Tue 28 Nov 2017


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  • Today at the stock market Opinion
  • The portfolio today Opinion
  • News
  • flag_japan Japan Update
  • flag_china China Update
  • Today at the stock market

    bull/bearWall Street surged to record highs on Tuesday led by sharp gains in bank stocks, and boosted by progress for a tax cut bill, strong consumer confidence data and encouraging comments from President Donald Trump’s nominee to lead the Federal Reserve.

    Major indexes briefly pulled back from session highs after news that North Korea had fired a missile, before they rebounded to close on record highs:

    • The S&P 500 index rose 25.63 points, or 0.99%, to 2,627.05
    • The Dow Jones Industrial Average rose 255.93 points, or 1.09%, to 23,836.71
    • The Nasdaq Composite index rose 33.84 points, or 0.49%, to 6,912.36.
    • Advancing issues outnumbered declining ones on the NYSE by a 2.16-to-1 ratio; on Nasdaq, a 1.88-to-1 ratio favored advancers.

    The small-cap Russell 2000, which is viewed as a barometer for tax reform’s chances, rose 1.5% and also tallied a record closing high.

    The S&P financial sector rose 2.6%, its biggest daily percentage increase since 1 Mar 2017. JP Morgan rose 3.5% and Bank of America rose 3.9% while the S&P 500 banks index rose 3.3%.

    Trump’s push for a big package of tax cuts moved past a potential obstacle as a Senate panel approved the measure despite lingering concerns from some Republican members. Wall Street is closely watching progress on the Republicans’ tax-reform efforts, with hopes that corporate tax cuts will further fuel the record-setting rally for equities.

    “People are trying to move in front of what they think now is likely to be some tax reform on the corporate side,” Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

    In testimony before a Senate committee, Jerome Powell, nominated to replace Janet Yellen as Fed chair, defended the need to potentially lighten regulation on the financial sector.

    Powell overall presented himself as an extension of the Fed policies set under Yellen and her predecessor Ben Bernanke, confirming market expectations that he offered stability despite the change in Fed leadership.

    Data showed that U.S. consumer confidence surged to a near 17-year high in Nov 2017, driven by a robust labor market, while house prices rose sharply in Sep 2017 in the latest encouraging reports about the U.S. economy.

    “Some of the data that we got today kind of confirms this goldilocks environment that we have. Unemployment and interest rates are low, confidence and asset prices are high,” said Anthony Saglimbene, global market strategist at Ameriprise in Troy, Michigan.Reuters

    Market indices

    Lloyd says: There had been a report some days ago that DPRK was preparing to launch a missile. It seems the market was aware of the imminent launch an hour before liftoff at around 18:17 GMT (14:17 ET) … if those reported times are correct.

    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) 2,627.04 +0.98% 2,238.83 +17.33%
    DJIA INDU 23,836.71 +1.08% 19,762.60 +20.61%
    NASDAQ IXIC 6,912.36 +0.49% 5,383.12 +28.40%

    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 3.126 -0.52% 2.105 +48.54%
    Valuation Rate USD/AUD 0.76479 -0.08% 0.72663 +5.25%
    AUD-denominated Index AUD 4.089 -0.45% 2.895 +41.24%

    Portfolio stock prices

    :-) Visa closed on a record high of $113.36, beating its 8 Nov 2017 record high of $112.47.
    :-) VMware closed on a record high of $127.34, up 0.90% on yesterday’s record high of $126.71.
    :-) VMware is up 61.74% year to date.

    Stock Ticker Today Change 31 Dec 16 YTD
    Alphabet A GOOGL $1062.93 -0.88% $792.45 +34.13%
    Alphabet C GOOG $1047.18 -0.73% $771.82 +35.67%
    Apple AAPL $172.9648 -0.65% $115.82 +49.33%
    Amazon AMZN $1193.24 -0.20% $749.87 +59.12%
    Ebay EBAY $35.49 -1.39% $29.69 +19.53%
    Facebook FB $182.36 -0.38% $115.05 +58.50%
    PayPal PYPL $77.79 -0.07% $39.47 +97.08%
    Twitter TWTR $21.83 +0.04% $16.30 +33.92%
    Visa V $113.36 +0.87% $78.02 +45.29%
    VMware VMW $127.34 +0.89% $78.73 +61.74%

    FX: USD/AUD

    USD

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

    The Bloomberg Dollar Spot Index (DXY) rose 0.2%.
    The EUR fell 0.5% to USD 1.1845, the biggest drop in a week.
    Britain’s GBP rose 0.4% to USD 1.3365.
    Japan’s JPY fell 0.4% to 111.48 per USD.
    Bloomberg

    AUD

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

    Oil and Gas Futures

    Futures prices

    Prices are as at 15:49 ET

    • NYMEX West Texas Intermediate (WTI): $57.91/barrel -0.34% Chart
    • ICE (London) Brent North Sea Crude: $63.50/barrel -0.53% Chart
    • NYMEX Natural gas futures: $3.07/MMBTU +4.99% Chart

    North Korea Missile Launch

    North Korea fired one ballistic missile from Pyongsong, a city in South Pyongan Province, at around 18:17 GMT (14:17 ET) over the sea between South Korea and Japan, South Korea’s Joint Chiefs of Staff said on Wednesday.

    South Korea and the United States are currently analyzing what type of missile North Korea was fired, the military said in a text.Reuters

    After firing missiles at a rate of about 2-3 a month since Apr 2017, North Korea paused its missile launches in late Sep 2017, after it fired a missile that passed over Japan’s northern Hokkaido island on 15 Sep 2017.Reuters

    flag_australia AU: OECD Economic Forecast Summary. Nov 2017

    The economy will continue growing at a robust pace. Business investment outside the housing and mining sectors will pick up, with exports boosted as new resource-sector capacity comes on stream. The strengthening labour market and household incomes will sustain private consumption, and inflation and wages will pick up gradually.

    The central bank is projected to start raising the policy rate in the second half of 2018 and expectations of this move, together with macro-prudential measures, are helping cool the housing market. The fiscal position is sound and the government is committed to gradually close the budget deficit. In the event of an unexpected downturn, fiscal policy should be used to support activity and protect the incomes of the most
    vulnerable.

    The prolonged period of low interest rates has fuelled high house prices in large metropolitan areas. Substantial mortgage borrowing has resulted in households being highly indebted. To contain risks associated with potential large house-price corrections and financial stress, macro-prudential measures should be maintained. Australia is also vulnerable to “too big to fail” risks, due to its highly concentrated banking sector.

    Strong commodity prices and exports underpin growth

    Stronger terms of trade and continued growth in resource exports have boosted incomes and tax revenues. Mining investment looks to have bottomed out, while rising capacity utilisation and high business confidence point to a renewed cycle in business investment outside the resource sector. The recovery in employment growth and a rising number of vacancies indicate a strengthening labour market. However, underemployment has edged higher and wage growth and inflation remain steady. These factors, plus rising household indebtedness and signs of a cooling housing market, are keeping consumer sentiment relatively soft. Household consumption growth remains subdued.

    Monetary and fiscal support can be gradually withdrawn

    Monetary policy remains supportive; the policy rate has been kept at 1.5% since August 2016. Policy tightening is projected to begin in the second half of 2018 when the pick-up in wages and prices becomes more entrenched. A tighter policy stance will ease pressures on house prices and will reduce the threat of the build-up of other financial distortions. Indeed, housing markets in certain areas already show signs of easing. In recent years, regulators have taken steps to limit the growth of investor lending and have discouraged loans with high loan-to-valuation ratios, to improve the resilience of borrowers and lenders.

    Public debt in relation to GDP has risen somewhat in recent years, but remains low and is projected to start falling given the government’s proposed budgetary aims of annual deficit reduction of around ½ percentage point of GDP per year. The pace of consolidation is appropriate given projected growth. Still, the strong fiscal position provides room for a more gradual fiscal consolidation, or even an expansion, should economic activity weaken unexpectedly.

    Improvements to the business environment and measures to combat social exclusion can facilitate continued broad benefits from growth and trade. There is scope for further tax reforms that make greater use of efficient tax bases, such as the Goods and Services Tax and land tax, in lieu of corporate tax and inefficient taxes. Improved competition policy would boost productivity and encourage market entry by innovative businesses.

    Robust growth will continue

    Economic growth is projected to continue at a robust pace. New liquefied natural gas production will add to export growth, while rebalancing towards non-mining sectors, including through investment, will drive overall activity. Amid gradual policy tightening, and a slow pick-up in wages and prices, consumption growth will remain subdued. Due to a mild slowdown in global growth over the projection period, particularly in China, growth in activity will edge slightly lower in 2019.

    Developments in commodity markets, particularly those linked to China, remain a source of uncertainty and risk. High house prices and rising household debt, amid subdued income growth, pose macroeconomic and financial risks, calling for continued use of macro-prudential tools. Large corrections in house prices could reduce household wealth and consumption, and damage the construction sector, leading to job losses. In addition, some highly indebted households could face financial stress when interest rates rise. On the other hand, a stronger pick-up in wages and incomes could result in higher consumption and growth.

    OECD, “Australia – Economic forecast summary (November 2017)“, 28 Nov 2017 More

    Response: “Investors, economists dismiss calls for higher rates” (3 Dec 2017)

    Economists and investors have dismissed calls from the Organisation for Economic Co-operation and Development that the Reserve Bank of Australia needs to lift rates, pointing to inflation expectations which appear “stuck” at low levels.

    The call to preference financial stability risks over inflation targeting was echoed by former RBA board member Warwick McKibbin, despite the fact tighter policy settings would risk a correction in the property market. “Let’s have a mild bump now rather than a big one later,” Professor McKibbin said.

    Anne Anderson, Australian head of fixed income, UBS Asset Management “I don’t agree. I think they need to keep it accommodative for quite a while yet; there’s too much leverage.”

    Ms Anderson highlighted market-based measures of future inflation remain “stuck” at very low levels. The RBA would not be willing to risk pushing inflation expectations even lower and potentially into deflationary territory by tightening policy prematurely, she said. Market expectations for inflation in 10 years’ time are clustered between 1.7% and 1.9$ in Australia, the United States and Europe. Those forecasts are based on break-even inflation bond rates, which measure the difference between the yield of a government bond and an inflation-linked bond of the same maturity. Australian 10-year break-even rates stand at 1.9%, according to Bloomberg data, suggesting investors believe CPI growth will remain subdued for as long as a decade. The RBA’s own central case is that underlying gauges of consumer price inflation will remain below the bottom of its 2% -3% target band into 2019. As a result, traders in fixed income markets are not fully pricing in a rate hike until early 2019.

    “The RBA would be more concerned at having inflation expectations anchored at such low levels. They don’t want it [inflation expectations] to fall, and that is more important than financial stability risks.” There is nothing bad about relatively low inflation, but they [the RBA] don’t want it too low,” she added, as some inflation was needed to push wages higher and thus allow households to consume and pay down debt.

    Bill Evans. Chief Economist, Westpac “We doubt strongly that the [RBA] would be amenable to such ‘advice’,” Mr Evans told clients. Mr Evans similarly noted that if the central bank did lift its target cash rate now it would be “in the context of persistently weak inflation prints”. Were the central bank to lift rates in this context it would need to re-jig its communications and forecasts to demonstrate how inflation would return to the target band over a longer period of time, Mr Evans said.

    Philip Lowe, Governor, Reserve bank of Australia has made clear he and his fellow monetary policymakers are not “inflation nutters”. Yet it’s unclear what, if any, immediate policy implications this has, other than an unwillingness to cut rates despite persistently low levels of inflation. Indeed, the central bank has remained resolutely on hold even as household debt to income ratios has continued to soar to record highs of 195%, on UBS data. Instead, governor Lowe has emphasised the dampening impact on house prices from so-called “macro-prudential” regulatory interventions.

    Patrick Commins, “ Investors, economists dismiss calls for higher rates“, 3 Dec 2017 SMH

    flag_europe EU: Euro Area Household Lending. Oct 2017

    Press Release Extract [ser_eu_lending]

    Monetary developments in the euro area: October 2017

    • The annual growth rate of the broad monetary aggregate M3 decreased to 5.0% in October 2017, from 5.2% in September (revised from 5.1%).
    • The annual growth rate of the narrower aggregate M1, which includes currency in circulation and overnight deposits, decreased to 9.4% in October, from 9.8% in September.
    • The annual growth rate of adjusted loans to households stood at 2.7% in October, unchanged from the previous month.
    • The annual growth rate of adjusted loans to non-financial corporations increased to 2.9% in October, from 2.4% in September.

    Components of the broad monetary aggregate M3

    The annual growth rate of the broad monetary aggregate M3 decreased to 5.0% in October 2017, from 5.2% in September, averaging 5.1% in the three months up to October. The components of M3 showed the following developments. The annual growth rate of the narrower aggregate, including currency in circulation and overnight deposits (M1), decreased to 9.4% in October, from 9.8% in September. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) was less negative at -2.7% in October, from -3.2% in September. The annual growth rate of marketable instruments (M3-M2) decreased to -0.7% in October, from 1.0% in September.

    Within M3, the annual growth rate of deposits placed by households increased to 4.8% in October, from 4.6% in September, and the annual growth rate of deposits placed by non-financial corporations increased to 8.3% in October, from 8.1% in September. Finally, the annual growth rate of deposits placed by non-monetary financial corporations (excluding insurance corporations and pension funds) decreased to 4.7% in October, from 5.7% in September.

    Credit to euro area residents

    The annual growth rate of total credit to euro area residents decreased to 4.0% in October 2017, from 4.2% in the previous month. The annual growth rate of credit to general government decreased to 7.4% in October, from 8.4% in September, while the annual growth rate of credit to the private sector stood at 2.9% in October, compared with 2.8% in September.

    eu_ecb_lending_20171128

    The annual growth rate of adjusted loans to the private sector (i.e. adjusted for loan sales, securitisation and notional cash pooling) increased to 2.9% in October, from 2.7% in September. In particular, the annual growth rate of adjusted loans to households stood at 2.7% in October, unchanged from the previous month, and the annual growth rate of adjusted loans to non-financial corporations increased to 2.9% in October, from 2.4% in September.

    European Central Bank, “Monetary developments in the euro area: October 2017“, 28 Nov 2017 More

    flag_usa US: Advance Economic Indicators Report (International Trade, Retail, & Wholesale). Oct 2017

    Press Release Extract [ser_us_indicators]

    Advance International Trade in Goods

    The international trade deficit was $68.3 billion in October, up $4.2 billion from $64.1 billion in September. Exports of goods for October were $129.1 billion, $1.3 billion less than September exports. Imports of goods for October were $197.4 billion, $2.9 billion more than September imports.

    Advance Wholesale Inventories

    Wholesale inventories for October, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $605.7 billion, down 0.4 percent (±0.4 percent) from September 2017, and were up 4.0 percent (±0.5 percent) from October 2016. The August 2017 to September 2017 percentage change was revised from up 0.3 percent (±0.4 percent) to up 0.1 percent (±0.4 percent).

    Advance Retail Inventories

    Retail inventories for October, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $618.0 billion, down 0.1 percent (±0.2 percent) from September 2017, and were up 2.6 percent (±0.5 percent) from October 2016. The August 2017 to September 2017 percentage change was unrevised at down 0.9 percent (±0.2 percent).

    US Census Bureau, “Advance Economic Indicators Report (International Trade, Retail, & Wholesale). Oct 2017“, 28 Nov 2017 (08:30) More

    flag_usa US: Conference Board Consumer Confidence Index. Nov 2017

    Press Release Extract [ser_us_cci]

    The Conference Board Consumer Confidence Index®, which had improved in October, increased further in November. The Index now stands at 129.5 (1985=100), up from 126.2 in October. The Present Situation Index increased from 152.0 to 153.9, while the Expectations Index rose from 109.0 last month to 113.3.

    The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was November 14.

    “Consumer confidence increased for a fifth consecutive month and remains at a 17-year high (Nov. 2000, 132.6),” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved moderately, while their expectations regarding the short-term outlook improved more so, driven primarily by optimism of further improvements in the labor market. Consumers are entering the holiday season in very high spirits and foresee the economy expanding at a healthy pace into the early months of 2018.”

    Consumers’ assessment of current conditions improved moderately in November. The percentage saying business conditions are “good” increased from 34.4 percent to 34.9 percent, while those saying business conditions are “bad” declined from 13.5 percent to 12.7 percent. Consumers’ assessment of the labor market also improved. Those stating jobs are “plentiful” increased from 36.7 percent to 37.1 percent, while those claiming jobs are “hard to get” decreased slightly from 17.1 percent to 16.9 percent.

    Consumers’ optimism about the short-term outlook was also more favorable in November. The percentage of consumers expecting business conditions to improve over the next six months increased slightly from 22.1 percent to 22.4 percent, while those expecting business conditions to worsen decreased from 7.0 percent to 6.5 percent.

    Consumers’ outlook for the job market was also more upbeat than in October. The proportion expecting more jobs in the months ahead increased from 18.7 percent to 22.6 percent, while those anticipating fewer jobs declined from 11.6 percent to 11.0 percent. Regarding their short-term income prospects, the percentage of consumers expecting an improvement decreased marginally from 20.3 percent to 20.1 percent, while the proportion expecting a decrease was virtually unchanged at 7.6 percent.

    The Conference Board, “The Conference Board Consumer Confidence Index Increased Again. Nov 2017“, 28 Nov 2017 (10:00) More

    flag_usa US: House Price Index Report. Q3/2017

    Press Release Extract [ser_us_hpi]

    U.S. house prices rose 1.4 percent in the third quarter of 2017 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 6.5 percent from the third quarter of 2016 to the third quarter of 2017. FHFA’s seasonally adjusted monthly index for September was up 0.3 percent from August.

    us_fhfa_hpi_20171128

    The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

    “With relatively favorable economic conditions and a continued shortage of housing supply, price increases in the third quarter were generally robust and widespread,” said Andrew Leventis, Deputy Chief Economist. “At some point, declining housing affordability should temper appreciation rates in some of the nation’s fastest appreciating markets, but our third quarter results show few signs of that.”

    Significant Findings:

    • Home prices rose in 50 states and the District of Columbia between the third quarter of 2016 and the third quarter of 2017. The top five areas in annual appreciation were: 1) District of Columbia 11.6 percent; 2) Washington 11.5 percent; 3) Hawaii 10.0 percent; 4) Arizona 10.0 percent; and 5) Nevada 9.6 percent.
    • Home prices rose in each of the 100 largest metropolitan areas in the U.S. over the last four quarters. Annual price increases were greatest in the Seattle-Bellevue-Everett, WA (MSAD), where prices increased by 14.6 percent. Prices were weakest in Camden, NJ (MSAD), where they rose 0.5 percent.
    • Of the nine census divisions, the Pacific division experienced the strongest annual appreciation, posting an 8.9 percent gain since the third quarter of last year and a 1.7 percent increase since the second quarter of 2017. House price appreciation was weakest in the Middle Atlantic division, where prices rose 4.8 percent annually.

    Federal Housing Finance Agency (FHFA), “U.S. House Price Index Report – 3Q 2017“, 28 Nov 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

    CSI300 movements
    ^ Shanghai CSI300 movements over the past week Chart: Google Finance