In Portfolioticker today
Today at the stock market
“The USD was poised for its strongest week of the year on Friday, while world stock markets climbed back near record-high levels on the last trading day of the quarter. The S&P 500 and Nasdaq minted all-time highs, while European stock markets also gained.
Firming expectations for another U.S. interest rate increase by year-end, combined with U.S. President Donald Trump’s tax-cut plan, have dominated markets for most of the week.
Data on Friday showed U.S. consumer spending barely rose in Aug 2017 but the report did little to change expectations that the Federal Reserve would raise interest rates again in Dec 2017. Another report showed the Chicago purchasing management index, which gauges factory activity, came in better than expected for September.
“The economic data we got was either on target or it was slightly better-than-expected, so there wasn’t anything negative at all to put a pause on things.
Generally, the overall economic backdrop is very solid. In a bull market when you don’t have bad news you tend to get up moves in the market,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
“It really sums up kind of what we saw all month and all quarter, another calm day. The stats have been out there, this is one of the least volatile Septembers in history,” said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina.
“The pattern that has been working, easy money but relatively slow economic growth that keeps the tightening from becoming too tight, continues to augur for a decent outlook for equities in particular,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.” Reuters
^ Market indices today (mouseover for 12 month view) Chart: Google Finance
The S&P 500 index closed on a record high of 2,519.36, up 0.37% on yesterday’s record of 2,510.06.
The NASDAQ index closed on a record high of 6,495.96, beating its 19 Sep 2017 record of 6,461.32.
|Index||Ticker||Today||Change||31 Dec 16||YTD|
|S&P 500||SPX (INX)||2,519.36||+0.37%||2,238.83||+12.53%|
^ 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
“Low inflation and consumer spending reports released today did little to change expectations that the Federal Reserve would raise interest rates in Dec 2017. Fed Chair Janet Yellen said this week the U.S. central bank needed to continue gradual rate hikes despite uncertainty about the path of inflation.
“We think current economic conditions are heavily impacted by the effect of the recent hurricanes,” said Chris Rupkey, chief economist at MUFG in New York. “The Fed will rightly look over any soft patch for economic growth in the third quarter.”
The Fed signaled last week it anticipated one more interest rate increase by the end of the year. It has increased borrowing costs twice this year. Financial markets are pricing a roughly 76% probability of an interest rate hike in Dec 2017, according to the CME FedWatch tool.
The Bloomberg Dollar Spot Index (DXY) was little changed (falling 0.01%), while prices for U.S. Treasuries fell. Stocks on Wall Street were trading higher.
“The Fed appears poised to look through surprises in inflation data over the next few months,” said Ellen Zentner, chief U.S. economist at Morgan Stanley in New York.” Reuters
“Treasuries slumped amid reports that President Donald Trump and Treasury Secretary Steven Mnuchin met with former Federal Reserve governor Kevin Warsh to discuss the role of Fed chair. Trump, who also reportedly met with former Fed governor Jerome Powell, said he expects to make a decision on the central bank’s leadership in two to three weeks.
Financial shares, which would stand to benefit from Warsh’s views on deregulation, helped spearhead the stock market gains as the KBW Bank Index leaped to the highest since March. But despite the enthusiasm, some investors predicted that Warsh’s nomination would hurt equities.
“I don’t think a Warsh nomination would bring confidence to the markets and would expect equities to sell off if he was announced,” Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, wrote in a note to clients Friday. “Normally, the FRB staff assumes the chair knows the ins and outs of monetary economics at least as well as they do. Warsh would not be afforded that assumption. That is a big problem.”
Prior to the Fed news, Treasuries and the dollar dropped as the PCE core deflator, a key gauge of inflation, rose less than economists expected, deepening concern about the stickiness U.S. consumer prices and what it could mean for an expected interest rate hike this year. Personal spending also cooled.
“Inflation data today was weak, but Janet Yellen was pretty adamant when she spoke that they’re going to remain on course, and even though the numbers missed expectations today the headline number is still the same level, so it’s not a big downtick. It’s not optimal to keep policy on course, but it’s not enough to knock policy off course,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, said by phone.
The EUR rose 0.3% to USD 1.1819.
Britain’s GBP fell 0.3% to USD 1.3401.
The MSCI Emerging Markets Currency Index rose 0.2%, the first advance in a week.” Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
Prices are as at 15:49 EDT
- NYMEX West Texas Intermediate (WTI): $51.55/barrel -0.02% Chart
- ICE (London) Brent North Sea Crude: $57.54/barrel +0.23% Chart
- NYMEX Natural gas futures: $3.01/MMBTU -0.10% Chart
US: Tax Reform – Status
“A U.S. Senate panel took President Donald Trump’s proposed tax overhaul a step forward on Friday by unveiling a budget plan for the coming fiscal year that acknowledges lost revenues from tax cuts, while Trump pressed ahead with selling the proposal to the public.
The budget resolution released by the Republican-controlled Senate Budget Committee would pave the way for Republicans to avoid potential Democratic procedural moves to block it.
Republicans, who control the White House and both chambers of Congress, announced Trump’s tax proposal on Wednesday, offering trillions of dollars in tax cuts to businesses and individuals. Democrats have said it mostly benefits corporations and the wealthy and would balloon the already huge federal deficit.
The Senate budget resolution formally recognizes that the tax cuts would shrink federal revenues in the coming years.
It builds in $1.5 trillion in reduced revenue from tax cuts over the next decade. Independent analysts have said the Trump plan would reduce revenues by nearly $6 trillion over a decade, not accounting for the planned elimination of certain deductions and tax loopholes.
The resolution is vital to plans by the Republicans to move tax legislation through the Senate, which they control by a slim 52-48 majority, using a parliamentary process that lets them pass legislation without a customary 60-vote threshold that would necessitate some Democratic support.
The proposal calls for slashing the corporate tax rate to 20% from 35%, the small business rate to 25% from 39.6%and the top individual rate to 35% from 39.6%.
The budget resolution is “a critical step to advance President Trump’s agenda to provide tax relief for the middle class and unleash economic prosperity for all Americans,” said White House budget director Mick Mulvaney said.
“The Senate Republican budget is the clearest sign yet that Republicans are intent on pursuing a tax plan that would blow a huge hole in the deficit and stack up debt, leading to cuts in programs that middle-class Americans rely on,” Senate Democratic leader Chuck Schumer said in a statement.
The resolution could be approved by the committee next week ahead of a full Senate vote. The House of Representatives is due to vote on its own budget blueprint next week.
The White House and Republicans in Congress aim to have the tax proposal passed by the end of the year.” Reuters
EU: Euro Area Annual Inflation (Flash). Sep 2017
“Eurozone consumer price inflation came in at 1.5 percent year-on-year in September 2017, unchanged from the previous month’s four-month high and below market expectations of 1.6 percent. Food prices rose further while cost of services and energy increased at a softer pace. Annual core inflation, which excludes volatile prices of energy and unprocessed food and tobacco and at which the ECB looks in its policy decisions, eased to 1.1 percent from 1.2 percent August. Inflation Rate in the Euro Area averaged 1.99 percent from 1991 until 2017, reaching an all time high of 5 percent in July of 1991 and a record low of -0.70 percent in July of 2009.” TradingEconomics
Press Release Extract [ser_eu_cpi]
“Euro area annual inflation is expected to be 1.5% in September 2017, stable compared to August 2017, according to a flash estimate from Eurostat, the statistical office of the European Union.
Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in September (3.9%, compared with 4.0% in August), followed by food, alcohol & tobacco (1.9%, compared with 1.4% in August), services (1.5%, compared with 1.6% in August) and non-energy industrial goods (0.5%, stable compared with August).”
Eurostat, “Flash estimate – September 2017 – Euro area annual inflation stable at 1.5%“, 29 Sep 2017 More
US: UOM Consumer Confidence Index (Final). Sep 2017
Press Release Extract [ser_11]
Index Sep 17 Aug 17 Sep 16 M-M% Y-Y% Index of Consumer Sentiment 95.1 96.8 91.2 -1.8% +4.3% Current Economic Conditions 111.7 110.9 104.2 +0.7% +7.2% Index of Consumer Expectations 84.4 87.7 82.7 -3.8% +2.1%
“Consumer sentiment remained largely unchanged from the slightly lower level recorded at mid-month. The resilience of consumers has again been demonstrated as concerns about the impact of the hurricanes on the national economy have quickly faded. Given that the survey was able to reach most households in Florida and Texas in late September, it should be no surprise that small declines were recorded in the current financial situation of households. In the past year, there has been a long list of issues that could have derailed the overall level of consumer confidence, including the unprecedented partisan divide, North Korea, Charlottesville, and the hurricanes. Confidence has nonetheless remained very favorable, moving sideward in a very narrow positive range. In the first nine months of 2017, the Sentiment Index averaged 96.2, just ahead of averages of 91.9 and 92.9 recorded in the prior two years, making 2017 the highest recorded since 2000. To be sure, the recent Sentiment levels are still well below the average of 105.3 recorded from 1997 to 2000, which has also been reflected in slower overall growth rates in consumer spending. Needless to say, resilience is an ineffable quality whose appearance or disappearance is difficult to predict in advance. While consumer resilience has lowered precautionary saving motives and increased willingness to spend and incur debt, those changes will still be constrained by slower income growth and consumers who are still more risk averse. Overall, consumer expenditures are expected to increase by 2.6% in 2017 and in the 1st half of 2018. ”
University of Michigan, “UOM Consumer Confidence Index (Final). Sep 2017“, 29 Sep 2017 (10:00) More
US: Personal Income and Outlays. Aug 2017
“U.S. consumer spending barely rose in August likely as Hurricane Harvey weighed on auto sales, while annual inflation increased at its slowest pace in nearly two years, pointing to a moderation in economic growth in the third quarter.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month also likely as unseasonably mild temperatures in some parts of the country reduced demand for utilities.
The gain, which followed a 0.3 percent increase in July, was in line with economists’ expectations. The government said the data reflected the effects of Hurricane Harvey.
However, it could not separately quantify the total impact of Harvey on the data. The government made adjustments to estimates where source data were not yet available or did not fully reflect the effects of the storm.
Inflation remained muted in August, with the personal consumption expenditures (PCE) price index excluding food and energy rising 0.1 percent. The so-called core PCE has advanced by the same margin for four straight months.
As a result, the annual increase in the core PCE price index slowed to 1.3 percent in August after advancing 1.4 percent in July. That was the smallest year-on-year increase since November 2015. The core PCE is the Fed’s preferred inflation measure and has been undershooting its 2 percent target since 2012.” Reuters
“The price index for personal consumption expenditures in the United States rose 0.2 percent month-over-month in August 2017 after an increase of 0.1 percent in July and missing market expectations of 0.3 percent. Cost of goods rose 0.3 percent after growing by 0.1 percent in the previous month, boosted by higher prices of nondurable goods (0.5 percent from 0.3 percent in July), while cost of durable goods continued to fall (-0.1 percent from -0.2 percent). Also, cost of services went up 0.2 percent after increasing by 0.1 percent in July. Year-on-year, the PCE price index rose 1.4 percent, the same pace as in the previous month and also below expectations.” TradingEconomics
“Personal income in the United States rose 0.2 percent in August 2017, following a downwardly revised 0.3 percent gain in July and in line with market expectations. The growth in personal income was mainly driven by an increase in government social benefits to persons and compensation of employees. Personal Income in the United States averaged 0.53 percent from 1959 until 2017, reaching an all time high of 4.60 percent in May of 2008 and a record low of -5.20 percent in January of 2013.” TradingEconomics
Press Release Extract [ser_us_pce]
“Personal income increased $28.6 billion (0.2 percent) in August according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $14.9 billion (0.1 percent) and personal consumption expenditures (PCE) increased $18.0 billion (0.1 percent).
Real DPI decreased 0.1 percent in August and Real PCE decreased 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
The increase in personal income in August primarily reflected an increase in government social benefits to persons and compensation of employees.
Real PCE spending in August decreased $8.4 billion due to a decrease of $20.2 billion in spending for goods that was partially offset by a $9.2 billion increase in spending for services (table 7). Within goods, spending on new motor vehicles was the leading contributor to the decrease. Within services, healthcare spending was a leading contributor to the increase.
Personal outlays increased $16.8 billion in August. Personal saving was $522.9 billion in August and the personal saving rate, personal saving as a percentage of disposable personal income, was 3.6 percent.”
Bureau of Economic Analysis, “Personal Income and Outlays: August 2017“, 29 Sep 2017 (08:30) More
Industrial Production. Aug 2017
“Industrial production in Japan rose 2.1 percent month-on-month in August 2017, recovering from a 0.8 percent fall in the prior month and above market estimates of a 1.9 percent rise, preliminary figures showed. Production rebounded for: iron & steel (3.1 pct vs -1.6 pct in July); general-purpose, production and business oriented machinery (3.7 pct vs -2.5 pct); electrical machinery (1.3 pct vs -2.8 pct); information and communication equipment (5.7 pct vs -3.6); transport equipment (2.4 pct vs -0.4 pct); plastics (2.2 pct vs -0.2 pct); pulp, paper (2.8 pct vs -3.2 pct) and textiles (1.1 pct vs -1.5 pct). On the other hand, production fell for: non-ferrous metals (-0.5 pct vs 0.1 pct); chemical products (-0.7 pct vs -1.3 pct) and petroleum and coal products (-3.9 pct vs 1.4 pct). On a yearly basis, output gained 5.4 percent, following a 4.7 percent rise in July . Industrial Production Mom in Japan averaged 0.41 percent from 1953 until 2017, reaching an all time high of 6.80 percent in May of 2011 and a record low of -16.50 percent in March of 2011.” TradingEconomics
Retail Sales. Aug 2017
“Retail sales in Japan rose 1.7 percent year-on-year in August of 2017, compared a 1.8 percent gain in July. Sales increased at a slower pace for: textiles, clothing & accessories (0.4 percent vs 3.8 percent in July), fuel (1.4 percent vs 3.5 percent), and others (0.2 percent from 0.5 percent). In contrast, sales gained steam for: food & beverages (0.2 percent vs 0.1 percent), motor vehicles (8.3 percent vs 6.3 percent), medicines & toiletries (5.4 percent vs 4.9 percent), and machinery & equipment (4.6 percent vs 4.5 percent). On a monthly basis, retail sales decreased 1.7 percent, after rising 1.1 percent in July. Retail Sales YoY in Japan averaged 4.65 percent from 1971 until 2017, reaching an all time high of 36.50 percent in January of 1979 and a record low of -14.30 percent in March of 1998.” TradingEconomics
Inflation. Aug 2017
“Consumer prices in Japan rose 0.7 percent year-on-year in August of 2017, following a 0.4 percent rise in the prior four months and matching market consensus. It was the highest inflation rate since March 2015, mainly driven by a faster rise in cost of food. On a monthly basis, consumer prices went up 0.2 percent, compared to a flat reading in the preceding three months. Inflation Rate in Japan averaged 3.03 percent from 1958 until 2017, reaching an all time high of 24.90 percent in February of 1974 and a record low of -2.50 percent in October of 2009.” TradingEconomics
Unemployment. Aug 2017
“The unemployment rate in Japan came in at 2.8 percent in August of 2017, the same as in the prior two months. The figure was in line with market consensus and remained at its lowest in 23 years. Meanwhile, the jobs-to-applicants ratio was at 1.52, unchanged from the previous period while market expected 1.53. It stayed at its highest level since February 1974. Unemployment Rate in Japan averaged 2.73 percent from 1953 until 2017, reaching an all time high of 5.50 percent in June of 2002 and a record low of 1 percent in November of 1968.” TradingEconomics
^ 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