In Portfolioticker today
- Energy: Oil and Gas Futures
- Apple’s iPhone X Production Problems
- US: Net International Investment Position. Q2/2017
- US: Advance Report on Durable Goods. Aug 2017
- US: Pending Home Sales. Aug 2017
- US: Metropolitan Area Employment and Unemployment. Aug 2017
- IMF WEO Research: The Disconnect Between Unemployment and Wages
Today at the stock market
“U.S. stocks rose on Wednesday as gains in financial shares were powered by growing expectations for a December interest rate hike and on hopes President Donald Trump’s administration may be making progress on a tax plan.
New orders for U.S.-made capital goods increased more than expected in Aug 2017 and shipments maintained their upward trend, pointing to underlying strength in the economy.
The data, coupled with comments from Fed Chair Janet Yellen on Tuesday boosted anticipation the Federal Reserve would raise U.S. interest rates in Dec 2017, lifting yields on U.S. Treasuries, which in turn pushed financials up 1.3%.
“With rates going up, that is why banks move. If rates go up and are sustainable they can start to make some money,” said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta, Georgia.
Trump proposed the biggest tax overhaul in three decades but offered scant details about how to pay for the cuts without dramatically driving up federal deficits. If passed, the plan would be Trump’s first significant legislative win since taking office in Jan 2017.
“For the first time since we have had Trump and the administration in office, it looks like there is incrementally more of a possibility of tax reform going through that would actually be meaningful,” said Martin.
The Russell 2000 index of small-cap stocks rose 1.92% and notched its best day since early Mar 2017. Small-cap names are likely to be the biggest beneficiaries of a tax cut.
Traders now see about a 78% chance of a Dec 2017 rate hike, compared with roughly 73% a week ago, according to CME Group’s FedWatch tool.
Bank of America rose 2.42% and Goldman Sach gained 2.1% as the biggest boost to the Dow.
Interest-rate-sensitive and dividend-paying sectors declined. The consumer staples index fell 0.73% while utilities dropped 1.34% and real estate lost 0.84%.
Also serving to cap gains on the Dow and S&P were Nike shares, which declined 1.92% after the company posted its slowest quarterly sales growth in nearly 7 years and said it expected a further drop in revenue from North America.” Bloomberg
^ Market indices today (mouseover for 12 month view) Chart: Google Finance
|Index||Ticker||Today||Change||31 Dec 16||YTD|
|S&P 500||SPX (INX)||2,507.04||+0.40%||2,238.83||+11.97%|
^ 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) rose 0.6% to the highest since Aug 2017.
The EUR fell 0.4% to USD 1.1749, the lowest in 6 weeks.
Britain’s GBP decreased 0.5% to USD 1.3393.
Switzerland’s CHF fell 0.4% to USD 0.9722, the weakest in 6 weeks.” Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
“West Texas Intermediate crude rose 0.4% to $52.07, slipping after hitting a 5-month high earlier in the session. ” Bloomberg
Prices are as at 15:49 EDT
- NYMEX West Texas Intermediate (WTI): $52.08/barrel +0.39% Chart
- ICE (London) Brent North Sea Crude: $57.69/barrel -1.28% Chart
- NYMEX Natural gas futures: $2.97/MMBTU +1.92% Chart
Apple’s iPhone X Production Problems
“Apple Inc. is facing production delays to its top-of-the-line iPhone X due to problems with the 3-D sensor manufacturing process, according to a series of news reports.
Makers of the components, used in facial recognition, are struggling to reach adequate production levels, Japan’s Nikkei newspaper reported Tuesday, citing unidentified people with knowledge of the process. The delay relates to the assembly of equipment used to project the 30,000 infrared dots onto a user’s face to map its characteristics, the Wall Street Journal reported Wednesday, also citing unidentified people.
Assembly of the dot projector is carried out by LG Innotek Co. and Sharp Corp., the Journal reported, adding that one person said the process is now running smoothly. The delays may have been a contributing factor in a decision by Apple to ask suppliers to withhold some shipments for iPhone X devices, as reported by Digitimes on Monday. The suppliers were requested to send just 40 percent of the parts initially ordered, the Taipei-based publication wrote, citing unidentified Taiwan-based suppliers.
The 3-D scanner is the iPhone X’s flagship innovation, allowing the handset to be unlocked just by glancing at it rather than requiring a fingerprint or unlock code. Along with a wider, sharper screen, it’s a key differentiator from the next model down, the iPhone 8, which was announced concurrently earlier this month.
Apple has staggered the delivery of the iPhone X, which will become available Nov. 3, six weeks after the lower-specification iPhone 8 went on sale. While Apple has said that it took the delayed release into account when forecasting its revenue for the three months through September, many analysts have assumed that demand for the top-of-the-range handset would carry over into the December quarter.
While any pent-up demand for the iPhone X would be a “positive trend for Apple, any serious production delays could hurt Apple’s fiscal first quarter and even second quarter sales growth,” Bloomberg Intelligence analyst Boyoung Kim wrote in a note Wednesday.” Bloomberg
US: Net International Investment Position
Press Release Extract [ser_us_iip]
“The U.S. net international investment position increased to -$7,934.9 billion (preliminary) at the end of the second quarter of 2017 from -$8,091.6 billion (revised) at the end of the first quarter, according to statistics released today by the Bureau of Economic Analysis (BEA). The $156.7 billion increase reflected a $1,004.2 billion increase in U.S. assets and an $847.5 billion increase in U.S. liabilities.
The $156.7 billion increase reflected net financial transactions of –$107.5 billion and net other changes in position, such as price and exchange-rate changes, of $264.2 billion.
The net investment position increased 1.9 percent in the second quarter, compared with an increase of 2.7 percent in the first quarter, and an average quarterly decrease of 5.6 percent from the first quarter of 2011 through the fourth quarter of 2016.
U.S. assets increased $1,004.2 billion to $25,937.6 billion at the end of the second quarter, mostly reflecting increases in portfolio investment and direct investment assets.
- Assets excluding financial derivatives increased $1,019.6 billion to $24,006.3 billion. The increase resulted from other changes in position of $657.3 billion and financial transactions of $362.2 billion. Other changes in position mostly reflected the appreciation of major foreign currencies against the U.S. dollar that raised the value of assets in dollar terms. Financial transactions mostly reflected net acquisition of portfolio investment and direct investment equity assets.
U.S. liabilities increased $847.5 billion to $33,872.5 billion at the end of the second quarter, mostly reflecting increases in portfolio investment and direct investment liabilities.
- Liabilities excluding financial derivatives increased $858.3 billion to $31,978.2 billion. The increase resulted from financial transactions of $479.1 billion and other changes in position of $379.2 billion. Financial transactions mostly reflected net incurrence of portfolio investment liabilities. Other changes in position mostly reflected price increases on portfolio investment and direct investment liabilities.“
Bureau of Economic Analysis, “Net International Investment Position Second Quarter 2017“, 27 Sep 2017 (08:30)More
US: Advance Report on Durable Goods. Aug 2017
Press Release Extract [ser_us_durables]
New orders for manufactured durable goods in August increased $3.9 billion or 1.7 percent to $232.8 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 6.8 percent July decrease. Excluding transportation, new orders increased 0.2 percent. Excluding defense, new orders increased 2.2 percent. Transportation equipment, also up two of the last three months, led the increase, $3.6 billion or 4.9 percent to $77.4 billion.
Shipments of manufactured durable goods in August, up three of the last four months, increased $0.7 billion or 0.3 percent to $237.2 billion. This followed a 0.1 percent July increase. Machinery, up nine of the last ten months, led the increase, $0.3 billion or 1.1 percent to $31.4 billion.
Unfilled orders for manufactured durable goods in August, up two of the last three months, increased $0.1 billion or virtually unchanged to $1,132.3 billion. This followed a 0.3 percent July decrease. Fabricated metal products, up seven of the last eight months, drove the increase, $0.5 billion or 0.6 percent to $79.3 billion.
Inventories of manufactured durable goods in August, up thirteen of the last fourteen months, increased $1.4 billion or 0.3 percent to $400.5 billion. This followed a 0.4 percent July increase. Machinery, up nine of the last ten months, led the increase, $0.6 billion or 0.8 percent to $69.0 billion.
Nondefense new orders for capital goods in August increased $3.2 billion or 4.7 percent to $71.0 billion. Shipments decreased $1.1 billion or 1.5 percent to $71.6 billion. Unfilled orders decreased $0.6 billion or 0.1 percent to $704.0 billion. Inventories increased $0.7 billion or 0.4 percent to $178.3 billion. Defense new orders for capital goods in August decreased $1.1 billion or 9.4 percent to $10.7 billion. Shipments increased $0.1 billion or 0.8 percent to $10.4 billion. Unfilled orders increased $0.3 billion or 0.2 percent to $142.6 billion. Inventories increased $0.3 billion or 1.1 percent to $23.5 billion.
Revised July Data
Revised seasonally adjusted July figures for all manufacturing industries were: new orders, $465.9 billion (revised from $466.4 billion); shipments, $473.5 billion (revised from $474.3 billion); unfilled orders, $1,132.3 billion (revised from $1,131.9 billion) and total inventories, $652.0 billion (revised from $651.6 billion).”
US Census Bureau, “Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders. Aug 2017“, 27 Sep 2017 (08:30)More
US: Pending Home Sales. Aug 2017
Press Release Extract [ser_us_pendinghomesales]
“Pending home sales sank in August for the fifth time in six months, and slower activity in the areas hit hard by Hurricanes Harvey and Irma will likely pull existing sales for the year below the pace set in 2016, according to the National Association of Realtors®.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, retreated 2.6 percent to 106.3 in August from 109.1 in July. The index is now at its lowest reading since January 2016 (106.1), is 2.6 percent below a year ago, and has fallen on an annual basis in four of the past five months.
Lawrence Yun, NAR chief economist, says this summer’s terribly low supply levels have officially drained all of the housing market’s momentum over the past year. “August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes,” he said. “Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.”
With little relief expected from the housing shortages that continue to plague several areas, Yun believes the housing market has essentially stalled. Further complicating any sales improvement in the months ahead is the fact that Hurricane Harvey’s damage to the Houston region contributed to the South’s decline in contract signings in August, and will likely continue to do so in the months ahead. Furthermore, the temporary pause in activity in Florida this month in the wake of Hurricane Irma will slow overall sales even more in the South.
Yun now forecasts existing-home sales to close out the year at around 5.44 million, which comes in slightly below (0.2 percent) the pace set in 2016 (5.45 million). The national median existing-home price this year is expected to increase around 6 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.
“The supply and affordability headwinds would have likely held sales growth just a tad above last year, but coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year,” said Yun. “The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.”
The PHSI in the Northeast fell 4.4 percent to 93.4 in August, and is now 4.1 percent below a year ago. In the Midwest the index decreased 1.5 percent to 101.8 in August, and is now 3.2 percent lower than August 2016.
Pending home sales in the South retreated 3.5 percent to an index of 118.8 in August and are now 1.7 percent below last August. The index in the West declined 1.0 percent in August to 101.3, and is 2.4 percent below a year ago.”
National Association of Realtors, “Pending Home Sales. Aug 2017“, 27 Sep 2017 (10:00) More
US: Metropolitan Area Employment and Unemployment. Aug 2017
“Unemployment rates were lower in August than a year earlier in 323 of the 388 metropolitan areas, higher in 55 areas, and unchanged in 10 areas, the U.S. Bureau of Labor Statistics reported today. Thirty-two areas had jobless rates of less than 3.0 percent and three areas had rates of at least 10.0 percent. Nonfarm payroll employment increased over the year in 326 metropolitan areas, decreased in 55 areas, and was unchanged in 7 areas. The national unemployment rate in August was 4.5 percent, not seasonally adjusted, down from 5.0 percent a year earlier.“
Bureau of Labor Statistics, “Metropolitan Area Employment and Unemployment. Aug 2017“, 27 Sep 2017 (10:00) More
IMF WEO Research: The Disconnect Between Unemployment and Wages
IMF Blog Extract
“Over the past three years, labor markets in many advanced economies have shown increasing signs of healing from the Great Recession of 2008-09. Yet, despite falling unemployment rates, wage growth has been subdued–raising a vexing question: Why isn’t a higher demand for workers driving up pay?
Our research in the October 2017 World Economic Outlook sheds light on the sources of subdued nominal wage growth in advanced economies since the Great Recession. Understanding the drivers of the disconnect between unemployment and wages is important not only for macroeconomic policy, but also for prospects of reducing income inequality and enhancing workers’ security.
Job growth picked up, wage growth less so
In many cases, employment growth has picked up and headline unemployment rates are now back to their pre-Great Recession ranges. Still, nominal wage growth remains well below where it was prior to the recession. Sluggish wages may reflect deliberate efforts to slow down wage growth from unsustainably high levels, as was the case with some countries in Europe. But the pattern is more widespread.
There are several factors at play in explaining this pattern, both cyclical and structural – or slow-moving – in nature.
A key cyclical factor is labor market slack – that is, the excess supply of labor beyond the amount that firms would like to employ.
First off, however, it is important to recognize that headline unemployment rates may not be as indicative of labor market slack as they used to be. Hours per worker have continued to decline (extending a trend that began before the Great Recession).
Several countries have also experienced higher rates of involuntary part-time employment (workers employed for less than 30 hours per week who report they would like to work longer) and an increased share of temporary employment contracts These developments in part reflect continued weak demand for labor (itself a reflection of weak final demand for goods and services).
Another key driver of wage growth is the widely-recognized slowdown in trend productivity growth. Sustained weakness in output per hour worked can squeeze business profitability and eventually weigh on wage growth as firms becomes less willing to accommodate fast increases in compensation.
Besides these forces, slower-moving factors such as ongoing automation (proxied by the falling relative price of investment goods) and diminished medium-term growth expectations also appear to hold back wage growth. However, our analysis suggests that automation may not have made a large contribution to subdued wage dynamics following the Great Recession.
The analysis also indicates sizable common global factors behind wage weakness in the aftermath of the Great Recession and especially during 2014–16. In other words, labor market conditions in other countries appear to have a growing effect on wage setting in any given economy. This points to the possible roles of the threat of plant relocation across borders, or an increase in the effective worldwide supply of labor in a context of closer international economic integration.
Putting it all together
The relative roles of labor market slack and productivity growth vary across countries. In economies where unemployment rates are still appreciably above their averages before the Great Recession (such as Italy, Portugal, and Spain), high unemployment can explain about half of the slowdown in nominal wage growth since 2007, with involuntary part-time employment acting as a further drag on wages. Wage growth is therefore unlikely to pick up until slack diminishes meaningfully—an outcome that requires continued accommodative policies to boost aggregate demand.
In economies where unemployment rates are below their averages before the Great Recession (such as Germany, Japan, the United States, and the United Kingdom), slow productivity growth can account for about two-thirds of the slowdown in nominal wage growth since 2007. Even here, however, involuntary part-time employment appears to be weighing on wage growth, suggesting greater slack in the labor market than headline unemployment rates capture. Assessing the true degree of slack in these economies will be important when determining the appropriate pace of exit from accommodative monetary policies.
Broader changes in the labor market
Our research further indicates that sluggish wage growth has occurred in a context of broader changes in the labor market. The increase in involuntary part-time employment itself, for example, is in part explained by cyclically-weak demand. Accommodative policies that help lift aggregate demand would therefore lower involuntary part-time employment. But it is also associated with slower-moving factors such as automation, diminished medium-term growth expectations, and the growing importance of the service sector.
Some of these developments represent persistent changes in relationships between firms and workers that mirror underlying shifts in the economy – with the emergence of the gig economy and shrinkage of traditional sectors such as manufacturing. Policymakers may therefore need to enhance efforts to address the vulnerabilities that part-time workers face. Examples of possible measures include broadening minimum wage coverage where it does not currently include part-time workers; securing parity with full-time workers by extending pro-rated annual, family, and sick leave; and strengthening secondary and tertiary education to upgrade skills over the longer term.“
Gee Hee Hong, Zsoka Koczan, Weicheng Lian, Malhar Nabar, IMF, “The Disconnect Between (Levels of) Unemployment and Wages“, 27 Sep 2017 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
Industrial Profits. YTD Aug 2017
“In the first eight months of 2017, the profits made by industrial enterprises above the designated size achieved 4,921.35 billion yuan, a year-on-year increase of 21.6 percent, and the growth rate increased by 0.4 percentage points from the first seven months.
In the first eight months, the profits of state-holding industrial enterprises above the designated size gained 1,084.07 billion yuan, up by 46.3 percent year-on-year; that of collective-owned enterprises reached 29.41 billion yuan, an increase of 4.6 percent; that of joint-stock enterprises stood at 3,462.93 billion yuan, up by 23.3 percent; that of foreign funded enterprises, and enterprises funded from Hong Kong, Macao and Taiwan achieved 1,180.94 billion yuan, increased by 18.0 percent; and that of private enterprises gained 1,633.21 billion yuan, an increase of 14.0 percent.
In the first eight months, the profits of mining and quarrying reached 324.89 billion yuan, up by 5.9 times year-on-year; that of manufacturing was 4,322.33 billion yuan, an increase of 18.6 percent; that of production and distribution of electricity, heat, gas and water reached 274.13 billion yuan, down by 22.6 percent.
In the first eight months, within 41 branches of industrial divisions, the industrial profits of 39 industrial divisions increased year-on-year, and that of 2 decreased. In view of the profit growth of major industries, the profits of mining and washing of coal increased by 9.6 times year-on-year, that of processing of food from agricultural products increased by 5.5 percent year-on-year, that of manufacture of textile up by 4.1 percent, that of processing of petroleum, coking, processing of nucleus fuel increased by 32.9 percent, that of manufacture of chemical raw material and chemical products increased by 36.1 percent, that of manufacture of non-metallic mineral products increased by 23.9 percent, that of manufacture and processing of ferrous metals increased by 1.1 times, that of manufacture and processing of non-ferrous metals increased by 44.8 percent, that of manufacture of general-purpose machinery up by 16.9 percent, that of manufacture of special-purpose machinery up by 22.7 percent, that of manufacture of motor vehicles increased by 11.7 percent, that of manufacture of electrical machinery and equipment increased by 8.1 percent, that of manufacture of computer, communication equipment and other electronic equipment increased by 16.1 percent, extraction of petroleum and natural gas turned losses in the same period into profits, and the profits of production and supply of electric power and heat power down by 28.4 percent.
In the first eight months, the revenue from principal activities of industrial enterprises above the designated size reached 80.3 trillion yuan, increased by 12.7 percent year-on-year. The costs of principal activities were 68.8 trillion yuan, up by 12.5 percent. The profit rate of revenue from principal activities was 6.13 percent, an increase of 0.45 percentage points year-on-year.
By the end of August, the total assets of industrial enterprises above the designated size was 109.2 trillion yuan, increased by 7.7 percent year-on-year; the total liabilities reached 60.9 trillion yuan, increased by 6.4 percent; the total owners’ equity was 48.3 trillion yuan, increased by 9.4 percent. The asset-liability ratio was 55.7 percent, a decrease of 0.7 percentage points year-on-year.
By the end of August, the total volume of receivable accounts for industrial enterprises above designated hit 13.0 trillion yuan, went up by 9.0 percent year-on-year. The total value of finished products for industrial enterprises accounted for 4,102.49 billion yuan, increased by 7.9 percent.
In the first eight months, the costs for per-hundred-yuan turnover of principal activities stood at 85.68 yuan, a decrease of 0.12 yuan year-on-year; the expenses for per-hundred-yuan turnover of principal activities stood at 7.28 yuan, a decrease of 0.29 yuan; the revenue from principal activities brought by per hundred yuan assets was 113.7 yuan, an increase of 5.0 yuan; the revenue from principal activities per capita was 1339 thousand yuan, an increase of 158 thousand yuan; the turnover days of finished goods were 13.7 days, a decrease of 0.7 days; the days sales outstanding hit an average of 37.0 days, a decrease of 0.9 day.
In August, the profits made by industrial enterprises above the designated size achieved 671.97 billion yuan, a year-on-year increase of 24.0 percent, and the growth rate increased by 7.5 percentage points from July.“
National Bureau of Statistics of China, “Industrial Profits Increased in the First Eight Months of 2017“, 27 Sep 2017
^ 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