Tue 3 Oct 2017

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  • Today at the stock market Opinion
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  • flag_japan Japan Update
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  • Today at the stock market

    bull/bearThe three major U.S. stock indexes and the Russell 2000 posted record high closes for the second straight day on Tuesday, helped by gains in airlines and as carmakers rose after strong September vehicle sales.

    • The S&P 500 index rose 5.46 points, or 0.22%, to 2,534.58.
    • The Dow Jones Industrial Average rose 84.07 points, or 0.37%, to close at 22,641.67.
    • he Nasdaq Composite added 15.00 points, or 0.23%, to 6,531.71.
    • Advancing issues outnumbered declining ones on the NYSE by a 1.30-to-1 ratio; on Nasdaq, a 1.20-to-1 ratio favored advancers.
    • About 5.9 billion shares changed hands on U.S. exchanges. That compares with the 6.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.

    All three hit record closing highs, along with the Russell 2000 small-cap index , which has been lifted recently by optimism about tax law overhaul prospects. The S&P industrials index was up 0.5% and among sectors with the biggest gains on Tuesday.

    Investors are also looking at upcoming quarterly earnings from major U.S. companies to help justify lofty market valuations.

    Third-quarter earnings for S&P 500 companies are expected to have risen 5.5% from a year earlier, according to Thomson Reuters research, after rising a stronger-than-expected 12.3 percent in the second quarter.

    Major automakers posted higher U.S. new vehicle sales in September as consumers in hurricane-hit parts of the country rushed to replace flood-damaged cars. General Motors’ shares rose 3.1% and hit a record intraday high, while Ford’s stock was up 2.1%.

    Airline shares were among the biggest positives in the S&P 500. Delta Air Lines, also the S&P 500’s top percentage gainer, jumped 6.6% after it reported that its “cargo ton miles” metric rose 9.4% in Sep 2017from a year earlier. Shares of United Continental gained 6.1% while the S&P 1500 airlines index was up 5.5%.

    The news was the latest evidence of economic growth. The signs, including factory data on Monday, have helped lead the market to recent record highs and boosted shares of economically sensitive companies including in materials and industrials.

    “We’re seeing moves into economically sensitive stocks, which is an indication that investors believe some of the favorable economic data that’s coming out,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

    At the same time, investors have put aside some of their recent concerns, such as tensions between the United States and North Korea, he said.Reuters

    Market indices

    Market indices
    ^ Market indices today (mouseover for 12 month view) Chart: Google Finance

    Index Ticker Today Change 31 Dec 16 YTD
    S&P 500 SPX (INX) 2,534.58 +0.21% 2,238.83 +13.21%
    DJIA INDU 22,641.67 +0.37% 19,762.60 +14.56%
    NASDAQ IXIC 6,531.71 +0.23% 5,383.12 +21.33%

    Portfolio Indices

    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 2.779 +0.34% 2.105 +32.04%
    Valuation Rate USD/AUD 0.7886 +0.10% 0.72663 +8.52%
    AUD-denominated Index AUD 3.527 +0.24% 2.895 +21.82%

    Portfolio stock prices

    Stock Ticker Today Change 31 Dec 16 YTD
    Alphabet A GOOGL $972.08 +0.48% $792.45 +22.66%
    Alphabet C GOOG $957.79 +0.47% $771.82 +24.09%
    Apple AAPL $154.48 +0.44% $115.82 +33.37%
    Amazon AMZN $957.10 -0.22% $749.87 +27.63%
    Ebay EBAY $38.71 -0.05% $29.69 +30.38%
    Facebook FB $169.96 +0.29% $115.05 +47.72%
    PayPal PYPL $64.22 +0.06% $39.47 +62.70%
    Twitter TWTR $17.59 +2.93% $16.30 +7.91%
    Visa V $105.59 +0.14% $78.02 +35.33%
    VMware VMW $110.60 +0.41% $78.73 +40.48%



    DXY movements
    ^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

    The Bloomberg Dollar Spot Index (DXY) was little changed after touching the highest in almost 11 weeks.
    The EUR rose 0.1% to USD 1.1748.
    Britain’s GBP decreased 0.3% to USD1.3238, the weakest in almost 3 weeks.


    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 for November delivery declined 0.4 percent to settle at $50.42 a barrel, the lowest in more than a week.Bloomberg

    Prices are as at 15:48 EDT

    • NYMEX West Texas Intermediate (WTI): $50.35/barrel -0.45% Chart
    • ICE (London) Brent North Sea Crude: $55.90/barrel -0.39% Chart
    • NYMEX Natural gas futures: $2.90/MMBTU -0.51% Chart

    IMF: Limited Benefits of Household Debt

    Debt greases the wheels of the economy. It allows individuals to make big investments today–like buying a house or going to college – by pledging some of their future earnings.

    That’s all fine in theory. But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.

    A new IMF study takes a close look at the likely consequences of growth in household debt for different types of economies, as well as steps that policy makers can take to mitigate these consequences and to keep debt within reasonable limits. The overall message: there is a tradeoff between the short-term benefits and the medium-term costs of rising debt, but there is plenty that policymakers can do to ease this tradeoff, according to Chapter Two of the IMF’s October 2017 Global Financial Stability Report.

    Given the widespread misery the crisis caused, you might think people have become skittish about borrowing more. Surprisingly, that’s not the case. Since 2008, household debt as a proportion of gross domestic product has grown significantly in a sample of 80 countries. Among advanced economies, the median debt ratio rose to 63 percent last year from 52 percent in 2008. Among emerging economies, it increased to 21 percent from 15 percent.

    Reversal of fortune

    In the short term, an increase in the ratio of household debt is likely to boost economic growth and employment, our study finds. But in three to five years, those effects are reversed; growth is slower than it would have been otherwise, and the odds of a financial crisis increase. These effects are stronger at the higher levels of debt typical of advanced economies, and weaker at lower levels prevailing in emerging markets.

    What’s the reason for the tradeoff? At first, households take on more debt to buy things like new homes and cars. That gives the economy a short-term boost as automakers and home builders hire more workers. But later, highly indebted households may need to cut back on spending to repay their loans. That’s a drag on growth. And as the 2008 crisis demonstrated, a sudden economic shock – such as a decline in home prices–can trigger a spiral of credit defaults that shakes the foundations of the financial system.

    More specifically, our study found that a 5 percentage-point increase in the ratio of household debt to GDP over a three-year period forecasts a 1.25 percentage-point decline in inflation-adjusted growth three years in the future. Higher debt is associated with significantly higher unemployment up to four years ahead. And a 1 percentage point increase in debt raises the odds of a future banking crisis by about 1 percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5 percent, even without any increase in debt.

    The good news is that policy makers have ways to reduce risks. Countries with less external debt and floating exchange rates, and which are financially more developed, are better placed to weather the consequences.

    Mitigating risks

    Better financial-sector regulations and lower income inequality also help. But this is not the end of the story. Countries can also mitigate the risks by taking measures that moderate the growth of household debt, such as modifying the down payment required to purchase a house or the fraction of a household income that can be devoted to debt repayments. So, good policies, institutions, and regulations make a difference – even in countries with high ratios of household debt to GDP. And countries with poor policies are more vulnerable – even if their initial levels of household debt are low.

    Nico Valckx, Senior Economist, Monetary and Capital Markets Department, International Monetary Fund, “Rising Household Debt: What It Means for Growth and Stability“, 3 Oct 2017 IMF

    flag_australia AU: Building Approvals, Australia. Aug 2017

    Press Release Extract [ser_au_abs]

    The number of dwellings approved rose 1.1 per cent in August 2017, in trend terms, and has risen for seven months, according to data released by the Australian Bureau of Statistics (ABS) today.

    “Dwelling approvals have shown signs of strength in recent months, although are still below the record high in 2016,” said Bill Becker, Assistant Director of Construction Statistics at the ABS. “The August 2017 data showed that the number of dwellings approved is now 6.5 per cent lower than in the same month last year, in trend terms.”

    Dwelling approvals increased in August in the Australian Capital Territory (8.9 per cent), Northern Territory (8.3 per cent), Victoria (1.5 per cent), Tasmania (1.2 per cent), Queensland (1.0 per cent), South Australia (0.9 per cent) and New South Wales (0.7 per cent), but decreased in Western Australia (0.8 per cent) in trend terms.

    In trend terms, approvals for private sector houses rose 0.9 per cent in August. Private sector house approvals rose in Queensland (2.0 per cent), South Australia (1.4 per cent), Victoria (1.1 per cent) and Western Australia (0.3 per cent), but fell in New South Wales (0.3 per cent).

    In seasonally adjusted terms, dwelling approvals increased by 0.4 per cent in August, driven by a rise in private dwellings excluding houses (4.8 per cent), while private house approvals fell 0.6 per cent.

    The value of total building approved fell 0.3 per cent in August, in trend terms, after rising for six months. The value of residential building rose 0.7 per cent while non-residential building fell 1.8 per cent.

    Australian Bureau of Statistics, “8731.0 Building Approvals, Australia, Aug 2017“, 3 Oct 2017 More

    flag_australia AU: Reserve Bank of Australia Monetary Policy Statement

    Press Release Extract [ser_au_rba]

    At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

    Conditions in the global economy have improved. Labour markets have tightened and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Australia’s terms of trade are expected to decline in the period ahead but remain at relatively high levels.

    Wage growth remains low in most countries, as does core inflation. Headline inflation rates are generally lower than at the start of the year, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve has indicated that it will begin the process of balance sheet normalisation in October and that it expects to increase interest rates further. In the other major economies, there is no longer an expectation of additional monetary easing. Financial markets have been functioning effectively and volatility remains low.

    The Australian economy expanded by 0.8 per cent in the June quarter. This outcome and other recent data are consistent with the Bank’s expectation that growth in the Australian economy will gradually pick up over the coming year.

    Over recent months there have been more consistent signs that non-mining business investment is picking up. A consolidation of this trend would be a welcome development. Business conditions as reported in surveys are at a high level and capacity utilisation has risen. A large pipeline of infrastructure investment is also supporting the outlook. Against this, slow growth in real wages and high levels of household debt are likely to constrain growth in household spending.

    Employment has continued to grow strongly over recent months. Employment has increased in all states and has been accompanied by a rise in labour force participation. The various forward-looking indicators point to solid growth in employment over the period ahead, although the unemployment rate is expected to decline only gradually over the next couple of years.

    Wage growth remains low. This is likely to continue for a while yet, although the stronger conditions in the labour market should see some lift in wage growth over time. Inflation also remains low and is expected to pick up gradually as the economy strengthens.

    The Australian dollar has appreciated since mid year, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

    Growth in housing debt has been outpacing the slow growth in household incomes for some time. To address the medium-term risks associated with high and rising household indebtedness, APRA has introduced a number of supervisory measures. Following some tightening in credit conditions, growth in borrowing by investors has slowed a little recently. In the housing market, conditions continue to vary considerably around the country. Housing prices have been rising briskly in some markets, while in others they have been declining. In Sydney, where prices have increased significantly, there have been further signs that conditions are easing. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities.

    The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

    Reserve Bank of Australia, “Monetary Policy Statement“, 3 Oct 2017 More

    flag_europe EU: Industrial Producer Prices, Domestic Market. Aug 2017

    Press Release Extract [ser_eu_ipp]

    In August 2017, compared with July 2017, industrial producer prices rose by 0.3% in the euro area (EA19) and by 0.4% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In July 2017, prices remained stable in the euro area and increased by 0.1% in the EU28.


    In August 2017, compared with August 2016, industrial producer prices rose by 2.5% in the euro area and by 2.9% in the EU28.

    Monthly comparison by main industrial grouping and by Member State

    The 0.3% increase in industrial producer prices in total industry in the euro area in August 2017, compared with July 2017, is due to rises of 0.7% in the energy sector, of 0.2% for intermediate goods and of 0.1% for both durable and non-durable consumer goods, while prices remained stable for capital goods. Prices in total industry excluding energy rose by 0.1%.

    In the EU28, the 0.4% increase is due to rises of 1.1% in the energy sector, of 0.2% for intermediate goods and of 0.1% for capital goods, durable and non-durable consumer goods. Prices in total industry excluding energy rose by 0.1%.

    The highest increases in industrial producer prices were observed in Hungary, Slovakia and the United Kingdom (all +0.9%) as well as in Belgium (+0.8%), while a price decrease was observed in Sweden (-0.2%).

    Annual comparison by main industrial grouping and by Member State

    The 2.5% increase in industrial producer prices in total industry in the euro area in August 2017, compared with August 2016, is due to rises of 3.4% in the energy sector, of 3.0% for intermediate goods, of 2.5% for non-durable consumer goods, of 1.0% for capital goods and of 0.5% for durable consumer goods. Prices in total industry excluding energy rose by 2.2%.

    In the EU28, the 2.9% price increase is due to rises of 4.6% in the energy sector, of 3.1% for intermediate goods, of 2.8% for non-durable consumer goods, of 1.1% for capital goods and of 0.9% for durable consumer goods. Prices in total industry excluding energy rose by 2.4%.

    Industrial producer prices rose in all Member States. The largest increases were recorded in Belgium (+7.2%), Bulgaria (+5.9%), Estonia (+5.7%) and the United Kingdom (+5.1%).

    Eurostat, “August 2017 compared with July 2017: Industrial producer prices up by 0.3% euro area, Up by 0.4% in EU28“, 3 Oct 2017 More

    flag_usa US: New Vehicle Sales. Sep 2017

    Press Release Extract [ser_us_auto]

    U.S. auto sales exceeded analyst expectations with a big 6 percent year-over-year increase to 1.5 million units in September 2017, the first monthly improvement in 2017 so far.

    After auto sales fell 3 percent during the first two-thirds of 2017, big September increases from Toyota Motor Corp., General Motors, Ford Motor Company, American Honda, Nissan’s trio of brands, and numerous smaller outfits brought the sales pace achieved through the first three-quarters of 2017 within sight of 2016’s record rate. By the end of September, U.S. auto sales are down by less than 2 percent compared with last year.

    Pickup trucks played a major role in September’s improvements, growing at twice the rate of the industry at large. The Honda Civic expanded its lead as America’s best-selling car on a quest to end the Toyota Camry’s 15-year run. Minivan sales plunged to barely more than 33,000 units. The Toyota RAV4 topped 42,000 sales for a second consecutive month, leading a booming SUV/crossover class.

    For a change, brands that posted declining volume stood out more than brands that improved. Buick, Dodge, Fiat, Hyundai, and Smart all reported double-digit percentage losses. At the other end of the spectrum, double-digit percentage improvements were reported by 11 brands: Alfa Romeo, Chevrolet, Genesis, Infiniti, Jaguar, Land Rover, Mitsubishi, Porsche, Toyota, Volkswagen, and Volvo. Indeed, Volvo sold 5,483 XC60s and XC90s for a 51-percent year-over-year SUV uptick.

    Meanwhile at Jeep, where sales declined for a 13th consecutive month, the discontinued Patriot’s demise played an outsized role in the decline. Excluding the Patriot, Jeep showed signs of a forthcoming rebound, climbing 12 percent to 71,465 units.

    In order for the industry to rise to these September highs — the industry has averaged fewer than 1.3 million September sales over the last half-decade — there had to be contributing factors besides natural demand. A degree of replacement necessities in places like southeast Texas provided a boost. Incentives rose 1.5 percent to $3,742 per vehicle, according to ALG, with the biggest increases coming at Hyundai and Kia. BMW, Mercedes-Benz, FCA, Ford Motor Company, General Motors, and Nissan/Infiniti all relied on incentives worth more than $4,000 per vehicle in September.

    Auto-Data, “U.S. Auto Sales Brand-by-Brand Results: September 2017 YTD“, 3 Oct 2017 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

    China’s stock markets are closed for the Golden Week holiday.