Mon 15 Jan 2018


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In Portfolioticker today

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

    US markets were closed for the Martin Luther King Jr Day public holiday.

    Market indices

    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 3.238 +0.00% 3.068 +5.56%
    Valuation Rate USD/AUD 0.80199 +0.72% 0.78528 +2.12%
    AUD-denominated Index AUD 4.041 -0.72% 3.909 +3.39%

    FX: USD/AUD

    USD

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

    The EUR hit a fresh 3-year high on Monday as optimism around growth buoys expectations of tighter policy from central banks, while the chance of a pro-European coalition in Germany also boosted confidence in the continent.

    With the world in general and Europe in particular showing signs of sustained economic growth, global stocks benchmarks jumped to fresh highs, even though investors are now pricing in the withdrawal of central banks’ extraordinary stimulus. That view was given further fuel last week by an account of European Central Bank discussions which suggested policymakers could soon start preparing the ground for a reduction in support.

    The EUR rose to USD 1.2227 at one stage on Monday, a price last seen in Dec 2014, just before the ECB first announced its massive government bond purchase program.

    Nor is the ECB the only game in town: Bank of Japan Governor Haruhiko Kuroda offered a positive view on his nation’s economy and inflation on Monday, sending the JPY to a 4-month high against the USD.

    “The latest leg up in the euro has clearly come from optimism that the German government is moving towards a agreement for a coalition government,” said Investec economist Victoria Clarke.

    German Chancellor Angela Merkel’s CDU party and the Social Democrats (SPD) are moving towards formal coalition talks, soothing concerns around Europe’s largest economy. The SPD’s pro-European stance — leader Martin Schulz recently argued for a “United States of Europe” — also strengthens the case for investment in the euro.

    “This follows an earlier move triggered by the crucial line in the ECB account which has got people thinking about when the first move on rates will happen,” said Clarke.

    Euro zone money markets now price in a 70% chance of a 10 basis point hike from the European Central Bank by the end of 2018, up from 50% a week before.

    Bloomberg’s Dollar Spot Index (DXY) showed no sign of bouncing early on Monday, instead edging down to a fresh trough of 90.571.

    Though the U.S. Federal Reserve is expected to continue to hike rates this year, this has been largely priced in and investors are starting to position for central bank action in Europe and Japan instead.

    The USD slipped to a 6-week low on the JPY at JPY 110.73, even as the head of the Bank of Japan reiterated his commitment to keeping yields low.Reuters

    AUD

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

    Oil and Gas Futures

    Brent crude oil prices rose to $70/barrel on Monday, supported by ongoing output cuts led by OPEC and Russia, and ignoring a rise in U.S. and Canadian drilling activity that points to higher future output in North America.

    Both benchmarks last week reached levels not seen since Dec 2014, with Brent touching $70.05/barrel and WTI reaching as high as $64.77. Oil markets have been well supported by production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia which are aimed at propping up crude prices.

    The cuts started in Jan 2017 and are set to last through 2018, and they have coincided with healthy demand growth, pushing up crude prices by more than 13% since early Dec 2017. But other factors, including political risk, have also supported crude.

    “Tighter fundamentals are (the) main driver to the rally in prices, but geopolitical risk and currency moves along with speculative money in tandem have exacerbated the move,” U.S. bank JPMorgan said in a note.

    Attracted by tighter supplies and strong consumption, financial investors have raised their net long U.S. crude futures positions, which would profit from higher prices, to a new record, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

    Some analysts, though, have been warning of a downward correction after the sharp price gains since Dec 2017. “Many believe that oil prices above $60 will self-correct as this level of prices will encourage substantially more drilling in U.S. shale,” said William O‘Loughlin, investment analyst at Australia’s Rivkin Securities.

    U.S. energy companies added 10 oil rigs in the week to 12 Jan 2018, taking the number to 752, energy service firm Baker Hughes said on Friday. That was the biggest increase since Jun 2017. ANZ bank said the jump came “as shale producers quickly reacted to the strong rise in prices in 2018.”

    The picture was similar in Canada, where energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.

    The high prices for crude, which is the most important feedstock in the petroleum industry, have also crimped profit margins for oil refiners, resulting in a decline in new crude orders.Reuters

    Futures prices

    Prices are as at 12:59 ET

    • NYMEX West Texas Intermediate (WTI): $64.81/barrel +0.79% Chart
    • ICE (London) Brent North Sea Crude: $70.16/barrel +0.42% (15:48) Chart
    • NYMEX Natural gas futures: $3.13/MMBTU -2.16% Chart

    flag_europe EU: International Trade in Goods. Nov 2017

    Press Release Extract [eu_trade]

    Euro area

    The first estimate for euro area (EA19) exports of goods to the rest of the world in November 2017 was €197.5 billion, an increase of 7.7% compared with November 2016 (€183.5 bn). Imports from the rest of the world stood at €171.2 bn, a rise of 7.3% compared with November 2016 (€159.6 bn). As a result, the euro area recorded a €26.3 bn surplus in trade in goods with the rest of the world in November 2017, compared with +€23.8 bn in November 2016. Intra-euro area trade rose to €165.5 bn in November 2017, up by 6.9% compared with November 2016.

    eu_ea_trade_20180115

    In January to November 2017, euro area exports of goods to the rest of the world rose to €2 009.7 bn (an increase of 7.5% compared with January-November 2016), and imports rose to €1 796.5 bn (an increase of 10.1% compared with January-November 2016). As a result the euro area recorded a surplus of €213.1 bn, compared with +€237.7 bn in January-November 2016. Intra-euro area trade rose to €1 696.1 bn in January-November 2017, up by 7.6% compared with January-November 2016.

    European Union

    The first estimate for extra-EU28 exports of goods in November 2017 was €167.2 billion, up by 6.8% compared with November 2016 (€156.6 bn). Imports from the rest of the world stood at €159.2 bn, up by 5.4% compared with November 2016 (€151.1 bn). As a result, the EU28 recorded a €8.0 bn surplus in trade in goods with the rest of the world in November 2017, compared with +€5.5 bn in November 2016. Intra-EU28 trade rose to €300.9 bn in November 2017, +6.9% compared with November 2016.

    eu_trade_20180115

    In January to November 2017, extra-EU28 exports of goods rose to €1 716.6 bn (an increase of 8.7% compared with January-November 2016), and imports rose to €1 704.5 bn (an increase of 8.7% compared with January- November 2016). As a result, the EU28 recorded a surplus of €12.1 bn, compared with +€11.3 bn in January- November 2016. Intra-EU28 trade rose to €3 082.2 bn in January-November 2017, +7.5% compared with January- November 2016.

    Eurostat, “International Trade in Goods. Nov 2017“, 15 Jan 2018 More

    flag_europe EU: Greek Parliament Approves Reforms To Earn Bailout Funding

    Cartoon: Martin Sutovec (SME Daily)

    Cartoon: Martin Sutovec (SME Daily)

    The Greek Parliament has passed a bill of reforms and other measures necessary to receive the next tranche of Eurozone bailout loan funding

    Greece’s parliament approved a bill for fiscal, energy and labor reforms prescribed by the country’s international lenders in exchange for fresh bailout funds. The draft legislation was approved by a majority of lawmakers in the 300-seat parliament. Thousands of people had rallied outside the building to protest against the measures.Reuters

    The amount of the next tranche of loans to Greece after the completion of the third bailout review will be around EUR 6-7 billion, a eurozone source told Athens-Macedonian agency on Friday. The same source said that the decision to release the tranche should be made at the eurogroup meeting on January 22, anticipating any outstanding issues to be resolved in the coming week.Kathimerini

    This action was taken 2 days before the 17 Jan 2018 deadline.

    Lawmakers will have to vote on Monday (15 Jan 2018) on the extensive multi-bill tabled last week by the government as Greece takes another step toward completing its third program. It is another unsatisfying moment for the country’s parliamentary democracy as hundreds of pages of draft legislation had to be debated over just a few days and there are legitimate doubts about whether deputies will fully comprehend what they are voting for.

    However, as has been the case in previous years, the end seems to justify the means. Along with some ministerial decisions that are due to be issued, Monday’s vote should lead to the conclusion of the third review. Passing this milestone will help provide a clearer picture of what lies ahead before the bailout’s scheduled conclusion in Aug 2018.

    The omnibus bill contains 400 articles that pave the way for the creation of a new, 135-employee-strong agency to tackle major financial crime (including tax evasion), the licensing of casinos, incentives for businesses to start up in the center of Athens and the forming of a committee to re-examine the professions defined as hazardous and unhealthy.

    Most attention, however, has been attracted by the articles relating to electronic auctions and strikes. The draft legislation stipulates that as of 1 May 2018 electronic auctions, which were only launched in Nov 2017, will be the only form of foreclosure. The aim is to put an end to the weekly, sometimes ugly, standoffs at courts each week, when activists attempt to prevent auctions from taking place.

    Regarding strikes, the would-be law decrees that for a first-level union to call protest action, at least half of the paid-up members have to vote in a general assembly. At the moment, just a third of members are required to do so.

    These two measures have put the government in an uncomfortable position. One SYRIZA deputy, Yiannis Theonas, suggested last week that the article on strikes should not be adopted at all.

    Speaking to the parliamentary committees assessing the multi-bill last week, Finance Minister Euclid Tsakalotos said the government did not agree with the change to the strike rules but had been unable to convince the creditors not to proceed with it. The coalition has highlighted, though, that the measure does not affect regional and national unions.

    There is also some unease in the government ranks over the greater use of electronic auctions, especially as the Independent Authority for Public Revenue will be able to sell off debtors’ assets to recover unpaid taxes. Government spokesman Dimitris Tzanakopoulos claimed in a radio interview that the change would not lead to the state adopting a more “aggressive” stance. He underlined that most main homes are protected under current legislation even though there had been calls from within SYRIZA for more safeguards to be put in place.

    To counterbalance some of this negativity, the coalition has tried to stress what it sees as the positives in the multi-bill. The increase in child benefits has been top of the government’s list in this effort. Alternate Labor and Social Security Minister Theano Fotiou highlighted that the total amount spent on child benefits will increase from around EUR 650 million to EUR 910 million, and some 300,000 families will see a substantial increase in the amounts they receive.

    Other elements of the bill that the coalition has stressed include a reduction in fines for businesses that submit their tax declarations late and a provision for employees at bankrupt companies to be at the head of the line in terms of the firm’s creditors and will be able to claim up to 6 months in unpaid wages before any money is paid out elsewhere.

    Addressing the cabinet last Monday, Prime Minister Alexis Tsipras told his ministers that the passing of the multi-bill and the conclusion of the review put Greece in the “final stretch” of its third bailout program. Should the Eurogroup confirm next Monday (22 Jan 2018) that all the prior actions have been completed, this would leave just one more review before the program’s end. It is expected that the fourth review will contain 82 prior actions.

    However, there are several other issues that also need to be settled in the coming months. Apart from the discussion on debt relief, which remains on ice for the time being, there is also the cash buffer to aid Athens’s program exit that needs to be taken care of. It is expected that this will be between 10 and 15 billion euros, providing the government with the financial safety net it needs not to require a precautionary credit line.

    This is to be built up with some of the funds remaining from the current bailout and new bond issues. The Finance Ministry suggested last week that it expects the next tranche it will receive from the European Stability Mechanism to be 4.8 billion euros, 3.3 billion of which will be to cover funding needs between February and June and the rest to reduce state arrears. If this is the case, some 28 billion euros from the 86-billion-euro envelope put together for the third program will be unused for the time being.

    How much of this will be transferred to the cash buffer before August remains to be seen and will be closely linked to Greece’s efforts in the bond markets in the coming months. It is expected that Athens will issue a three-, five- or seven-year bond with the probable aim of raising between 3 and 5 billion euros once the third review has been officially completed, and then follow this up with at least one more issue by the summer.

    The current signs from the markets are positive. The yield on Greece’s benchmark 10-year bond, for instance, continued to hover well below 4 percent at the end of last week. When one considers that a year earlier it was at almost 7 percent, it is clear how conditions have improved markedly for the country.

    Of course, it is possible the international environment may worsen between now and the end of the program and this could have a negative impact on Greek borrowing costs. For now, though, the elements needed to smooth the country’s transition from the bailout are gradually coming together. The benefits of completing the third review are, therefore, clear. The question remains, though, whether ramming 400 articles through Parliament in less than a week is a suitable price to pay.Kathimerini

    Greek unions and others have protested against the reforms and other measures

    Greek police fired teargas at protesters outside parliament in Athens on Monday, as lawmakers voted on a new set of bailout measures prescribed by the country’s international lenders in exchange for fresh bailout loans.

    More than 10,000 people had rallied outside parliament when a group of protesters hurled petrol bombs and stones at police who had formed a cordon outside parliament. Police responded with teargas.Reuters

    The Gods weren’t happy either

    An earthquake that rattled Greece on Monday night was felt in the capital Athens, a Reuters reporter said. The U.S. Geological Survey said the 4.4 magnitude quake struck 51 km (30 miles) south-southeast of Patras.Reuters

    flag_japan Japan update

    Currency: USD/JPY

    JPY movements
    ^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

    Bank of Japan Governor Haruhiko Kuroda offered a positive view on the economy and inflation on Monday, sending the JPY to a 4-month high against the USD on simmering speculation it may exit its ultra-loose monetary policy earlier than expected.

    Financial markets ignored Kuroda’s reminder that the BOJ will maintain its massive stimulus in a sign of how nervous investors have become on when it might follow the footsteps of other central banks in dialing back crisis-mode stimulus.

    The BOJ also offered its most optimistic view on regional areas of Japan in nearly a decade in a quarterly report, underscoring its conviction a broadening recovery will help accelerate inflation to its ambitious 2% target.

    Kuroda said in a speech to BOJ regional branch managers that core consumer inflation was “moving around 1%,” a slight change from 3 months ago when he said core consumer prices were around zero. “The economy is expected to continue expanding moderately,” he added, reiterating his optimism on prospects for a sustained recovery.

    The comments sent the USD falling as low as JPY 110.58 as some traders bought the yen on expectations the BOJ could dial back stimulus earlier than expected – a view that heightened after a slight cut in its debt purchases last week.

    “Kuroda’s change in language merely reflects recent price gains, but people have become sensitive to even the subtlest difference since the BOJ cut bond purchases. Members of the government are also making more positive comments about escaping deflation. Policymakers are gradually changing their tone,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

    Kuroda also said a moderate economic expansion now under way will help accelerate inflation toward the BOJ’s 2% target, signaling its desire to maintain the status quo on monetary policy for the time being.

    In the quarterly report, the BOJ raised its assessment for 3 of Japan’s 9 regional economies and maintained its rosy view for the remaining six regions. The central bank said 2 regions were seeing their economies “expanding,” the first time it has used such an upbeat assessment for as many regions since Apr 2007.

    Shinichi Uchida, head of the BOJ’s Nagoya branch in central Japan, said conditions for wage increases were falling into place as firms face intensifying labor shortages. “We’re seeing some positive moves toward an end to deflation,” Uchida told a news conference, adding that companies were benefiting from robust domestic and overseas demand.

    Japan’s economy grew an annualized 2.5% in Q3/2017 to mark a 7th straight quarter of growth thanks to robust exports and capital expenditure.

    Core consumer prices in Nov 2017 rose 0.9% from Nov 2016, far below the BOJ’s 2% target but posting the 11th straight month of gains, offering policymakers some hope firms are finally starting to raise prices on brightening prospects.

    Japan’s economy minister raised eyebrows last week when he talked up the government’s progress in reflating the economy and suggested it is possible to declare an end to deflation before consumer prices reach the BOJ’s inflation target.

    Given the rising cost of prolonged easing, such as the hit to bank profits from ultra-low interest rates, the BOJ has been sending subtle yet intentional hints it could edge away from crisis-mode policy earlier than expected.

    But a small cut to its regular bond purchases last week pushed global yields and the JPY higher, underscoring the challenge the BOJ faces in communicating its policy intentions. “Japan’s financial system remains stable and monetary conditions are very accommodative,” Kuroda said in the speech, holding off from repeating recent warnings about the rising cost of ultra-easy policy.Reuters

    Stockmarket: Nikkei 225

    n225 movements
    ^ Nikkei 225 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