In Portfolioticker today
Today at the stock market
“The Dow Jones Industrial Average hit a record high on Tuesday, helped by a surge in Wal-Mart Stores, while Amazon and Facebook lost ground and investors focused on upcoming quarterly reports.
The tech index, the best performing among the 11 major S&P sectors this year, was mostly unchanged, with Facebook falling 0.53% and Nvidia rising 1.91% after unveiling chips for autonomous vehicles, bringing its gain over the past year to 182%.
Wal-Mart jumped 4.47% to a 2-year high after forecasting U.S. online sales would rise by about 40% in the next fiscal year and unveiling a $20-billion share buyback.
That helped the S&P 500 consumer staples index rise 0.99%, although gains in that sector were limited by P&G, which dropped 0.54% after activist investor Nelson Peltz unexpectedly failed in his bid to win a board seat.
American Airlines jumped 4.80% and United Continental soared 4.67% after the two airlines gave encouraging third-quarter forecasts. Delta, which reports on Wednesday, rose 1.85%.
Energy stocks got a boost from a near 2% rise in oil prices supported by Saudi Arabian export cuts in Nov 2017 and comments from OPEC and trading companies that the market is rebalancing after years of oversupply.
Third-quarter corporate reporting season kicks into high gear on Thursday with results from JPMorgan Chase and Citigroup. With the S&P 500 up 14% in 2017, investors are betting on strong earnings growth across the S&P 500.
Wall Street has mostly shrugged off recent saber-rattling between the United States and North Korea, as well as a lack of progress by President Donald Trump in delivering promised corporate tax cuts.
‘The only fear in this market is the fear of missing out,’ said Dennis Dick, a proprietary trader at Bright Trading LLC in Las Vegas. ‘But things can change quickly. There’s stuff out there, like North Korea. You still have to be cautious.’ ” Reuters
The Dow Jones Industrial Average Index closed on a record high of 22,830.68, beating its 5 Oct 2017 record of 22,775.39.
^ Market indices today (mouseover for 12 month view) Chart: Google Finance
|Index||Ticker||Today||Change||31 Dec 16||YTD|
|S&P 500||SPX (INX)||2,550.64||+0.23%||2,238.83||+13.92%|
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting
|Index||Currency||Today||Change||31 Dec 16||YTD|
Portfolio stock prices
Visa closed on a record high of 107.31, up 0.28% on yesterday’s record of $107.01
|Stock||Ticker||Today||Change||31 Dec 16||YTD|
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg
“The USD had weakened against most major currencies as President Donald Trump’s feud with Senator Bob Corker clouded the outlook for his much-heralded tax reform. More
In the U.K. the GBP continued to recover from last week’s drop after U.K. Prime Minister Theresa May won public support from Brexit hardliners in her cabinet for outlining contingency plans for leaving the European Union without a deal. The pound was also boosted by a fourth straight month of gains in U.K. like-for-like retail sales, and manufacturing and construction data that beat forecasts.
Turkey’s lira lost a gain of as much as 1.1% amid reports the White House backs its ambassador’s decision to suspend visas and news that the country convicted in absentia a U.S. reporter on charges of “terrorist propaganda.” The currency tumbled Monday as the diplomatic row with America flared up.” Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
“West Texas oil rose $1.36 to $50.94/barrel before U.S. government data forecast to show crude inventories extended declines for a third week.” Bloomberg
Prices are as at 15:50 EDT
- NYMEX West Texas Intermediate (WTI): $50.93/barrel +2.72% Chart
- ICE (London) Brent North Sea Crude: $56.56/barrel +1.38% Chart
- NYMEX Natural gas futures: $2.89/MMBTU +1.91% Chart
IMF World Economic Outlook – Oct 2017
“The global upswing in economic activity is strengthening. Global growth, which in 2016 was the weakest since the global financial crisis at 3.2 percent, is projected to rise to 3.6 percent in 2017 and to 3.7 percent in 2018. The growth forecasts for both 2017 and 2018 are 0.1 percentage point stronger compared with the April 2017 World Economic Outlook (WEO) forecast. Broad-based upward revisions in the euro area, Japan, emerging Asia, emerging Europe, and Russia—where growth outcomes in the first half of 2017 were better than expected—more than offset downward revisions for the United States and the United Kingdom.
But the recovery is not complete: while the baseline outlook is strengthening, growth remains weak in many countries, and inflation is below target in most advanced economies. Commodity exporters, especially of fuel, are particularly hard hit as their adjustment to a sharp stepdown in foreign earnings continues. And while short-term risks are broadly balanced, medium-term risks are still tilted to the downside. The welcome cyclical pickup in global activity thus provides an ideal window of opportunity to tackle the key policy challenges—namely to boost potential output while ensuring its benefits are broadly shared, and to build resilience against downside risks. A renewed multilateral effort is also needed to tackle the common challenges of an integrated global economy.
The global pickup in activity that started in the second half of 2016 gained further momentum in the first half of 2017. Growth is projected to rise over this year and next in emerging market and developing economies, supported by improved external factors—a benign global financial environment and a recovery in advanced economies. Growth in China and other parts of emerging Asia remains strong, and the still-difficult conditions faced by several commodity exporters in Latin America, the Commonwealth of Independent States, and sub-Saharan Africa show some signs of improvement. In advanced economies, the notable 2017 growth pickup is broad based, with stronger activity in the United States and Canada, the euro area, and Japan. Prospects for medium-term growth are more subdued, however, as negative output gaps shrink (leaving less scope for cyclical improvement) and demographic factors and weak productivity weigh on potential growth.
Changes to aggregate growth forecasts relative to the April 2017 WEO are generally positive but modest, with some meaningful changes for specific country groups and individual countries.
- In line with stronger-than-expected momentum in the first half of 2017, the forecast sees a stronger rebound in advanced economies in 2017 (to 2.2 percent versus 2.0 percent foreseen in April), driven by stronger growth in the euro area, Japan, and Canada. In contrast, compared with the April 2017 WEO forecast, growth has been marked down for 2017 in the United Kingdom and for both 2017 and 2018 in the United States, implying a 0.1 percentage-point aggregate growth downgrade for advanced economies in 2018. Activity in the United Kingdom slowed more than anticipated in the first half of 2017; as for the United States, given the significant policy uncertainty, the forecast now uses a baseline assumption of unchanged policies, whereas in April it assumed a fiscal stimulus driven by then-anticipated tax cuts.
- Growth prospects for emerging and developing economies are marked up by 0.1 percentage point for both 2017 and 2018 relative to April, primarily owing to a stronger growth projection for China. The country’s 2017 forecast (6.8 percent, against 6.6 percent in April) reflects stronger growth outturns in the first half of 2017 as well as more buoyant external demand. For 2018, the revision mainly reflects an expectation that the authorities will maintain a sufficiently expansionary policy mix to meet their target of doubling real GDP between 2010 and 2020. Growth forecasts have also been marked up for emerging Europe for 2017, reflecting stronger growth in Turkey and other countries in the region, for Russia for 2017 and 2018, and Brazil in 2017.
Financial market sentiment has generally been strong, with continued gains in equity markets in both advanced and emerging market economies.
Given current expectations of a more gradual pace of monetary policy normalization compared with March, US long-term interest rates have declined by some 25 basis points since then, and the US dollar has depreciated by more than 5 percent in real effective terms, with a commensurate real appreciation of the euro. Despite expectations of more robust global demand going forward, commodity prices have remained low, with oil prices reflecting stronger-than-anticipated supply.
Headline consumer price inflation has softened since the spring, as the boost to prices from the oil price recovery of 2016 has faded and the decline in oil prices in recent months has started to exert downward pressure. Despite stronger growth in domestic demand, core inflation has generally remained muted across advanced economies, reflecting still-weak wage growth. Inflation is likely to rise only gradually toward central bank targets. Across emerging and developing economies, the waning of pass-through effects from earlier currency depreciations against the US dollar, and in some cases recent appreciations, have helped moderate core inflation rates.
Short-term risks are broadly balanced. On the positive side, the recovery could strengthen further, supported by strong consumer and business confidence and benign financial conditions. At the same time, in an environment of high policy uncertainty and geopolitical tensions, policy missteps—which the baseline assumes will be avoided—could take a toll on market confidence, resulting in tighter financial conditions and weaker asset prices.
Risks to growth in the medium term are still skewed to the downside, owing to several potential hazards:
- A more rapid and sizeable tightening of global financial conditions. This could take the form of higher long-term interest rates in the United States and elsewhere, triggered by faster-than-expected monetary policy normalization or a decompression of term premia, with adverse repercussions for vulnerable economies. Monetary policy tightening in the euro area, if it had to come while the recovery in prices and growth is still lagging in highly indebted member economies, could pose risks for these economies if they have not undertaken the needed fiscal adjustment and implemented structural reforms to boost supply potential. Tighter global financial conditions could also result from a sharp decrease in global risk appetite from its currently strong levels, which would take a toll on macroeconomic activity through weaker confidence, lower asset valuations, and wider risk premia.
- Financial turmoil in emerging market economies. The upward revision to China’s growth forecasts reflects a slower rebalancing of activity toward services and consumption, a higher projected debt trajectory, and diminished fiscal space. Unless the Chinese authorities counter the associated risks by accelerating their recent encouraging efforts to curb the expansion of credit, these factors imply a heightened probability of a sharp growth slowdown in China, with adverse international repercussions. Following a period of abundant credit supply, a sudden tightening of global financial conditions (and an associated US dollar appreciation) could expose financial fragilities in some emerging markets, imposing strains on economies with US dollar pegs, high leverage, and balance sheet mismatches.
- Persistently low inflation in advanced economies. If domestic demand were to falter, it could lead to a decline in medium-term inflation expectations, prolonging and reinforcing the weakness in inflation. Low inflation and nominal interest rates would in turn reduce central banks’ capacity to lower real interest rates to restore full employment in an economic downturn.
- A broad rollback of the improvements in financial regulation and oversight achieved since the global financial crisis. Such a rollback could lower capital and liquidity buffers or weaken supervisory effectiveness, with negative repercussions for global financial stability.
- An inward shift in policies. A shift toward protectionism would reduce trade and cross-border investment flows, harming global growth.
- Noneconomic factors. These would include geopolitical tensions, domestic political discord, risks from weak governance and corruption, extreme weather events, and terrorism and security concerns, which could derail growth.
These risks are closely interconnected and can be mutually reinforcing. For example, an inward turn in policies could be associated with increased geopolitical tensions as well as with rising global risk aversion; noneconomic shocks can weigh directly on economic activity while shaking confidence and market sentiment; and a faster-than-anticipated tightening of global financial conditions or a shift toward protectionism in advanced economies could exacerbate capital outflow pressures on emerging markets.
The welcome cyclical pickup in global economic activity after disappointing growth over the past few years provides an ideal window of opportunity to undertake key reforms designed to boost potential output and ensure that its benefits are broadly shared and to build resilience against downside risks. With countries still facing differences in cyclical conditions, varied stances of monetary and fiscal policy remain appropriate. Completing the economic recovery and adopting strategies to ensure fiscal sustainability remain important goals in many economies.
Important areas of strategic focus include:
- Raising potential output: Structural reforms and growth-friendly fiscal policy are needed to boost productivity and labor supply, with differing priorities across countries. Looking ahead, ongoing structural transformation (labor-saving technological change and cross-border competition) demands comprehensive policy approaches, including policies that reduce the pain of adjustment and provide opportunities for all.
- Securing the recovery and building resilience: In advanced economies, monetary policy settings should remain accommodative until there are firm signs of inflation returning to targets. Still-subdued wage pressures mostly reflect remaining slack, not fully captured by headline unemployment rates. At the same time, stretched asset valuations and increasing leverage in some parts of the financial sector require close monitoring, with proactive micro- and macroprudential supervision, as necessary. The stance of fiscal policy should be aligned with structural reform efforts, taking advantage of favorable cyclical conditions to place public debt on a sustainable path while supporting demand where still needed and feasible. Higher public spending designed to boost potential output can result in both domestic benefits as well as positive spillovers to other countries, especially if it involves economies with slack and monetary accommodation. Indeed, adopting these policy recommendations would help reduce external imbalances, notably for advanced economies with excess surpluses, where stronger domestic demand would offset negative demand effects from the needed rebalancing by deficit countries. In many emerging market and developing economies, fiscal space to support demand is limited, especially in commodity exporters. But monetary policy can generally be supportive, as inflation appears to have peaked in many countries. Exchange rate flexibility helps with the adjustment to commodity price shocks. Efforts to improve governance and the investment climate would also strengthen growth prospects. In low-income countries, many of which need to undertake durable fiscal adjustment efforts and reduce financial vulnerabilities, growth-enhancing reforms would help make the best use of the coming demographic dividend by spurring job creation.
- Strengthening international cooperation: For many of the challenges that the global economy confronts, individual country actions can be more effective if supported by multilateral cooperation. Preserving the global economic expansion will require policy-makers to avoid protectionist measures and to do more to ensure that gains from growth are shared more widely. In addition to preserving an open trading system, key areas for collective action include: safeguarding global financial stability; achieving equitable tax systems and avoiding a race to the bottom; continuing to support low-income countries as they pursue their development goals; and mitigating and adapting to climate change. Many of the economies suffering the worst consequences of higher temperatures and changed weather patterns are those with the fewest resources to deal with these challenges. Richer countries will increasingly feel direct negative effects from unmitigated climate change, however, and will not be immune to spillovers from the rest of the world.“
International Monetary Fund, “Executive Summary in World Economic Outlook, October 2017 Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges – October 2017“, 10 Oct 2017. Full Report
Kobe Faked Data for Metal Used in Planes and Cars
“The industrial scandal engulfing Kobe Steel Ltd. began to reverberate overseas as Japan’s third-biggest steelmaker said its staff falsified data about the strength and durability of some aluminum and copper products used in planes, trains and potentially a space rocket.
Shares plunged 22% and the cost to insure Kobe Steel debt against default soared as customers including Toyota Motor Corp., Honda Motor Co. and Subaru Corp. said they had used materials that were subject to falsification while Hitachi Ltd. said trains exported to the U.K. were affected. One outside estimate put the potential cost of replacing the parts at about JPY 15 billion (USD 133 million), but the damage to the company — in the form of both reputational harm or possible legal challenges– could be much greater.
Kobe Steel’s admission raises fresh concern about the integrity of Japanese manufacturers. Nissan Motor Co. last week said it would recall more than 1 million cars after regulators discovered unauthorized inspectors approved vehicle quality, while Takata Corp. pleaded guilty this year of misleading automakers about the safety of its air bags. Kobe Steel said the products were delivered to more than 200 unidentified companies, with the falsification intended to make the metals look as if they met client quality standards.
Chief Executive Officer Hiroya Kawasaki is now leading a committee to probe quality issues. The fabrication of figures was found at all four of Kobe Steel’s local aluminum plants in conduct that was systematic, and for some items the practice dated back some 10 years, Executive Vice President Naoto Umehara said on Sunday. The comments were confirmed by a company spokesman.
Kobe Steel, one of Japan’s oldest industrial companies, was founded more than a century ago. Headquartered in the western port city, it made about 7 million metric tons of crude steel in the year to March, as well as aluminum and copper. Its units include Kobelco Construction Machinery Co., which produces diggers.
Toyota said it has found Kobe Steel materials, for which the supplier falsified data, in hoods, doors and peripheral areas. “We are rapidly working to identify which vehicle models might be subject to this situation and what components were used,” Toyota spokesman Takashi Ogawa said. “We recognize that this breach of compliance principles on the part of a supplier is a grave issue.”
Kobe Steel said it discovered the falsification in inspections on products shipped from September 2016 to August 2017, adding there haven’t been any reports of safety issues. The products account for 4% of shipments of aluminum and copper parts as well as castings and forgings.
Based on the assumption that 5% of the company’s annual sales of aluminum products are nonconforming, JPMorgan Securities Japan Co. estimated it would cost from JPY 10 billion to JPY 15 billion for Kobe Steel to replace the entire volume with conforming products, according to a report by analyst Kazuhisa Mori.
Kobe Steel materials were used in Hitachi trains exported to the U.K.’s Agility Trains, according to Hitachi spokesman Masataka Morita. The trains haven’t started operation yet. Materials were also used in East Japan Railway Co., Central Japan Railway Co. bullet trains in Japan, he said, adding that the trains were inspected after completion and there was no problems with their strength.
Subaru has produced training planes for Japan Self-Defense Forces and wings for Boeing Co. jets such as the Boeing Dreamliner, according to a spokesman, who added the company was checking which planes and parts used affected aluminum. “Nothing in our review to date leads us to conclude that this issue presents a safety concern, and we will continue to work diligently with our suppliers to complete our investigation,” Boeing said in a separate statement.
Honda said it used falsified material from Kobe Steel in car doors and hoods while Mazda Motor Corp. confirmed it uses aluminum from the company. Suzuki Motor Corp. and Mitsubishi Motors Corp. all said they are checking whether their vehicles are affected.
Mitsubishi Heavy Industries Ltd. spokesman Genki Ono said Kobe Steel aluminum was used in the MRJ regional jet as well as the H-IIA rocket, which was launched by Japan Aerospace Exploration Agency on Tuesday for a satellite. “We perceive that there was no problem as the rocket launch was a success,” he said. “Checks are under way, but at this point no large effects have been found in the manufacture of the rocket or MRJ.”
Kobe Steel CEO Kawasaki has run the company since 2013, and has recently overseen moves to expand its presence in aluminum. Earlier this year, the company said it was spending $500 million to boost output of the lightweight metal, including buying a half-stake in a plant in South Korea. Kobe Steel’s aluminum and copper operations account for about 20% of total sales, according to data for the quarter ended 30 Jun 2017.
“Aluminum is a strategic business for Kobe Steel,” said Irisawa at Tachibana Securities. “If the aluminum business doesn’t work out well, I question where the company can make money,” given the mainstay steel business remains one of low profitability, he said.
The Ministry of Economy, Trade and Industry said on Tuesday it was tracking the case. “We recognize this as an improper act that will shake fair trading,” Yasuji Komiyama, director at the metal industries division, told reporters in Tokyo. “We urge the company to make efforts to recover the trust of society as a whole, not just its customers.”
This latest scandal threatens to further undermine confidence in the quality of Japanese manufacturing. Shinko Wire Co., a Kobe Steel affiliate, in 2016 said a unit had misstated data on the strength of stainless wires for springs and that it had supplied customers with alloy that failed to meet industrial standards.
In other product-related cases, Takata pleaded guilty in the U.S. in Feb 2017 to one count of wire fraud for misleading automakers about the safety of its air bags. Toyo Tire & Rubber Co. officials were referred to prosecutors in Mar 2017 after the company’s 2015 admission it falsified data on rubber for earthquake-proofing buildings.
“With a string of negative surprises at Kobe Steel lately, we believe investors are likely to distrust management even more due to this latest incident, despite emerging signs of earnings improvement in the steel and construction machinery segments,” JPMorgan’s Mori wrote.” Bloomberg
^ 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
“China stocks edged up on Tuesday, erasing early losses thanks mainly to gains in consumer and healthcare shares as investors awaited third-quarter economic data and earnings reports.
The blue-chip CSI300 index, which at one point was down 0.7%, rose 0.2%, to 3,889.86 points.
The Shanghai Composite Index added 0.3% to 3,382.99 points.
Economic data in coming weeks is expected to show solid growth continued into Sep 2017, though many China watchers maintain there will be some loss of momentum in coming months in response to higher borrowing costs and a cooling housing market.
Wang Jun, a strategist at Hua Chuang Securities, expected markets to be stable ahead of a key Communist Party Congress starting on 18 Oct 2017. The twice-a-decade event will see a leadership reshuffle and discussions on long-term political and economic priorities.
There was muted reaction to comments from the Statistics Bureau on Tuesday that China will have no problem meeting its economic growth target of around 6.5 per cent this year, and may even beat it. Such an outcome had been widely expected after the year’s robust start.
Defensive consumer and healthcare stocks led the gains, after the government vowed to deepen medical reforms, while material and energy plays retreated amid a widespread correction in the commodities market.
Shenzhen-listed chemical maker Fangda Jinhua Chemical Technology Co Ltd kicked off the quarterly earnings season with a 187 per cent surge in nine-month profit.
But the stock ended 1.7% lower, as traders said a strong showing had already been priced in.” Economic Times
^ Shanghai CSI300 movements over the past week Chart: Google Finance