Wed 1 Nov 2017

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  • Today at the stock market Opinion
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  • Today at the stock market

    bull/bearWall Street banked modest gains on Wednesday after the U.S. Federal Reserve kept interest rates unchanged, pointing to solid U.S. economic growth and a strengthening labor market while downplaying the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December. The Fed has raised rates twice this year and currently forecasts one more hike by the end of 2017 as part of a tightening cycle that began in late 2015. On top of confirming the market’s expectation that it would not hike rates at this meeting, the Fed also “made some fairly favorable comments about the economy,” said Alan Lancz, president of investment advisory firm Alan B. Lancz & Associates Inc in Toledo, Ohio. “That gave a little boost of confidence to investors.”

    • The S&P 500 index gained 4.1 points, or 0.16%, to 2,579.36
    • The Dow Jones Industrial Average index rose 57.77 points, or 0.25%, to 23,435.01
    • The Nasdaq Composite index dropped 11.14 points, or 0.17%, to 6,716.53.
    • Advancing issues outnumbered declining ones on the NYSE by a 1.09-to-1 ratio; on Nasdaq, a 1.69-to-1 ratio favored decliners.
    • About 6.9 billion shares changed hands in U.S. exchanges, above the nearly 6.2 billion daily average over the last 20 sessions.

    Tech, which has led the market’s rise this year, closed up 0.1% for its 5th straight session of gains. After the market closed, Facebook shares rose in volatile trading after the social media company’s quarterly report.

    Investors had all but ruled out a move at the U.S. central bank’s policy meeting this week with attention focused on who will be in charge of monetary policy at the end of Fed Chair Janet Yellen’s first term in February 2018. President Donald Trump is set to announce his nomination on Thursday. Fed Governor Jerome Powell, who has supported Yellen’s gradual approach to raising rates, is viewed as relatively stock-market friendly and the likely choice. “The pending announcement regarding the new chair seems to be overshadowing most everything,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

    Developments at the Fed come as corporate earnings, which have supported the stock market’s run to record highs, are coming in generally above expectations for the third quarter.

    With about two-thirds having reported, S&P 500 companies are on track to have earnings growth of 7% for Q3/2017, up from 5.9% growth expected at the start of Oct 2017, according to Thomson Reuters I/B/E/S.

    Estee Lauder shares rose 9.2% after the cosmetics maker forecast holiday-quarter sales ahead of market expectations.
    U.S. Steel shares rose 7.8% after the company’s quarterly report.

    In economic data, a measure of U.S. factory activity retreated from a 13½-year high in October as some of the boost from hurricane-related supply disruptions faded, but continued to point to strengthening manufacturing conditions. Other data showed a surge in private sector hiring in October.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) 2,579.36 +0.15% 2,238.83 +15.21%
    DJIA INDU 23,435.01 +0.24% 19,762.60 +18.58%
    NASDAQ IXIC 6,716.53 -0.17% 5,383.12 +24.77%

    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 3.015 -0.66% 2.105 +43.24%
    Valuation Rate USD/AUD 0.77214 +0.22% 0.72663 +6.26%
    AUD-denominated Index AUD 3.906 -0.88% 2.895 +34.92%

    Portfolio stock prices

    :-) Before reporting its Q3/2017 earnings, Facebook closed on a record high of 182.66, up 1.44% on yesterday’s record of $180.06.
    :-) Facebook closed above this record after reporting its results.
    :-) Alphabet closed on a record high of $2,068.10
    :-) Class A (GOOGL) shares closed at $1,042.60, beating their 27 Oct 2017 recrod of $1,033.67
    :-) Class C (GOOG) shares closed at $1,025.50, beating their 27 Oct 2017 record of $1,019.27
    :-) Visa closed on a record high of $111.07, beating its 30 Oct 2017 record of $110.04.

    Stock Ticker Today Change 31 Dec 16 YTD
    Alphabet A GOOGL $1042.595 +0.92% $792.45 +31.56%
    Alphabet C GOOG $1025.50 +0.87% $771.82 +32.86%
    Apple AAPL $166.89 -1.28% $115.82 +44.09%
    Amazon AMZN $1103.68 -0.15% $749.87 +47.18%
    Ebay EBAY $37.54 -0.27% $29.69 +26.43%
    Facebook FB $182.66 +1.44% $115.05 +58.76%
    PayPal PYPL $72.38 -0.25% $39.47 +83.37%
    Twitter TWTR $20.61 -0.05% $16.30 +26.44%
    Visa V $111.07 +0.99% $78.02 +42.36%
    VMware VMW $119.12 -0.48% $78.73 +51.30%



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

    The Bloomberg Dollar Spot Index (DXY) advanced 0.1%.
    The EUR fell 0.3% to USD 1.1615.
    Britain’s GBP increased less than 0.05% to USD1.3288, the strongest in more than a month.
    Japan’s JPY decreased 0.5% to 114.20 per USD, the weakest in about 6 months.


    AUD movements
    ^ AUD movements against the USD today (mouseover for 12 month view) Chart:

    Oil and Gas Futures

    Futures prices

    Oil prices rose to near recent highs on Wednesday as data showed OPEC has significantly improved compliance with its pledged supply cuts and Russia is also seen keeping to the deal.

    Brent futures, the international benchmark for oil prices, were at $61.32 per barrel at 0759 GMT, up 38 cents, or 0.6%, since their last close and near the $61.41/barrel 2-year high from intraday trading on Tuesday. Brent is up almost 40% since its 2017-lows in Jun 2017.

    U.S. West Texas Intermediate (WTI) crude was at $54.95/barrel, up over half a dollar, or 1%, to a fresh high. It is up some 30% since 2017 lows hit in June.

    Physical oil markets are also strong, with top exporter Saudi Arabia expected to hike December crude prices for customers in Asia to levels last seen in 2013 or 2014, a Reuters survey showed.

    Arab Light’s December official selling price to at least 90 cents/barrel above Oman/Dubai quotes, the survey of 5 refiners showed. That would be the highest premium since $1.65 in Sep 2014, according to Reuters data.

    Bullish sentiment has been fueled by an effort this year lead by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to hold back about 1.8 million barrels/day (bpd) in oil production to tighten markets.

    While compliance was low during the first half of the year, supplies have been reduced significantly since.

    OPEC’s Oct 2017 output fell by 80,000 bpd to 32.78 million bpd, putting adherence to its pledged supply curbs at 92%, up from 86% in Sep 2017.

    Russia is also seen to be in compliance with cutting its output by around 300,000 bpd below Oct 2016 levels of 11.247 million bpd.

    Trade data shows that global oil markets have been slightly undersupplied during the past quarters, resulting in inventory drawdowns.

    What is unclear is how countries involved in withholding production will exit the supply-cutting deal, which ends in Mar 2018.

    Saudi Arabia and Russia support extending the agreement to potentially cover all of next year.

    Should participants after that return to full capacity and U.S. output also grow, a supply glut could return.

    “We could rapidly … go from a predicted deficit of around 260,000 barrels to a surplus of close to 1.5 million barrels. Prices would undoubtedly collapse,” said Matt Stanley, a fuel broker at Freight Investor Services.

    Another factor will be U.S. output, which has risen by almost 13% since mid-2016 to 9.5 million bpd.

    “U.S. crude oil production is 410,000 bpd below the April 2015 peak of 9.62 million bpd. We expect production to surpass this level before year-end,” Barclays bank said.Reuters

    Prices are as at 15:49 EDT

    • NYMEX West Texas Intermediate (WTI): $54.20/barrel -0.33% Chart
    • ICE (London) Brent North Sea Crude: $60.40/barrel -0.89% Chart
    • NYMEX Natural gas futures: $2.90/MMBTU -0.03% Chart

    West Texas Intermediate crude slipped 0.3% to $54.23/barrel, after touching the highest in eight months.Bloomberg

    Facebook Q3/2017 Earnings

    Press release Extract

    – Facebook, Inc. today reported financial results for the quarter ended September 30, 2017.
    “Our community continues to grow and our business is doing well,” said Mark Zuckerberg, Facebook founder and CEO. “But none of that matters if our services are used in ways that don’t bring people closer together. We’re serious about preventing abuse on our platforms. We’re investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits.”


    Third Quarter 2017 Operational and Other Financial Highlights

    • Daily active users (DAUs) – DAUs were 1.37 billion on average for September 2017, an increase of 16% year-over-year.
    • Monthly active users (MAUs) – MAUs were 2.07 billion as of September 30, 2017, an increase of 16% year-over-year.
    • Mobile advertising revenue – Mobile advertising revenue represented approximately 88% of advertising revenue for the third quarter of 2017, up from approximately 84% of advertising revenue in the third quarter of 2016.
    • Capital expenditures – Capital expenditures for the third quarter of 2017 were $1.76 billion.
    • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $38.29 billion at the end of the third quarter of 2017.
    • Headcount – Headcount was 23,165 as of September 30, 2017, an increase of 47% year-over-year.

    Facebook, “Facebook Reports Third Quarter 2017 Results [incl Financial Statements]“, 1 Nov 2011 More Slides

    Market Reaction


    Press Comment

    Wednesday reported a surge in third-quarter profit, as the social networking giant’s top line continues to soar driven by mobile ad revenues. Menlo Park, California-based Facebook’s third-quarter profit surged to $4.71 billion or $1.59 per share from $2.63 billion or $0.90 per share last year. On average, 36 analysts polled by Thomson Reuters estimated earnings of $1.28 per share for the quarter. Analysts’ estimates typically exclude one-time items.

    Revenues for the quarter surged 47 percent to $10.33 billion from $7.01 billion last year. Analysts had a consensus revenue estimate of $9.84 billion for the quarter.

    Daily active users rose 16 percent to 1.37 billion on average for September, while monthly active users increased 16 percent to 2.07 billion.

    Revenues of Facebook, the world’s most popular social networking site, continues to surge every quarter as companies and other firms continue to spend heavily to advertise on the social network site.

    Mobile advertising revenues continue to be dominant contributor to ad revenues as it represented 88 percent of advertising revenue for the quarter, up from 84 percent last year. Total advertising revenues surged 49 percent to $$10.14 billion.

    Total costs and expenses climbed to $5.21 billion, as Facebook increased its spending on research and development as well as on marketing.

    FB closed Wednesday’s trading at $182.66, up $2.60 or 1.44%, on the Nasdaq. The stock further gained $2.25 or 1.16% in the after-hours trading.RTT

    flag_australia AU: Commonwealth Bank PMI. Oct 2017

    Press Release Extract [ser_au_pmi]

    Key Findings

    Operating conditions in the Australian manufacturing sector improved to the greatest extent in four months in October. Accelerated increases in production and new orders underpinned the pick-up in growth, while companies added to their payrolls at the fastest rate in ten months. Buoyed by trends in demand, business confidence hit a three-month high.

    The headline index from the survey, the seasonally adjusted Commonwealth Bank Manufacturing Purchasing Managers’ Index™ (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – recorded 55.5 in October, increasing from 53.8 in September. The latest figure signalled that business conditions improved markedly and at the quickest pace in four months. Growth has been recorded throughout the one-and-a-half year survey history.

    Following three successive months of easing growth, production and new orders expanded at quicker rates in October. The marked upturn in output was underpinned by greater inflows of new work, while growth of incoming new business was supported by new customer wins and higher export sales. Panellists reported a rise in new orders from a number of countries in the Asia-Pacific region. Consequently, new orders from abroad increased at the fastest pace since July.

    Robust demand conditions coincided with backlogs of work rising for a fifteenth successive month. The rate of accumulation was solid, despite easing since September. Anecdotal evidence indicated that new contract wins contributed to the rise in work outstanding. In response, firms enhanced operating capacity by hiring more staff. The rate of job creation was the strongest in ten months.

    In line with greater production requirements, firms increased purchasing activity in October. The rate of input buying was strong and the fastest since June. The impact on supply chains was noticeable, with average lead times lengthening to the greatest extent in 18 months of data collection.

    On the price front, input cost inflation softened since September, but remained strong nonetheless. Meanwhile, output price inflation eased to the slowest pace in the current one-year sequence of increases.

    Business confidence rose to a three-month high in October, with many firms predicting organic growth and increased sales over the coming 12 months.

    Commenting on the Commonwealth Bank Manufacturing PMI data, Michael Blythe, Chief Economist at the Commonwealth Bank, said:

    ‘The PMI fell through the course of the third quarter so the lift in the October readings is an encouraging sign that the slowing in manufacturing growth rates has not spilled over into the fourth quarter. Leading PMI components such as orders, employment and future output expectations remain at supportive levels as well.

    The sector looks well placed with manufacturers reporting greater customer demand and indicating that the higher AUD has not crimped demand from our major trading partners in Asia. The rise in labour demand is an encouraging sign that manufacturers are seeking to take advantage of the positive backdrop. The lack of capex is not (such an encouraging sign).’

    Commonwealth Bank of Australia, “Manufacturing sector growth quickens to four month high“, 1 Nov 2017 More

    flag_usa US: ADP National Employment Report. Oct 2017

    Press Comment: Reuters

    the ADP National Employment Report showed private employers hired 235,000 workers last month, the most in seven months, after increasing payrolls by 110,000 jobs in September. The ADP report, which is jointly produced with Moody’s Analytics, is not a good predictor of the private payrolls component of the employment report. It did, however, support expectations of a sharp rebound in employment last month after nonfarm payrolls declined by 33,000 jobs in September.

    “Hiring is strong and evidence continues to accumulate that the economy is beginning to gain momentum heading into year-end,” said Steven Blitz, chief U.S. economist at TS Lombard in New York.Reuters

    Press Release Extract [ser_us_adp]

    Private sector employment increased by 235,000 jobs from September to October according to the October ADP National Employment Report®.


    ‘The job market remains healthy and hiring bounced back with one of the best performances we’ve seen all year. Although the service providing sector was hard hit last month due to the weather, we saw significant growth in professional services, especially in the higher paid professional technical jobs. Additionally, small businesses rebounded well from the impact of Hurricanes Harvey and Irma, posting very strong gains,’ said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.

    Mark Zandi, chief economist of Moody’s Analytics, said, ‘The job market rebounded strongly from the hit it took from Hurricanes Harvey and Irma. Resurgence in construction jobs shows the rebuilding is already in full swing. Looking through the hurricane-created volatility, job growth is robust.’

    ADP Research Institute “ADP National Employment Report: Private Sector Employment Increased by 235,000 Jobs in October“, 1 Nov 2017 (08:15) More

    flag_usa US: Manufacturing PMI. Oct 2017

    Press Release Extract [ser_us_pmi]

    Key findings:

    • Production and new orders both increase at steeper rates.
    • Supplier performance deteriorates at quickest pace since February 2014.
    • Growth in employment picks up to 28-month record.


    October survey data signalled a strong improvement in operating conditions across the US manufacturing sector. The health of the sector improved to the greatest extent since January, supported by accelerated expansions in output and new orders. Moreover, export sales increased at the quickest pace since August 2016. Meanwhile, inflationary pressures remained marked despite the rate of input price inflation softening from September. Notably, employment rose at the strongest pace since June 2015.

    The seasonally adjusted IHS Markit final US Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.6 in October, up from 53.1 in September. The latest index figure indicated a solid improvement in manufacturing operating conditions, that was the fastest seen since the start of the year.

    Production grew at an accelerated rate in October, with the pace of expansion reaching an eight-month high. Anecdotal evidence suggested the rise was due to a strong demand environment and larger new order volumes.

    Similarly, new business received by manufacturers increased solidly and at the fastest pace since March. Panellists generally attributed the upturn to larger client bases. Demand from foreign clients was also substantial, reflected in the quickest rise in export orders since August 2016. Survey respondents noted firmer demand among clients from Europe and Asia.

    In response to greater production requirements, US manufacturing firms expanded their workforce numbers and at the strongest rate since June 2015. Despite further job creation, the level of outstanding business grew for the third successive month.

    Meanwhile, purchasing activity continued to rise, with firms replenishing inventories to ensure orders could be met in a timely manner. Notably, both pre- production inventories and buying levels rose at the fastest pace in three months.

    On the prices front, inflationary pressures remained marked in October. Output charge inflation accelerated to a solid rate that was the fastest since April. Input costs, however, increased at a slightly softer pace than September. The rate of inflation was nonetheless sharp and above the survey average. Panellists linked the rise to supplier shortages stemming from supply chain disruption after the recent hurricanes. Furthermore, supplier delivery times lengthened to the greatest extent since February 2014.

    Expectations regarding future output improved to a three-month high in October. Anecdotal evidence linked confidence to more favourable business conditions.

    Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

    ‘US manufacturing stepped up a gear at the start of the fourth quarter, boding well for higher factory production to support robust economic growth in the closing months of 2017.

    Production volumes jumped higher on the back of a substantial improvement in order book inflows, in part due to supply chains returning to normal after the hurricanes but also reflecting a combination of strong underlying demand.

    ‘Factory jobs growth has also picked up to one of the strongest since the global financial crisis, underscoring the improvement in optimism about future trading among manufacturers.

    ‘An important change in October was the broadening out of the expansion to smaller firms, which have lagged behind the strong growth reported by larger rivals throughout much of the year to date but under-performed to a lesser extent in October.’

    IHS Markit, “IHS Markit U.S. Manufacturing PMI™ – final data. Oct 2017: Operating conditions improve at quickest rate for nine months“, 1 Nov 2017 (09:45) More

    flag_usa US: ISM Manufacturing PMI. Oct 2017

    Press Comment: Reuters

    The Institute for Supply Management (ISM) said its index of national factory activity slipped to a reading of 58.7 in Oct 2017 from 60.8 in Sep 2017, which was the highest since May 2004. “A good portion of the weakness this month was in supplier delivery times, which was a leader of strength the prior month,” said Lindsey Piegza. “From the Fed’s perspective, continued improvement in domestic production offers additional support for an end-of-the-year rate hike.”

    The Sep 2017 jump in the index had been driven by supply chain disruptions, especially in the chemical products sector. The supply bottlenecks, which also pushed up prices of raw materials, resulted in a longer delivery times. Longer supplier delivery times are normally associated with increased activity, which is a positive contribution to the ISM index. The ISM’s supplier deliveries sub-index fell to 61.4 in Oct 2017 after soaring to 64.4 in Sep 2017.

    The survey’s prices paid sub-index dropped to 68.5 in Oct 2017 after racing to 71.5 in Sep 2017, which was the highest reading since May 2011. While other components of the ISM index, including production, new orders and employment also fell last month, they remained at lofty levels.

    Manufacturing is being supported by a strengthening global economy and weakening USD. Sixteen of the 18 manufacturing industries reported growth in October.

    Nearly all industries last month reported that hurricanes Harvey and Irma, which struck Texas and Florida in late Aug 2017 and early Sep 2017, continued to have an impact on supplies and raw material costs. The survey’s measure of raw material inventories contracted in October.

    “Inventories were drawn down in the month, which is scored as a negative in the report but is really a positive since it creates the potential for future production increases to replenish inventory levels,” said John Ryding, chief economist at RDQ Economics in New York. Reuters

    Press Release Extract [ser_us_ism_pmi]

    The October PMI® registered 58.7 percent, a decrease of 2.1 percentage points from the September reading of 60.8 percent.
    The New Orders Index registered 63.4 percent, a decrease of 1.2 percentage points from the September reading of 64.6 percent.
    The Production Index registered 61 percent, a 1.2 percentage point decrease compared to the September reading of 62.2 percent.
    The Employment Index registered 59.8 percent, a decrease of 0.5 percentage point from the September reading of 60.3 percent.
    The Supplier Deliveries Index registered 61.4 percent, a 3 percentage point decrease from the September reading of 64.4 percent.
    The Inventories Index registered 48 percent, a decrease of 4.5 percentage points from the September reading of 52.5 percent.
    The Prices Index registered 68.5 percent in October, a 3 percentage point decrease from the September level of 71.5, indicating higher raw materials prices for the 20th consecutive month.

    Comments from the panel reflect expanding business conditions, with new orders, production, employment, order backlogs and export orders all continuing to grow in October, supplier deliveries continuing to slow (improving) and inventories contracting during the period.

    Prices continue to remain under pressure.
    The Customers’ Inventories Index remains at low levels.

    Of the 18 manufacturing industries, 16 reported growth in October, in the following order: Paper Products; Nonmetallic Mineral Products; Machinery; Transportation Equipment; Wood Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Petroleum & Coal Products; Plastics & Rubber Products; Textile Mills; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Primary Metals.
    Two industries reported the same level of activity as September.

    Institute for Supply Management, “October 2017 Manufacturing ISM® Report On Business®“, 1 Nov 2017 (10:00) More

    flag_usa US: FOMC Monetary Policy

    Press Release Extract [ser_us_fomc]

    Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft. On a 12-month basis, both inflation measures have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment, and inflation in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

    In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1¼ percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

    In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

    The balance sheet normalization program initiated in October 2017 is proceeding.

    US Federal Reserve, “Federal Reserve issues FOMC statement“, 1 Nov 2017 (14:00) More

    flag_usa US: Status of Tax Reform

    Press report: Bloomberg

    House tax writers pushed back the reveal of their highly guarded, long awaited tax bill by a day, a sign that disputes among Republican lawmakers are threatening their effort to pass comprehensive legislation by Thanksgiving.

    If the bill is released Thursday, one day later than planned, GOP leaders will have just 10 official legislative days before the holiday to do nothing short of rewiring the U.S. economic engine. To succeed, they must gain the support of a caucus that’s grumbling about being left in the dark, avoid lobbyists’ attempts to sidetrack the bill and win House passage on the sort of timetable that’s usually reserved for emergency legislation.

    For Republicans, who failed to deliver on promises to repeal and replace Obamacare earlier this year, it may already be an emergency. A chaotic, confusing day of meetings and conflicting statements on Tuesday reflected both hope and anxiety, and raised questions about the prospects for swift passage.

    Internal GOP strife and frustration led to the delay, according to a former House aide who’s familiar with the deliberations. Pushing back the rollout — even just a day — makes it more likely Republicans will end up passing simple tax cuts instead of a tax code revamp, said the former aide who asked not to be named because the discussions were private.

    House leaders and White House officials sought to downplay the delay, saying speedy passage is still possible. But once a bill drops, the task may become vastly more difficult.

    “All hell’s going to break loose,” said Senator John Kennedy, a Louisiana Republican. “This is going to have plenty of cheesecake. But it’s going to have plenty of spinach. This is broadening base and lowering rates.”

    Should lawmakers settle for simple cuts to individual and corporate rates — measures that would almost certainly have to be temporary under congressional budget rules — they’ll fall short of what GOP leaders and the Trump administration have promised: a once-in-a-generation permanent overhaul of the U.S. tax code, similar to what happened in 1986 under former President Ronald Reagan.

    Still, House Ways and Means Chairman Kevin Brady said he was pleased with the progress committee members had made, and his panel remained on schedule to take action and approve a bill beginning next week.

    One of the decisions House writers are said to have finally made — to keep the top individual income tax rate at 39.6 percent for those with adjusted gross incomes of about $1 million — could be met with resistance from conservative Republicans who want to cut rates for all taxpayers.

    Some of the winners of the eventual bill seem clear — corporations would get a tax cut, and many partnerships and closely-held businesses would pay a reduced rate of 25 percent. But the losers are largely still unknown — the “special interests” whose tax deductions, credits and other breaks would be reduced or eliminated. Such changes are crucial to limiting the bill’s deficit impact to just $1.5 trillion over 10 years, the amount required by the GOP budget.

    Once the losers are revealed, their lobbyists and allies will mount an intense campaign to protect them.

    “That means some people are going to be unhappy. Some interest groups are going to be unhappy,” Kennedy said. “But they’ve got to look at the bigger picture.”

    If the legislative calendar and looming lobbying resistance weren’t tough enough, there’s another source of anxiety for House leaders: The Senate plans to operate on a separate track with its own tax bill — a prospect that could gum up House efforts.

    Top House leaders have privately expressed concerns that some House members won’t want to vote for politically difficult measures that the Senate’s bill lacks, said two people familiar with the matter. And conversely, one of the people, a senior GOP aide, said that if House Republicans see provisions in the Senate bill they like, they may demand their inclusion in the House version.

    Speaker Paul Ryan, who’s dead set on shepherding a tax rewrite through Congress, met with Trump on Tuesday afternoon. The two Republicans “agreed on the urgency of helping the middle class by enacting historic tax reform by the end of the year,” said Doug Andres, Ryan’s spokesman.

    While many obstacles remain, nobody doubts the determination of most Republicans to pass a tax bill this year — especially after failing to repeal Obamacare, or build a wall on the Mexican border, or advance an infrastructure package.

    “If we need to, we’ll work through Thanksgiving. We’re going to get this done,” Kennedy said. “This business of, well we ran out of time? That dog doesn’t hunt anymore. We’ll work nights. We’ll work weekends. We’ll work holidays.”Bloomberg

    flag_japan Japan update

    Nikkei Manufacturing PMI. Oct 2017

    Press Release Extract [ser_jp_pmi]

    Key points:

    • Production increases at an accelerated rate
    • Broad-based increase in new orders
    • Cost burdens rise further


    Operating conditions for Japanese manufacturers continued to improve during October, underpinned by solid expansions in output, new orders and employment. However, robust growth across the sector coincided with the lowest level of business confidence in 11 months.

    On the price front, input cost inflation ticked up fractionally, spurring on firms to increase output charges.

    The headline Nikkei Japan Manufacturing Purchasing Managers’ Index™ (PMI)® – a composite single-figure indicator of manufacturing performance – edged fractionally down in October to 52.8, from 52.9 in September. Albeit lower, the index reading signalled another solid rate of sector expansion. Business conditions have improved in every month since September 2016.

    Expansionary trends continued in output and new orders in October. Incoming new business grew solidly, albeit at a slightly slower pace than in September. Some panellists attributed the rise to new customer acquisitions. Furthermore, overseas demand increased amid reports of new business from China, Taiwan and South Korea. Consequently, firms boosted production to meet demand. Latest survey data marked a fifteenth successive month of higher output. Moreover, the rate growth was solid and the most marked since May.

    Higher volumes of new work appeared to add to capacity pressures in the Japanese manufacturing sector. Backlogs of work accumulated at the quickest pace since February. That said, the rate of expansion in unfinished work was modest overall. Higher backlogs of work encouraged companies to enhance operating capacity by taking on additional staff. The rate of job creation picked up from September’s ten-month low in line with production requirements.

    To accommodate for improving demand conditions, Japanese manufacturers increased buying activity in October. According to evidence provided by panellists, additional inputs were purchased due to higher inflows of new business. Input buying rose at the joint-quickest pace since April, on a par with that seen in May.

    Pressure on supply chains continued to build, in part reflecting solid growth in demand across the manufacturing sector. As has been the case since May 2016, suppliers’ delivery times lengthened in October. Furthermore, average lead times worsened to the greatest extent since May 2011. According to anecdotal evidence, prolonged delivery times prompted Japanese manufacturers to raise pre-production inventory levels. That said, input stocks were only accumulated at a marginal pace.

    Meanwhile, input cost inflation quickened fractionally to a six-month high in October. Panellists generally linked this to higher raw material prices. As a result, companies raised output charges, with inflation accelerating to the joint-fastest since November 2014.

    Lastly, firms remained firmly optimistic regarding future output expectations. That said, the level of positive sentiment weakened to the lowest since November 2016.

    Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

    ‘The headline PMI for October indicated slightly softer growth; however the underlying data remains fairly solid. Output picked up, growing at the quickest pace since May, while export orders from other Asian countries underpinned a firm rise in new business inflows.

    ‘In turn, firms boosted demand for inputs in line with higher production requirements. As a result, supply chains were noticeably affected, with delivery times worsening to the greatest extent since May 2011.

    ‘With cost burdens rising and demand conditions seemingly robust, Japanese manufacturers appeared to be more willing to raise prices charged. Output price inflation quickened to the joint-fastest pace since November 2014.’

    IHS Markit, “Nikkei Japan Manufacturing PMI®: Manufacturing sector growth remains robust in Oct 2017“, 1 Nov 2017 More

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    Japan’s Nikkei 225 Stock Average climbed 1.9% to the highest in more than 21 years.Bloomberg

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    flag_china China update

    Caixin Manufacturing PMI. Oct 2017

    Press Release Extract [ser_cn_pmi]

    Key Points:

    • Output rises only slightly while new order growth improves
    • Staff numbers continue to fall; steeper increase in backlogs recorded
    • Input price inflation remains sharp


    October survey data signalled a further marginal improvement in manufacturing operating conditions across China. While new orders rose at a slightly quicker pace, production increased at the softest rate for four months. At the same time, companies continued to shed staff amid reports of company-downsizing policies and efforts to raise efficiency. This in turn contributed to a further increase in outstanding business, which rose solidly. Strict environmental policies meanwhile contributed to a sharp rise in input costs and weighed on vendor performance. As a result, companies raised their factory gate prices at a solid pace.

    The seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – was unchanged from September’s reading of 51.0 in October to signal a further marginal improvement in the health of the sector. Operating conditions have now strengthened in each of the past five months.

    Manufacturing companies in China reported a further increase in new business during October. The rate of expansion picked up slightly since September, but remained moderate overall. New export sales rose at a similarly modest pace, following a marginal upturn in September.

    In contrast, production increased only slightly in October. Moreover, the rate of growth was the weakest seen for four months. At the same time, confidence towards the 12-month outlook for production moderated to its second-lowest level since August 2016.

    Chinese manufacturing employment fell again in October, thereby extending the current sequence of job shedding to four years. Some panellists mentioned lowering workforce numbers in order to boost efficiency. That said, the rate of reduction remained moderate. Reduced staffing levels and higher than expected new orders led to a further increase in backlogs of work. Notably, the rate of accumulation was the joint-steepest since March 2011 (on par with July 2016).

    Firms continued to raise their purchasing activity at the start of the fourth quarter, albeit at a marginal pace. However, stocks of inputs declined for the second month running as a number of firms commented on the increased use of current inventories to meet production requirements. Stocks of finished goods held by Chinese manufacturers also declined slightly in October.

    Stringent environmental inspection policies and low stock levels among suppliers contributed to a further deterioration in delivery times. These factors also contributed to a further sharp increase in average purchasing costs. The rate of input price inflation edged down only slightly since September and was among the highest seen since early-2011.

    In order to protect their margins, firms raised their selling prices again in October. That said, the rate of increase was not as steep as the previous month.

    Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

    ‘The Caixin China General Manufacturing PMI was 51.0 in October, unchanged from September and remaining in expansionary territory. The sub-index for output fell for the third straight month in October and was weaker than the average seen over the first 10 months of the year, even though growth in new orders picked up. The sub-indices for input costs and output prices both moderated from the previous month but remained at rather high levels. Stocks of finished goods and stocks of purchases lingered in contraction territory, although their paces of decline eased moderately from September. China’s manufacturing sector expanded steadily in October. But the stringent production curbs imposed by the government to reduce pollution and relatively low inventory levels have added to cost pressures on companies in midstream and downstream industries, which could have a negative impact on production in the coming months.’

    IHS Markit, “Caixin China General Manufacturing PMI™: Production in Oct 2017 increases at weakest pace since June“, 1 Nov 2017 More

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