.S. financial markets were little moved by the data as investors worried over comments by President Donald Trump threatening a government shutdown to secure funding for a border wall with Mexico, raising the specter of a tough budget battle.

Trump also said late on Tuesday he might terminate the NAFTA trade treaty with Mexico and Canada after three-way talks failed to bridge deep differences.

The median price of a new home increased 6.3 percent in July from a year ago to $313,700. In contrast, annual wage growth has struggled to break above 2.5 percent.

Despite the acute housing shortage, builders are struggling to fill the void, citing supply constraints, including labor, land and finance. Last month, 70 percent of the new single family homes sold were either yet to be built or under construction in July.

“New home sales are still concentrated in the higher end of the market,” said Matthew Pointon, an economist at Capital Economics in New York. “Until builders switch their efforts to cheaper starter homes that will limit to degree to which sales can grow.”

The inventory of new homes on the market rose 1.5 percent to 276,000 units last month, the highest level since June 2009. Still, new housing stock is less than half of what it was at its zenith during the housing bubble.

At July’s sales pace it would take 5.8 months to clear the supply of houses on the market, almost a two-year high and up from 5.2 months in June.Reuters

Press Release Extract [ser_12]

New Home Sales

Sales of new single-family houses in July 2017 were at a seasonally adjusted annual rate of 571,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.4 percent (±12.9 percent) below the revised June rate of 630,000 and is 8.9 percent (±15.4 percent)* below the July 2016 estimate of 627,000.

us_newres_20170823

Sales Price

The median sales price of new houses sold in July 2017 was $313,700. The average sales price was $371,200.

For Sale Inventory and Months’ Supply

The seasonally-adjusted estimate of new houses for sale at the end of July was 276,000. This represents a supply of 5.8 months at the current sales rate.

US Census Bureau and Department of Housing and Urban Development, “-New Residential Sales. Jul 2017“, 23 Aug 2017 More

flag_japan Japan update

Nikkei Flash Japan Manufacturing PMI. Aug 2017

Press Release Extract [ser_29]

Key points:

  • Flash Japan Manufacturing PMI® improves to three-month high of 52.8 in August (52.1 in July)
  • Flash Manufacturing Output Index at 53.1 (51.4 in July). Fastest growth for three months
  • Output, new orders and employment all rise.

jp_pmi_20170823

IHS Markit, “Nikkei Flash Japan Manufacturing PMI. Aug 2017“, 23 Aug 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