Tue 9 Jan 2018


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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’s major indexes extended the New Year rally to close at record levels on Tuesday on investor optimism ahead of quarterly earnings reports and hopes for easing tensions with North Korea.

    The S&P 500 and Nasdaq registered their sixth closing record highs in a row. The Dow also ended at record levels after it had snapped a 3-day run of closing highs in Monday’s session.

    • The S&P 500 rose 3.58 points, or 0.13%, to 2,751.29
    • The Dow Jones Industrial Average rose 102.8 points, or 0.41% to 25,385.8
    • The Nasdaq Composite rose 6.19 points, or 0.09%, to 7,163.58.
    • Declining issues outnumbered advancing ones on the NYSE by a 1.41-to-1 ratio; on Nasdaq, a 1.19-to-1 ratio favored decliners.
    • The S&P 500 posted 124 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 131 new highs and 24 new lows.
    • Volume on U.S. exchanges was 6.77 billion shares, above the 6.3 billion average for the full session over the last 20 trading days.

    Defensive S&P sectors – utilities, real estate and telecommunications – were out of favor, while bank stocks were boosted by rising U.S. 10-year Treasury yields. Healthcare stocks rose with the sector in focus on the second day of an industry conference.

    Profits for S&P 500 companies are expected to rise 11.8% in the fourth quarter, compared with an 8% increase a year earlier, according to Thomson Reuters I/B/E/S.

    “There will be some noise there with tax adjustments, but the forward-looking comments ought to be pretty positive. Investors are buying into that,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

    Financials

    The S&P financial sector ended 0.8% higher after yields on the 10-year U.S. Treasury note hit a 10-month high after the Bank of Japan said it will trim its purchases of Japanese government bonds.

    Interest-rate sensitive utilities and real estate sectors ended 1 percent lower while the telecommunications sector fell 1.8%.

    While investors are hopeful about global economic growth and tax-cut led gains for corporate earnings, they are anxious about whether the tax-overhaul could overheat inflation and lead to a sharper than expected rise in interest rates.

    After a lukewarm Dec 2017 jobs report, signs of a pickup in inflation could come in the monthly CPI report due on Friday, on the same day that big U.S. banks are set to kick off the fourth-quarter earnings season.

    Other Sectors

    Healthcare The S&P healthcare sector closed 1% higher, boosted by a 1.6% rise in Johnson & Johnson, a 5% gain in Gilead and an 8.3% jump in Boston Scientific shares.

    Technology Chip stocks dragged on the technology sector, which fell 0.3%. Intel fell 2.5% after Microsoft Corp said computers with older Intel chips slowed noticeably after it released security patches.

    Geopolitics – Korean Peninsula

    Some investors were reassured that North and South Korea held their first talks in more than two years, which Washington described as a good first step in solving the North’s nuclear missile program crisis. Pyongyang said it would not discuss weapons that were aimed only at the United States.

    “The diplomacy taking place between North Korea and South Korea might circumvent some type of military action. Anything that would de-risk the peninsula would be viewed favorably by investors,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.Reuters

    Market indices

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

    Index Ticker Today Change 31 Dec 17 YTD
    S&P 500 SPX (INX) 2,751.29 +0.13% 2,673.61 +2.90%
    DJIA INDU 25,385.80 +0.40% 24,719.22 +2.69%
    NASDAQ IXIC 7,163.58 +0.08% 6,903.39 +3.76%

    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 17 YTD
    USD-denominated Index USD 3.190 -0.01% 3.068 +4.01%
    Valuation Rate USD/AUD 0.78722 -0.27% 0.78528 +0.24%
    AUD-denominated Index AUD 4.056 +0.25% 3.909 +3.76%

    Portfolio stock prices

    :-) Amazon closed on a record high of $1,252.70, up 0.47% on yesterday’s record $1,246.87
    :-) PayPal closed on a record high of $79.19, up 0.18% on yesterday’s record $79.05

    Stock Ticker Today Change 31 Dec 17 YTD
    Alphabet A GOOGL $1,112.79 -0.13% $1,053.00 +5.67%
    Alphabet C GOOG $1,106.26 -0.07% $1,045.65 +5.79%
    Apple AAPL $174.33 -0.02% $169.23 +3.01%
    Amazon AMZN $1,252.70 +0.46% $1,169.54 +7.11%
    Ebay EBAY $39.53 -0.68% $37.76 +4.68%
    Facebook FB $187.87 -0.22% $176.46 +6.46%
    PayPal PYPL $79.19 +0.17% $73.61 +7.58%
    Twitter TWTR $24.17 -1.71% $24.01 +0.66%
    Visa V $119.11 -0.20% $114.02 +4.46%
    VMware VMW $129.27 -1.25% $125.32 +3.15%

    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% to the highest in more than a week.
    The euro fell 0.2% to USD 1.1939.
    Britain’s GBP fell 0.2% to USD 1.354.
    japan’s JPY rose 0.5% to 112.587 per USD, the first advance in a week and the biggest increase in more than a week.
    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): $62.93/barrel +1.94% Chart
    • ICE (London) Brent North Sea Crude: $68.80/barrel +1.50% Chart
    • NYMEX Natural gas futures: $2.95MMBTU +3.95% Chart

    Oil prices edged higher on Tuesday, with U.S. crude touching its highest since December 2014, supported by OPEC-led production cuts and expectations that U.S. crude inventories have dropped for an eighth week. The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia are keeping supply limits in place in 2018, a second year of restraint, to reduce a price-denting glut of oil held in inventories.Reuters

    Oil’s price rally this year to its highest since May 2015 may seem a source of glee for OPEC, but some in the producer group fear the gains could prompt shale companies to crank open their spigots and flood the market.

    The price surge comes as a welcome boost for the revenues of oil-producing nations, many still reeling from a price collapse that started in mid-2014 when crude began to fall steeply from above $100 per barrel due to oversupply.

    Some in OPEC are worried a prolonged rally could stimulate more U.S. shale oil output, however, creating more oversupply that could weigh on prices and market share. “We all are excited about the rally and want to see if it will be sustainable during the year, as it will certainly whet the appetite of shale producers,” an official from an OPEC country said.

    The oil minister of Iran, OPEC’s third-largest producer, said on Tuesday that the organization’s members were not keen on increased prices as such gains would encourage more shale production.

    OPEC has no formal target for oil prices. However, Saudi Arabia, OPEC’s top producer, wants to see crude above $60 to boost the valuation of its national oil company Aramco before an initial public offering of shares this year and to reduce the gap in its state budget, Saudi sources have said.

    OPEC sources say Saudi Arabia has become a strong advocate of higher prices, a shift from a more moderate stance in the past, and Saudi officials have downplayed the threat of a boost in shale production. Even so, U.S. production is expected soon to rise above 10 million barrels per day, close to Saudi levels, due largely to soaring output from shale drillers, government data shows.

    OPEC officials also think the 2018 rally has been mainly driven by unrest in Iran, rather than a tighter balance between supply and demand, giving rise to concern it may not last. “Oil prices rose because of the political situation in Iran,” an OPEC source said. “There is a worry now that this would be followed by a sharp decline in prices.”

    A third OPEC source said market fundamentals did not justify the price rally. “It is only politics that is changing the mood. The push in prices will mean the peak is near and hence prices will give up some of the gains.”

    While OPEC sources say oil market fundamentals remain strong on the back of the supply cuts, others are worried that economic growth in consuming countries could slow and higher prices might encourage some producers to pump above their output target.Reuters

    flag_australia AU: Building Approvals. Nov 2017

    au_construction_20190109

    Press Release Extract [au_building]

    The number of dwellings approved rose 0.9 per cent in November 2017, in trend terms, and has risen for 10 months, according to data released by the Australian Bureau of Statistics (ABS) today.

    “Dwelling approvals have continued to rise in recent months, which has been driven by renewed strength in approvals for apartments,” said Justin Lokhorst, Director of Construction Statistics at the ABS. “Approvals for private sector houses have remained stable, with just under 10,000 houses approved in November 2017.”

    Dwelling approvals increased in November in Victoria (5.6 per cent), Tasmania (3.1 per cent) and South Australia (0.1 per cent), but decreased in the Australian Capital Territory (21.9 per cent), Northern Territory (3.8 per cent), Queensland (1.2 per cent), New South Wales (0.9 per cent) and Western Australia (0.6 per cent) in trend terms.

    In trend terms, approvals for private sector houses fell 0.1 per cent in November. Private sector house approvals fell in Western Australia (3.3 per cent), New South Wales (0.8 per cent) and Queensland (0.4 per cent), but rose in South Australia (1.3 per cent) and Victoria (1.1 per cent).

    In seasonally adjusted terms, dwelling approvals increased by 11.7 per cent in November, driven by a rise in private dwellings excluding houses (30.6 per cent), while private house approvals fell 2.0 per cent.

    The value of total building approved rose 1.5 per cent in November, in trend terms, and has risen for 11 months. The value of residential building rose 2.3 per cent while non-residential building rose 0.2 per cent.

    Nov 2017 Month Year
    Trend Estimates
    + Private sector dwellings excluding houses 9 898 -0.1% 4.6%
    + Total dwelling units approved 9 256 2.2% 12.9%
    = Total dwelling units approved 19 359 0.9% 8.1%
    Seasonally Adjusted Estimates
    + Private sector houses 9 779 -2.0% 2.2%
    + Private sector dwellings excluding houses 11 153 30.6% 36.8%
    = Total dwelling units approved 21 055 11.7% 17.1%

    Australian Bureau of Statistics, “8731.0 Building Approvals. Nov 2017“, 9 Jan 2018 More

    Comment: Australian Financial Review

    A surge in Melbourne apartment approvals helped push Victorian building approvals to record highs during November, despite signs of slowing in other sectors and regions around the nation, according to the latest government numbers.

    Oversupply, tougher lending conditions and patchy economic results are expected to slow approvals in coming months, particularly in the crowded high-rise sector where predicted over-supply could pressure prices, according to analysts. But leading indicators, such as population growth and finance for construction, indicate overall growth will remain robust and that new projects are in the pipeline, they claim.

    Melbourne’s monthly high-rise approvals, particularly four or more storeys, spiked at 40 per cent higher than the previous month, which is probably because of single major projects, such as the massive development in Fishermans Bend, which is Australia’s largest urban renewal project covering about 489 hectares on the outskirts of Melbourne’s central business district.

    There have also been large numbers of inner-suburban developments around Melbourne’s central business district.

    Duncan Hughes, “Building approvals rise 11.7pc in November, beating expectations of 1pc decline“, AFR ( Jan 2018 More

    flag_europe EU: Unemployment. Nov 2017

    Press Release Extract [eu_ue]

    The euro area (EA19) seasonally-adjusted unemployment rate was 8.7% in November 2017, down from 8.8% in October 2017 and from 9.8% in November 2016. This is the lowest rate recorded in the euro area since January 2009. The EU28 unemployment rate was 7.3% in November 2017, down from 7.4% in October 2017 and from 8.3% in November 2016. This is the lowest rate recorded in the EU28 since October 2008. These figures are published by Eurostat, the statistical office of the European Union.

    eu_ue_20180109

    Eurostat estimates that 18.116 million men and women in the EU28, of whom 14.263 million in the euro area, were unemployed in November 2017. Compared with October 2017, the number of persons unemployed decreased by 155 000 in the EU28 and by 107 000 in the euro area. Compared with November 2016, unemployment fell by 2.133 million in the EU28 and by 1.561 million in the euro area.

    Member States

    Among the Member States, the lowest unemployment rates in November 2017 were recorded in the Czech Republic (2.5%), Malta and Germany (both 3.6%). The highest unemployment rates were observed in Greece (20.5% in September 2017) and Spain (16.7%).

    eu_ue_states_20180109

    Compared with a year ago, the unemployment rate fell in all Member States for which data is comparable over time. The largest decreases were registered in Greece (from 23.2% to 20.5% between September 2016 and September 2017), Portugal (from 10.5% to 8.2%), Croatia (from 12.5% to 10.4%) and Cyprus (from 13.1% to 11.0%).

    In November 2017, the unemployment rate in the United States was 4.1%, stable compared to October 2017 and down from 4.6% in November 2016.

    Youth unemployment

    In November 2017, 3.698 million young persons (under 25) were unemployed in the EU28, of whom 2.624 million were in the euro area. Compared with November 2016, youth unemployment decreased by 429 000 in the EU28 and by 286 000 in the euro area. In November 2017, the youth unemployment rate was 16.2% in the EU28 and 18.2% in the euro area, compared with 18.2% and 20.5% respectively in November 2016. In November 2017, the lowest rates were observed in the Czech Republic (5.0%) and Germany (6.6%), while the highest were recorded in Greece (39.5% in September 2017), Spain (37.9%) and Italy (32.7%).

    Eurostat, “Unemployment. Nov 2017“, 9 Jan 2018 More

    Press Comment: Reuters

    Eurozone unemployment fell to a new 9-year low in Nov 2017 thanks to strong economic growth, but the jobless rates differ widely across the single currency bloc. Emerging from years of economic malaise caused by the sovereign debt crisis, the euro zone economy is now growing strongest pace in a decade – at 2.5$ year-on-year in Q3/2017.Reuters

    flag_usa US: Job Openings and Labor Turnover. Nov 2017

    Press Release Extract [us_jolts]

    The number of job openings was little changed at 5.9 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.5 million and 5.2 million, respectively. Within separations, the quits rate was unchanged at 2.2 percent and the layoffs and discharges rate was little changed 1.1 percent. This release includes estimates of the number and rate of job openings, hires, and separations for the nonfarm sector by industry and by four geographic regions.

    Job Openings

    us_jolts1_20180109

    On the last business day of November, there were 5.9 million job openings, little changed from October. The job openings rate was 3.8 percent in November. The number of job openings was little changed for total private and for government. Job openings increased in retail trade (+88,000) but decreased in other services (-64,000), transportation, warehousing, and utilities (-60,000), and real estate and rental and leasing (-39,000). The number of job openings was little changed in all four regions.

    Hires

    The number of hires was little changed at 5.5 million in November. The hires rate was 3.7 percent. The number of hires was little changed for total private and increased for government (+43,000). Hires increased in state and local government, excluding education (+29,000) and state and local government education (+18,000). The number of hires decreased in the Northeast region.

    us_jolts2_20180109

    Separations

    Total separations includes quits, layoffs and discharges, and other separations. Total separations is referred to as turnover. Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer. Other separations includes separations due to retirement, death, disability, and transfers to other locations of the same firm.

    The number of total separations was little changed at 5.2 million in November. The total separations rate was 3.5 percent. The number of total separations was little changed for total private and for government. Total separations increased in state and local government, excluding education (+21,000) but decreased in other services (-69,000) and real estate and rental and leasing (-27,000). The number of total separations was little changed in all four regions.

    The number of quits was little changed at 3.2 million in November. The quits rate was 2.2 percent. The number of quits was little changed for total private and increased for government (+25,000). Quits increased in transportation, warehousing, and utilities (+25,000) and state and local government, excluding education (+15,000). Quits decreased in other services (-49,000), real estate and rental and leasing (-21,000), and mining and logging (-6,000). The number of quits was little changed in all four regions.

    There were 1.7 million layoffs and discharges in November, little changed from October. The layoffs and discharges rate was 1.1 percent in November. The number of layoffs and discharges was little changed for total private, for government, and in all industries. The number of layoffs and discharges decreased in the Midwest region.

    The number of other separations was little changed in November at 341,000. The number of other separations was little changed for total private and for government. Other separations increased in state and local government, excluding education (+8,000) and arts, entertainment, and recreation (+4,000). Other separations decreased in accommodation and food services (-15,000) and federal government (-6,000). The number of other separations was little changed in all four regions.

    Net Change in Employment

    Large numbers of hires and separations occur every month throughout the business cycle. Net employment change results from the relationship between hires and separations. When the number of hires exceeds the number of separations, employment rises, even if the hires level is steady or declining. Conversely, when the number of hires is less than the number of separations, employment declines, even if the hires level is steady or rising. Over the 12 months ending in November, hires totaled 64.6 million and separations totaled 62.4 million, yielding a net employment gain of 2.1 million. These totals include workers who may have been hired and separated more than once during the year.

    Bureau of Labor Statistics, “Job Openings and Labor Turnover Survey, Nov 2017“, 9 Jan 2018 (10:00) More

    Press Comment: Bloomberg

    U.S. job openings unexpectedly fell in Nov 2017 to a 6-month low, though the level is still consistent with an improving labor market, Labor Department data showed Tuesday.

    Even with the decline in Nov 2017, the number of openings remains elevated, showing a high level of untapped demand for labor, as employers struggle to find skilled and experienced workers. There were a record 6.18 million openings in Sep 2017. Last week’s Dec 2017 jobs report pointed to an economy at full employment, with the jobless rate holding at the lowest level since 2000.

    Industries including manufacturing, business services and transportation and warehousing had fewer openings than in Oct 2017, while available positions increased in construction and retail, the JOLTS report showed.

    A big question for 2018 is whether employers will get more aggressive with pay increases to lure talent and fill positions. According to the Federal Reserve’s Beige Book, anecdotal reports suggest that in lieu of bigger pay packages, some companies are offering non-wage benefits and office perks.Bloomberg

    flag_usa US: NFIB Index of Small Business Optimism, Dec 2017

    Press Release Extract [us_nfib]

    Small business confidence blasted off the day after the 2016 election and remained in the stratosphere for all of 2017, making last year an all-time record setter for the National Federation of Independent Business (NFIB) Index of Small Business Optimism (SBOI), released today.

    “2017 was the most remarkable year in the 45-year history of the NFIB Optimism Index,” said NFIB President and CEO Juanita Duggan. “With a massive tax cut this year, accompanied by significant regulatory relief, we expect very strong growth, millions more jobs, and higher pay for Americans.”

    us_sboi_20180109

    The Small Business Optimism Index for last month came in at 104.9, slightly lower than the near-record November report but still a historically exceptional performance. That makes 2017 the strongest year ever in the history of the survey. The average monthly Index for 2017 was 104.8. The previous record was 104.6, set in 2004.

    “We’ve been doing this research for nearly half a century, longer than anyone else, and I’ve never seen anything like 2017,” said NFIB Chief Economist Bill Dunkelberg. “The 2016 election was like a dam breaking. Small business owners were waiting for better policies from Washington, suddenly they got them, and the engine of the economy roared back to life.”

    Two of the December components posted gains, five declined, and three remained unchanged. Moving the Index moderately lower were declines in Expected Better Business Conditions (11-point decline) which tends to fluctuate sharply and Inventory Plans (8-point decline). Small business owners were bedeviled by a labor shortage in 2017 that grew more intense as optimism rose. The NFIB Jobs Report last week showed that problem reaching record levels.

    Offsetting the dip in Expected Better Business Conditions was a dramatic,14-point improvement in Actual Sales for December. In November, a net negative five percent of all firms reported sales increases. A net nine percent reported higher sales in December, indicating a very strong holiday season for small business.

    ‘There’s a critical shortage of qualified workers and it’s becoming a real cost driver for small businesses. They are raising compensation for workers in order to attract and keep good employees, but that’s a positive indicator for the overall economy,’ said Dunkelberg.

    Driving record optimism in 2017 was the expectation of better economic policies from Washington. Suspending the regulatory assault on business and now a massive tax cut answered two of the three top concerns for small business owners, according to NFIB research.

    “The lesson of 2017 is that better policies make for better economic results. The evidence is overwhelming that small business owners pay close attention to Washington, and that federal policies affect their decisions on whether to hire, whether to invest, whether to grow inventory, and whether to seek capital,” said Duggan.

    Labor Markets

    Job creation was slow in the small-business sector as owners reported a seasonally adjusted average employment change per firm of 0.01 workers. Clearly, a lack of “qualified” workers is impeding the growth in employment. Thirteen percent (unchanged) reported increasing employment an average of 2.0 workers per firm and 10 percent (unchanged) reported reducing employment an average of 4.1 workers per firm (seasonally adjusted). Fifty-nine percent reported hiring or trying to hire (up 7 points), but 54 percent (92 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill, a record high. Nineteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 1 point), second only to taxes. This is the top ranked problem for those in construction (30 percent) and manufacturing (27 percent). Thirty-one percent of all owners reported job openings they could not fill in the current period, up 1 point from November. Twelve percent reported using temporary workers, up 1 point. A seasonally adjusted net 20 percent plan to create new jobs, down 4 points from a record high reading and the second highest reading since October 1999.

    Sales and Inventories

    The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months was a net 9 percent, a 14-point improvement from November. Tentative customers in November became aggressive spenders across the board in December, closing out the year with very strong reports of sales gains, the best levels since 2006. After a strong surge in November, the net percent of owners expecting higher real sales volumes fell 6 points, falling to a net 28 percent of owners, still one of the best readings since 2007.

    The net percent of owners reporting inventory increases was unchanged at a net negative 2 percent (seasonally adjusted). Strong sales resulted in a drawdown in inventories, setting the stage for additional inventory investment in 2018. The net percent of owners viewing current inventory stocks as “too low” was unchanged at a net negative 2 percent, a positive view of current stocks. The net percent of owners planning to add to inventory fell 8 points to a net negative 1 percent, reversing surprisingly strong November investment plans.

    Capital Spending

    Sixty-one percent reported capital outlays, up 2 points. This anticipates a substantial increase in capital spending. Of those making expenditures, 43 percent reported spending on new equipment (up 3 points), 23 percent acquired vehicles (down 6 points), and 16 percent improved or expanded facilities (unchanged). Six percent acquired new buildings or land for expansion (unchanged) and 15 percent spent money for new fixtures and furniture (up 2 points). Twenty-seven percent plan capital outlays in the next few months, up 1 point from November.

    Inflation

    The net percent of owners raising average selling prices fell 2 points to a net 8 percent seasonally adjusted, ending a steady but modest uptrend in the frequency of reported price increases. Clearly, inflation is not “breaking out” across the country as the Federal Reserve hoped. Seasonally adjusted, a net 23 percent plan price hikes (up 1 point), although far fewer will report actually doing so in the following months.

    Compensation and Earnings

    Reports of higher worker compensation were unchanged at a net 27 percent, historically very strong all last year. Tight labor markets are historically associated with high percentages of owners raising worker compensation. Owners complain at record rates of labor quality issues, with 92 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions. Nineteen percent selected “finding qualified labor” as their top business problem, far more than cited weak sales or the cost of regulations as their top challenge. Plans to raise compensation jumped 6 points in frequency to a net 23 percent in response to tighter labor markets. The frequency of reports of positive profit trends fell 3 points to a net negative 15 percent reporting quarter on quarter profit improvements, a solid reading historically but not exceptional.

    Credit Markets

    Three percent of owners reported that all their borrowing needs were not satisfied, down 1 point and historically low. Thirty-two percent reported all credit needs met (unchanged) and 52 percent said they were not interested in a loan, up 4 points. Only 1 percent reported that financing was their top business problem compared to 21 percent citing taxes. Three percent reported loans “harder to get’, down 1 point at historic lows. Thirty-four percent of all owners reported borrowing on a regular basis (up 4 points). The average rate paid on short maturity loans was up 40 basis points at 6.1 percent after the Federal Reserve raised rates.

    Commentary

    The Tax Cuts and Jobs Act was signed into law by the President on December 22, 2017. Compared to the Reagan cuts, this law is more heavily weighted toward “business” because the marginal tax rates for individuals were already quite low compared to pre-1986. More significantly though, the new law recognizes the importance of tax cuts for “pass through” businesses, most of which are small businesses.

    The tax bill has its opponent who claim that the bill is “regressive”, assuming little or no economic growth (which drives tax revenues) and no employment benefits (more jobs and higher wages). But despite the critics, the U.S. economy is on track to have 12 months of growth in excess of 3 percent by the end of the first quarter of 2018.

    The NFIB indicators clearly anticipate further upticks in economic growth, perhaps pushing up toward 4 percent for the fourth quarter of 2017. This is a dramatically different picture than owners presented during the 2009-16 recovery under President Obama. The change in the management team in Washington dramatically improved expectations, and that began to translate into increased sales and hiring. Owners did not know exactly what the tax bill would look like, but believed that whatever it looked like, it would be a significant improvement over what was currently in force. That was enough to “bet on”.

    As proof, the stock market was up $7 trillion last year, over two million new jobs were created, capital spending lifted off (good for productivity), and housing is running at full tilt. All of this started as soon as the new management team in Washington was elected. Small business owners had it right, their optimism (and subsequent sales and hiring) rose the day after the election results were announced. By the second quarter, 3 percent growth had been restored as the small business sector (and others) shook off the shackles of pessimism as the new government began eliminating the impediments to growth put in place by the prior administration. The private sector can make good things happen once the heavy hand of government management of the economy is lifted.

    National Federation of Independent Business (NFIB), “Small Business Index – Average Monthly Optimism Sets All-Time Record in 2017. Dec 2017“, 9 Jan 2018 Press Release Report

    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 225 movements over the past week Chart: Google Finance

    Japan Consumer Sentiment Unexpectedly Falls in December

    The Consumer Confidence Index in Japan unexpectedly dropped to 44.7 in December of 2017 from 44.9 in the prior month and missing market consensus of 45.1. Perception weakened for most components: overall livelihood (down 0.3 points from the prior month to 42.9), employment (down 0.3 points to 49.0) and the willingness to buy (down 0.2 points to 43.8). Meantime, perception on income growth was unchanged from the prior month at 43.0.

    jp_cci_20180109

    Consumer Confidence in Japan averaged 42.21 from 1982 until 2017, reaching an all time high of 50.80 in December of 1988 and a record low of 27.50 in January of 2009.TradingEconomics

    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