Fri 22 Dec 2017


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

    bull/bearWall Street’s major indexes dipped on Friday in low trading volume before the holiday weekend as several blue-chip stocks slipped, including Nike. Investors are winding down ahead of Christmas on Monday, when the market will be closed.

    • The S&P 500 index fell 1.23 points, or 0.05%, to 2,683.34.
    • The Dow Jones Industrial Average fell 28.23 points, or 0.11%, to 24,754.06.
    • The Nasdaq Composite index fell 5.40 points, or 0.08%, to 6,959.96.
    • For the week, the S&P gained 0.29%, the Dow rose 0.42%, and the Nasdaq rose 0.34%.
    • Advancing issues outnumbered declining ones on the NYSE by a 1.04-to-1 ratio; on Nasdaq, a 1.30-to-1 ratio favored decliners.
    • Volume on U.S. exchanges was 4.81 billion shares, compared to the 6.98 billion average for the full session over the last 20 trading days.

    “It’s been a strong week,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. “Whether the market is up a little bit or down a little bit is not indicative of larger trends … It’s easy to push things around when not many people are trading.”

    Indeed, major Wall Street indexes were on track to end the week higher, buoyed by a historic overhaul of the U.S. tax code.

    Tax Bill

    President Donald Trump signed Republicans’ massive $1.5-trillion tax overhaul into law on Friday and also approved a short-term spending bill that averts a possible government shutdown. More

    U.S. financial regulators said on Friday that because the new tax bill could make timely financial reporting difficult, public companies can make reasonable estimates when uncertain of the impact of the new tax law in financial reports, and will have up to a year to report final numbers. More

    Economy

    Data on Friday showed U.S. consumer spending went up in Nov 2017 and shipments of key capital goods orders increased for the 10th straight month, confirming strong economic momentum.

    The benchmark S&P has climbed about 20% this year and is on track for its best performance since 2013 on solid corporate earnings, strong economic fundamentals, upcoming cuts to corporate tax rates and hopes of looser regulations.

    Real estate led the S&P 500 in gains, with a 0.7% rise. Health was the biggest decliner, falling 0.3%.

    Celgene Corp shares fell 1.4% after the company’s follicular lymphoma regimen failed in a clinical trial.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) 2,683.34 -0.05% 2,238.83 +19.85%
    DJIA INDU 24,754.06 -0.12% 19,762.60 +25.25%
    NASDAQ IXIC 6,959.96 -0.08% 5,383.12 +29.29%

    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 3.141 -0.10% 2.105 +49.23%
    Valuation Rate USD/AUD 0.77663 +0.15% 0.72663 +6.88%
    AUD-denominated Index AUD 4.046 -0.26% 2.895 +39.76%

    Portfolio stock prices

    Stock Ticker Today Change 31 Dec 16 YTD
    Alphabet A GOOGL $1,068.86 -0.19% $792.45 +34.88%
    Alphabet C GOOG $1,060.12 -0.34% $771.82 +37.35%
    Apple AAPL $175.01 +0.00% $115.82 +51.10%
    Amazon AMZN $1,168.36 -0.55% $749.87 +55.80%
    Ebay EBAY $37.76 -0.14% $29.69 +27.18%
    Facebook FB $177.20 -0.15% $115.05 +54.01%
    PayPal PYPL $73.89 -0.18% $39.47 +87.20%
    Twitter TWTR $24.46 -2.36% $16.30 +50.06%
    Visa V $112.69 +0.24% $78.02 +44.43%
    VMware VMW $127.69 +0.40% $78.73 +62.18%

    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 0.2% to USD 1.1856, the first retreat in a week.
    Britain’s GBP fell 0.2% to USD 1.3365.
    Japan’s JPY increased less than 0.05% to 113.28 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 15:48 ET

    • NYMEX West Texas Intermediate (WTI): $58.36/barrel +0.00% Chart
    • ICE (London) Brent North Sea Crude: $65.25/barrel +0.54% Chart
    • NYMEX Natural gas futures: $2.67/MMBTU +2.81% Chart

    Bitcoin

    Wildly volatile bitcoin plunged below $12,000, losing around a third of its market value in 5 days, before rebounding to above $14,000. Companies that have been riding the bitcoin wave were hit hard by the cryptocurrency’s slump. But even with Friday’s losses, their share prices are higher now than before the companies ventured into bitcoin.

    • Long Blockchain Corp, Overstock.com Inc, Riot Blockchain Inc and Marathon Patent Group Inc tumbled between 2% and 15%.

    Reuters

    btc
    ^ Bitcoin prices today (mouseover for 12 month view) Chart: CoinDesk

    Bitcoin plunged by 30% to below $12,000 on Friday as investors dumped the cryptocurrency after its sharp rise to a peak close to $20,000 prompted warnings by experts of a bubble.

    After falling to as low as $11,159, it recouped some losses to trade above $14,000 on the Bitstamp platform, down 9% on the day. It is down around 25% this week, its largest weekly loss since Apr 2013.

    It capped a brutal week that had been touted as a new era of mainstream trading for the digital currency when bitcoin futures debuted on CME Group Inc, the world’s largest derivatives market on Sunday.

    Friday’s fall bled into the U.S. stock market, where shares of companies that have lashed their fortunes to bitcoin or blockchain – its underlying technology – took a knock. Long Blockchain Corp, Overstock.com Inc, Riot Blockchain Inc and Marathon Patent Group Inc lost between 2% and 15%.

    The biggest and best-known cryptocurrency has risen around twentyfold since the start of the year, climbing from less than $1,000 to as high as $19,666 on the Luxembourg-based Bitstamp exchange on Sunday and to over $20,000 on other exchanges. But it has fallen each day since.

    In the futures market, bitcoin one-month futures on CBOE Global Markets were earlier halted due to the steep price drop, while those trading on the CME hit the limit down threshold.

    “The crypto markets have experienced several flash crashes over the past few years but we do believe there has been some overvaluation in the market, particularly over recent months,” said Jamie Burke, chief executive officer at venture capital firm Outlier Ventures.

    “It’s much more likely this is a natural correction following over-exuberant market sentiment.”

    On Friday, Mike Novogratz, the former macro hedge fund manager at Fortress Investment Group, told Bloomberg he had halted plans to launch a crypto-currency hedge fund.

    “We didn’t like market conditions and we wanted to re-evaluate what we’re doing,” he told Bloomberg.

    His Galaxy Digital Assets Fund was due to start on 15 Dec 2017, but he called clients on 12 Dec 2017 and told them he had changed his mind, Novogratz said in an interview with Bloomberg. Novogratz told Reuters in Nov 2017 he hoped to raise about $500 million, making it the largest fund of its kind.

    Warnings about the risks of investing in the unregulated market have increased – Denmark’s central bank governor called it a “deadly” gamble – and there have been worries about the security of exchanges on which cryptocurrencies are bought and sold.

    South Korean cryptocurrency exchange Youbit said on Tuesday it is shutting down and is filing for bankruptcy after it was hacked for the second time this year.

    Coinbase, a U.S. company that runs one of the biggest exchanges and provides digital “wallets” for storing bitcoins, said on Wednesday it would investigate accusations of insider trading, following a sharp rise in the price of a bitcoin spin-off hours before it announced support for it.

    On Friday, Coinbase said it had temporarily suspended buying and selling of bitcoin due to high traffic.

    CRYPTO-RIVALS

    As some rival cryptocurrencies slid along with bitcoin, the total estimated value of the crypto market fell to as low as $440 billion, according to industry website Coinmarketcap, having neared $650 billion just a day earlier.

    But other cryptocurrencies rose this week, with investors moving into cheaper digital coins, rather than cashing out of the sector.

    Ethereum, the second-biggest cryptocurrency by market size, soared to almost $900 earlier in the week, from around $500 a week earlier. Ripple, the third-biggest, has more than quadrupled in price since Monday.

    Stephen Innes, head of trading in Asia-Pacific for retail FX broker Oanda in Singapore, said there had also been moves out of bitcoin into Bitcoin Cash, a clone of the original cryptocurrency. Oanda does not handle trading in bitcoin.

    “Most of it is unsophisticated retail traders getting burned badly,” Innes said on bitcoin’s recent retreat.

    While some say the launch by CME and its rival Cboe Global Markets of bitcoin futures over the last 20 weeks has given the digital currency some perceived legitimacy, many policymakers remain skeptical.

    Bitcoin is known to go through wild swings. In Nov 2017, it tumbled almost 30% in 4 days from $7,888 to $5,555. In Sep 2017, it fell 40% from $4,979 to $2,972.Reuters

    flag_usa US: Personal Income and Outlays, Nov 2017

    Press Release Extract [us_income]

    Personal income increased $54.0 billion (0.3 percent) in November according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $50.9 billion (0.4 percent) and personal consumption expenditures (PCE) increased $87.1 billion (0.6 percent).

    Real DPI increased 0.1 percent in November and Real PCE increased 0.4 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent. The increase in personal income in November primarily reflected increases in wages and salaries and personal interest income.

    The $49.1 billion increase in real PCE in November reflected an increase of $22.3 billion in spending for goods and a $27.6 billion increase in spending for services. Within goods, recreational goods and vehicles was the leading contributor to the increase. Within services, the largest contributor to the increase was spending for electricity and gas.

    Personal outlays increased $91.7 billion in November. Personal saving was $426.2 billion in November and the personal saving rate, personal saving as a percentage of disposable personal income, was 2.9 percent.

    Bureau of Economic Analysis, “Personal Income and Outlays, Nov 2017“, 22 Dec 2017 (08:30) More

    flag_usa US: UOM Consumer Confidence Index (Final). Dec 2017

    Press Release Extract [ser_11]
    Index Dec 17 Nov 17 Dec 16 M-M% Y-Y%
    Index of Consumer Sentiment 95.9 98.5 98.2 -2.6% -2.3%
    Current Economic Conditions 113.8 113.5 111.9 +0.3% +1.7%
    Index of Consumer Expectations 84.3 88.9 89.5 -5.2% -5.8%

    Surveys of Consumers chief economist, Richard Curtin

    Consumer confidence continued to slowly sink in December, with most of the decline among lower income households. The extent of the decline was minor, with the December figure just below the average for 2017 (95.9 versus 96.8). Indeed, the average in 2017 was the highest since 2000, and only during the long expansions of the 1960′s and 1990′s was confidence significantly higher. The recent strength was due to the second highest assessments of current economic conditions since 2000. This strength was offset by a slight increase in uncertainty about future economic prospects. Tax reform was spontaneously mentioned by 29% of all respondents, with nearly an equal split between positive and negative impacts on economic prospects. Party affiliation was the dominant correlate of people’s assessments of the tax legislation, with the long term economic outlook the most negatively affected. Buying plans for durables and vehicles remained unchanged at favorable levels. Most consumers will know more about the revised tax code when the new paycheck withholding amounts take effect in early 2018. While the mostly small gains in take-home pay may not spark an uptick in optimism, those gains would act to dampen any renewed pessimism. Overall, the data indicate that real personal consumption expenditures will expand by 2.6% in 2018.

    University of Michigan, “UOM Consumer Confidence Index (Final). Dec 2017“, 22 Dec 2017 (10:00) More

    flag_usa US: Advance Report on Durable Goods. Nov 2017

    Press Release Extract [us_durables]

    New Orders

    New orders for manufactured durable goods in November increased $3.1 billion or 1.3 percent to $241.4 billion, the U.S. Census Bureau announced today. This increase, up three of the last four months, followed a 0.4 percent October decrease. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders increased 1.0 percent. Transportation equipment, also up three of the last four months, drove the increase, $3.3 billion or 4.2 percent to $80.9 billion.

    Shipments

    Shipments of manufactured durable goods in November, up six of the last seven months, increased $2.4 billion or 1.0 percent to $244.5 billion. This followed a 0.5 percent October increase. Transportation equipment, up two of the last three months, led the increase, $2.1 billion or 2.6 percent to $81.3 billion.

    Unfilled Orders

    Unfilled orders for manufactured durable goods in November, up three consecutive months, increased $1.1 billion or 0.1 percent to $1,137.0 billion. This followed a virtually unchanged October increase. Fabricated metal products, up ten of the last eleven months, led the increase, $0.5 billion or 0.6 percent to $81.3 billion.

    Inventories

    Inventories of manufactured durable goods in November, up sixteen of the last seventeen months, increased $0.9 billion or 0.2 percent to $405.2 billion. This followed a 0.2 percent October increase. Machinery, up nine of the last ten months, led the increase, $0.3 billion or 0.4 percent to $69.9 billion.

    Capital Goods

    Nondefense new orders for capital goods in November increased $1.9 billion or 2.6 percent to $75.4 billion. Shipments increased $1.5 billion or 2.1 percent to $74.6 billion. Unfilled orders increased $0.8 billion or 0.1 percent to $706.6 billion. Inventories increased $0.7 billion or 0.4 percent to $180.6 billion. Defense new orders for capital goods in November increased $0.5 billion or 4.8 percent to $10.6 billion. Shipments increased $0.2 billion or 1.4 percent to $11.1 billion. Unfilled orders decreased $0.5 billion or 0.4 percent to $141.9 billion. Inventories decreased $0.4 billion or 1.5 percent to $23.1 billion.

    Revised October Data

    Revised seasonally adjusted October figures for all manufacturing industries were: new orders, $480.6 billion (revised from $479.6 billion); shipments, $484.5 billion (revised from $484.2 billion); unfilled orders, $1,135.9 billion (revised from $1,135.1 billion) and total inventories, $661.6 billion (unchanged).

    US Census Bureau, “Advance Report on Durable Goods – Manufacturers’ Shipments, Inventories, and Orders. Nov 2017“, 22 Dec 2017 (08:30) More

    flag_usa US: State Employment and Unemployment. Nov 2017

    Press Release Extract [us_jobs_state]

    Unemployment rates were lower in November in 8 states, higher in 2 states, and stable in 40 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Twenty-three states had jobless rate decreases from a year earlier, 2 states had increases, and 25 states and the District had little or no change. The national unemployment rate was unchanged from October at 4.1 percent but was 0.5 percentage point lower than in November 2016.

    Nonfarm payroll employment increased in 6 states in November 2017, decreased in 2 states, and was essentially unchanged in 42 states and the District of Columbia. Over the year, 27 states added nonfarm payroll jobs and 23 states and the District were essentially unchanged.

    Unemployment

    Hawaii had the lowest unemployment rate in November, 2.0 percent. The rates in Alabama (3.5 percent), California (4.6 percent), Hawaii (2.0 percent), Mississippi (4.8 percent), and Texas (3.8 percent) set new series lows. (All state series begin in 1976.) Alaska had the highest jobless rate, 7.2 percent. In total, 17 states had unemployment rates lower than the U.S. figure of 4.1 percent, 9 states and the District of Columbia had higher rates, and 24 states had rates that were not appreciably different from that of the nation.

    In November, eight states had unemployment rate decreases, the largest of which were in California, Kentucky, Minnesota, and Ohio (-0.3 percentage point each). The only over-the-month rate increases occurred in North Carolina (+0.2 percentage point) and North Dakota (+0.1 point). The remaining 40 states and the District of Columbia had jobless rates that were not notably different from those of a month earlier, though some had changes that were at least as large numerically as the significant changes.

    Twenty-three states had unemployment rate decreases from November 2016. The largest declines occurred in Alabama and Tennessee (-2.7 percentage points and -2.0 points, respectively). The only over-the-year rate increases were in Alaska and South Dakota (+0.6 percentage point each).

    Nonfarm Payroll Employment

    Six states had over-the-month increases in nonfarm payroll employment in November 2017. The largest increase in employment over the month occurred in Texas (+54,500), followed by California (+47,400) and New York (+24,900). In percentage terms, the largest increases occurred in Iowa, South Carolina, and Texas (+0.4 percent each). Two states had over-the-month decreases in nonfarm payroll employment in November: Alaska (-3,000, or -0.9 percent) and North Dakota (-2,700, or -0.6 percent).

    Twenty-seven states had over-the-year increases in nonfarm payroll employment in November. The largest job gains occurred in Texas (+330,600), California (+288,300), and Florida (+195,000). The largest percentage gain occurred in Utah (+2.8 percent), followed by Nevada and Texas (+2.7 percent each).

    Bureau of Labor Statistics, “State Employment and Unemployment. Nov 2017“, 22 Dec 2017 (10:00) More

    flag_usa US: New Residential Construction. Nov 2017

    Press Release Extract [us_newres]

    New Home Sales

    Sales of new single-family houses in November 2017 were at a seasonally adjusted annual rate of 733,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 17.5 percent (±10.4 percent) above the revised October rate of 624,000 and is 26.6 percent (±16.6 percent) above the November 2016 estimate of 579,000.

    Sales Price

    The median sales price of new houses sold in November 2017 was $318,700. The average sales price was $377,100.

    For Sale Inventory and Months’ Supply

    The seasonally-adjusted estimate of new houses for sale at the end of November was 283,000. This represents a supply of 4.6 months at the current sales rate.

    US Census Bureau, “New Residential Sales and Construction Price Indexes. Nov 2017“, 22 Dec 2017 (10:00) 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

    Potential Triggers of a Market Shock

    Central Bank Surprises

    Central bankers like Janet Yellen at the Federal Reserve and Mark Carney at the Bank of England try not to surprise investors. That’s likely to be a tougher act to pull off in 2018.

    Yellen will soon be replaced by Jerome Powell. In addition to being an untested hand, he along with his counterparts may end up changing policy faster than markets expect. Carney, for example, has to keep an eye on UK consumer prices, with inflation running at 3.1% in the 12 months to Nov 2017. Any sign that prices are suddenly on the rise could explode expectations of very gradual increases in interest rates.

    Sharp market moves could be amplified by the Fed’s pre-programmed shrinking of its gargantuan $4.5 trillion balance sheet. After a decade of ultra-low rates, there could be huge amounts of exposure to rising interest rates, and in unexpected places.

    Exchange-Traded Funds

    The rapid growth and evolution of easy-to-use ETFs is a boon for investors. The vehicles hold some $4.4 trillion in assets, according to a recent EY survey, a more than 10-fold increase since 2005. EY predicts 15% annual growth in the coming years.

    That’s all well and good, but a few risks are creeping in. One is the widening range of what ETFs are trying to track. Bond funds, for example, are burgeoning. And increasingly providers are offering proxies for everything from certain hedge fund-like strategies – so-called smart beta – to the equivalent of leveraged bets against stock performance, like triple-short S&P 500 Index ETFs.

    Some of these risk recreating a problem that bedeviled many banks and investment funds in the crisis of 2008-09: a liquidity mismatch between an ETF that can be traded during market hours and underlying assets that are, or become, illiquid, whether scarce bonds or volatile futures. Just as the failure of long-held beliefs about money-market funds exacerbated the crunch a decade ago, a loss of confidence in key characteristics of ETFs could worsen any future meltdown.

    Crisis Alpha

    Big pension funds and other institutions have been delighted by buoyant equity markets. The FTSE All-World index, for example, was up 20% through 14 Dec 2017, and the S&P 500 Index had gained 18%. But investors are also worried about the next downturn.

    One fashionable notion is to put some cash into strategies variously dubbed crisis alpha, crisis risk offset (shortened to CRO) and similar clever monikers. These are supposed to perform positively in any big downturn. One strand of many such models is a strategy known as managed futures, which essentially follow momentum in a raft of liquid markets. These funds delivered big positive returns during the global financial crisis.

    The danger, though, is that managed futures, and even more so other approaches with less history, could turn out like modern-day versions of portfolio insurance, which was supposed to minimize investors’ losses but ended up amplifying the market crash of October 1987. David Harding at Winton cautions that the success of his own managed-futures sector in recent downturns is not guaranteed to repeat in the next, and that superficially countercyclical strategies could end up going wrong, especially if too many investors have the same ideas.

    Hedge Fund Trouble

    To give these funds their due, they weren’t the main fuel for the conflagration of 2008-09 – that dubious honor goes to banks. Yet leverage and potentially crowded trades can create systemic risks, as Long-Term Capital Management demonstrated in 1998.

    The largest hedge fund, Bridgewater Associates with $160 billion under management, has as its flagship a so-called risk-parity strategy. It’s designed to spread risk more or less equally across a range of asset types and possible market behaviors, using an element of leverage to help. The fund’s record and reputation are good, but it hasn’t been tested by a sustained bear market in bonds and it’s not immune to a set of circumstances that crater almost all its holdings at once, spreading fear among its legion clients.

    Alternatively, large numbers of smaller funds – whose collective assets have doubled since the crisis to top $3 trillion, according to Hedge Fund Research – could end up being caught out by the same market moves, as computer-driven quant funds were in August 2007. Too many investors running for the exit at once is a recipe for market freefall.

    Crypto Currencies

    It’s hard for a long-term investor to take seriously a holding that plunges nearly 20% in a day and then surges 80% to a record high just a week later. That’s what happened to bitcoin between late Nov 2017 – and early Dec 2017, though. For all the talk of its use as a currency along with the related blockchain technology, digital coinage is more than ever the domain of tech-savvy speculators. No wonder, with the value of bitcoin up around 17-fold in 2017 through 14 Dec 2017.

    The total value of outstanding bitcoin and rival ether reached over $350 billion, according to Coindesk. Much of that is on (virtual) paper, but it’s still symptomatic of booming financial markets combined with the growth of the digital economy. If hacks that exploit technological flaws or a sharp fall in demand crash the price, the fallout could prove contagious to the real world, too.Reuters 21 Dec 2017