Mon 22 Jan 2018


watch Nightly Business Report. watch PBS NewsHour. watch Bloomberg Technology.

In Portfolioticker today

read_this Hey Jarvis, how did we go today?

  • 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/bearU.S. stocks advanced on Monday as each of Wall Street’s main scored records in the wake of a deal by U.S. senators to end the federal government shutdown.

    Legislation to renew federal funding to the government cleared a procedural hurdle in the Senate and was expected soon to pass votes in the Senate and House of Representatives, allowing government to re-open through 8 Feb 2018.

    • The S&P 500 index rose 22.67 points, or 0.81%, to 2,832.97
    • The Dow Jones Industrial Average rose 142.88 points, or 0.55%, to 26,214.6
    • The Nasdaq Composite index rose 71.65 points, or 0.98%, to 7,408.03.
    • Advancing issues outnumbered declining ones on the NYSE by a 1.70-to-1 ratio; on Nasdaq, a 1.38-to-1 ratio favored advancers.
    • The S&P 500 posted 123 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 202 new highs and 16 new lows.
    • Volume on U.S. exchanges was 6.56 billion shares, above the 6.34 billion average for the full session over the last 20 trading days.

    “You would think something like the threat of a government shutdown or an actual government shutdown would serve as a catalyst to spook some weaker holders out of the market. That hasn’t happened, which speaks to underlying strength of what we’re seeing right now in equity markets,” said Eric Marshall, portfolio manager and director of research at Hodges Capital Management in Dallas, Texas.

    Earnings growth of 12.4% is expected for the quarter, according to Thomson Reuters data. Of the 55 companies in the S&P 500 that have reported earnings through Monday morning, 80% have topped expectations, well above the 7% beat rate for the past four quarters.

    Halliburton Co climbed 6.40% after posting a much bigger-than-expected quarterly profit in Q4/2017, benefiting from a shale-driven surge in U.S. oil production.

    The Nasdaq biotech index rose 3.15% to notch its best day since 21 Jun 2017 after a flurry of merger activity in the sector with French drugmaker Sanofi and U.S.-based Celgene splurging a combined total of more than $20 billion.

    Shares in U.S. hemophilia specialist Bioverativ soared 61.89% after Sanofi agreed to buy the company for $11.6 billion.

    Juno Therapeutics jumped 26.83% after Celgene agreed to buy the biotech for about $9 billion in cash.

    In other M&A news, AIG said it would buy reinsurer Validus Holdings (VR.N) for $5.56 billion, sending the target’s shares up 44.03%.

    Industrial stocks were one of the few laggards, as woes continued for General Electric, down 0.55 after BofA-Merrill Lynch downgraded its stock. GE fell below $16 for the first time since 2011 and is down nearly 8% for the year.

    Shares of Netflix Inc, a major contributor to the recent stock rally, closed up 3.23% ahead of its quarterly results and added to gains in extended trading after its quarterly numbers were released.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) 2,832.97 +0.80% 2,238.83 +5.96%
    DJIA INDU 26,214.60 +0.54% 19,762.60 +6.04%
    NASDAQ IXIC 7,408.03 +0.97% 5,383.12 +7.31%

    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 3.266 +0.14% 2.105 +6.47%
    Valuation Rate USD/AUD 0.80647 +0.24% 0.72663 +2.69%
    AUD-denominated Index AUD 4.053 -0.11% 2.895 +3.70%

    Portfolio stock prices

    :-) Alphabet Class A closed on a record high of $1,164.16, up 1.81% on Friday’s record of $1,305.20
    :-) Alphabet Class C closed on a record high of $1,155.81, up 1.61% on Friday’s record of $1,137.51
    :-) Amazon closed on a record high of $1,327.31, beating its 12 Jan 2018 record of $1,305.20
    :-) Visa closed on a record high of $124.33, beating its 18 Jan 2018 record of $123.11
    :-) VMware closed on a record high of $136.69, up 0.48% on Friday’s record of $136.04

    Stock Ticker Today Change 31 Dec 17 YTD
    Alphabet A GOOGL $1,164.16 +1.80% $1,053.00 +10.55%
    Alphabet C GOOG $1,155.81 +1.60% $1,045.65 +10.53%
    Apple AAPL $177.00 -0.82% $169.23 +4.59%
    Amazon AMZN $1,327.31 +2.52% $1,169.54 +13.48%
    Ebay EBAY $39.58 +2.99% $37.76 +4.81%
    Facebook FB $185.37 +2.25% $176.46 +5.04%
    PayPal PYPL $83.98 +0.16% $73.61 +14.08%
    Twitter TWTR $23.32 -1.44% $24.01 -2.88%
    Visa V $124.33 +1.32% $114.02 +9.04%
    VMware VMW $136.69 +0.47% $125.32 +9.07%

    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) fell to near a three-year low, but pared losses as the U.S. government shutdown appeared poised to end. The index drifted lower again late in the session. Bloomberg

    AUD

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

    Oil and Gas Futures

    Futures prices

    Oil settled higher on Monday after dollar fluctuations and the restart of some Libyan oil fields caused the market to vacillate, with prices testing lower before rallying to levels just below three-year highs.Reuters

    Prices are as at 15:49 ET

    • NYMEX West Texas Intermediate (WTI): $63.49/barrel +0.19% (14:49) Chart
    • ICE (London) Brent North Sea Crude: $69.17/barrel +0.82% Chart
    • NYMEX Natural gas futures: $3.24/MMBTU +1.66% Chart

    IMF World Economic Outlook Update. Jan 2018

    Extracts

    Global economic activity continues to firm up. Global output is estimated to have grown by 3.7 percent in 2017, which is 0.1 percentage point faster than projected in the fall and ½ percentage point higher than in 2016. The pickup in growth has been broad based, with notable upside surprises in Europe and Asia. Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes.

    The U.S. tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts. The effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2 percent through that year, with a range of uncertainty around this central scenario. Due to the temporary nature of some of its provisions, the tax policy package is projected to lower growth for a few years from 2022 onwards. The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018–19.

    Risks to the global growth forecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term. On the upside, the cyclical rebound could prove stronger in the near term as the pickup in activity and easier financial conditions reinforce each other. On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence. A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates. If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike. Inward-looking policies, geopolitical tensions, and political uncertainty in some countries also pose downside risks.

    The current cyclical upswing provides an ideal opportunity for reforms. Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive. In an environment of financial market optimism, ensuring financial resilience is imperative. Weak inflation suggests that slack remains in many advanced economies and monetary policy should continue to remain accommodative. However, the improved growth momentum means that fiscal policy should increasingly be designed with an eye on medium-term goals—ensuring fiscal sustainability and bolstering potential output. Multilateral cooperation remains vital for securing the global recovery.

    The Global Recovery Has Strengthened

    The cyclical upswing underway since mid-2016 has continued to strengthen. Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010. Among advanced economies, growth in the third quarter of 2017 was higher than projected in the fall, notably in Germany, Japan, Korea, and the United States. Key emerging market and developing economies, including Brazil, China, and South Africa, also posted third-quarter growth stronger than the fall forecasts. High-frequency hard data and sentiment indicators point to a continuation of strong momentum in the fourth quarter. World trade has grown strongly in recent months, supported by a pickup in investment, particularly among advanced economies, and increased manufacturing output in Asia in the run up to the launch of new smartphone models. Purchasing managers’ indices indicate firm manufacturing activity ahead, consistent with strong consumer confidence pointing to healthy final demand.

    Commodities and inflation. An improving global growth outlook, weather events in the United States, the extension of the OPEC+ agreement to limit oil production, and geopolitical tensions in the Middle East have supported crude oil prices. These have risen by about 20 percent between August 2017 (the reference period for the October 2017 WEO) and mid-December 2017 (the reference period for the January 2018 WEO Update), to over $60 per barrel, with some further increase as of early January 2018. Markets expect prices to gradually decline over the next 4–5 years—as of mid-December, medium-term price futures stood at about $54 per barrel, modestly higher than in August. The increase in fuel prices raised headline inflation in advanced economies, but wage and core-price inflation remain weak. Among emerging market economies, headline and core inflation have ticked up slightly in recent months after declining earlier in 2017.

    Bond and equity markets. Market expectations of the path of U.S. Federal Reserve policy rates have shifted up since August, reflecting the well‑anticipated December rate hike, but they continue to price in a gradual increase over 2018 and 2019. The Bank of England raised its policy rate for the first time since 2008 in view of diminishing slack in the economy and above‑target inflation driven by the past sterling depreciation; the European Central Bank announced that it will taper its net asset purchases starting in January. The ECB intends, however, to maintain policy rates at current historically low levels until after quantitative easing ends and, should inflation underperform, extend the asset purchase program in amount and duration. Bond market reaction to these shifts has been muted, with yield curves tending to flatten as short-term rates have risen more than longer-term rates (e.g., in the United States, United Kingdom, and Canada), consistent with still-subdued market expectations of sustained upside surprises on inflation. Equity prices in advanced economies continued to rally, buoyed by generally favorable sentiment regarding earnings prospects, expectations of a very gradual normalization path for monetary policy in a weak inflation environment, and low expected volatility in underlying fundamentals. Emerging market equity indices have risen further since August, lifted by the improved near-term outlook for commodity exporters. In some cases, long-term yields have inched up in recent months, but they generally remain low, and interest rate spreads remain compressed.

    Exchange rates and capital flows. As of early January 2018, the U.S. dollar and the euro remain close to their August 2017 level in real effective terms. The Japanese yen has depreciated by 5 percent on widening interest differentials, while the sterling has appreciated by close to 4 percent as the Bank of England raised interest rates in November and as expectations of a Brexit deal rose. Across emerging market currencies, the renminbi has appreciated by around 2 percent, the Malaysian ringgit has rebounded by about 7 percent on an improved growth outlook and stronger commodity prices, and the South African rand by close to 6 percent onperceptions of reduced political uncertainty. In contrast, the Mexican peso has depreciated by 7 percent owing to renewed uncertainty associated with the ongoing NAFTA negotiations and the Turkish lira by 4.5 percent on higher inflation readings. Capital flows to emerging economies have remained resilient through the third quarter of 2017, with continued strength in non-resident portfolio inflows.

    Global Growth Forecast to Rise Further in 2018 and 2019

    Global growth for 2017 is now estimated at 3.7 percent, 0.1 percentage point higher than projected in the fall. Upside growth surprises were particularly pronounced in Europe and Asia but broad based, with outturns for both the advanced and the emerging market and developing economy groups exceeding the fall forecasts by 0.1 percentage point.

    The stronger momentum experienced in 2017 is expected to carry into 2018 and 2019, with global growth revised up to 3.9 percent for both years (0.2 percentage point higher relative to the fall forecasts).

    For the two-year forecast horizon, the upward revisions to the global outlook result mainly from advanced economies, where growth is now expected to exceed 2 percent in 2018 and 2019. This forecast reflects the expectation that favorable global financial conditions and strong sentiment will help maintain the recent acceleration in demand, especially in investment, with a noticeable impact on growth in economies with large exports. In addition, the U.S. tax reform and associated fiscal stimulus are expected to temporarily raise U.S. growth, with favorable demand spillovers for U.S. trading partners—especially Canada and Mexico—during this period. The expected global macroeconomic effects account for around one-half of the cumulative upward revision to the global growth forecast for 2018 and 2019, with a range of uncertainty around this baseline projection.

    • The growth forecast for the United States has been revised up given stronger than expected activity in 2017, higher projected external demand, and the expected macroeconomic impact of the tax reform, in particular the reduction in corporate tax rates and the temporary allowance for full expensing of investment. The forecast assumes that the decline in tax revenues will not be offset by spending cuts in the near term. The tax reform is therefore anticipated to stimulate near-term activity in the United States. As a by-product, stronger domestic demand is projected to increase imports and widen the current account deficit. Overall, the policy changes are projected to add to growth through 2020, so that U.S. real GDP is 1.2 percent higher by 2020 than in a projection without the tax policy changes. The U.S. growth forecast has been raised from 2.3 percent to 2.7 percent in 2018, and from 1.9 percent to 2.5 percent in 2019. In light of the increased fiscal deficit, which will require fiscal adjustment down the road, and the temporary nature of some provisions, growth is expected to be lower than in previous forecasts for a few years from 2022 onward, offsetting some of the earlier growth gains. The inflation response to higher domestic demand is expected to be muted given the low sensitivity of core price pressures to changes in slack in recent years and a somewhat faster projected pace of U.S. Federal Reserve policy rate hikes than in the fall, with a modest decompression of term premiums and no sizable U.S. dollar appreciation. According to the U.S. Congressional Joint Committee on Taxation, the tax code overhaul is projected to reduce the average tax rate on upper income U.S. households relative to those in the middle and lower segments, especially over the medium term (when some provisions benefiting lower- and middle-income taxpayers expire).
    • Growth rates for many of the euro area economies have been marked up, especially for Germany, Italy, and the Netherlands, reflecting the stronger momentum in domestic demand and higher external demand. Growth in Spain, which has been well above potential, has been marked down slightly for 2018, reflecting the effects of increased political uncertainty on confidence and demand.
    • The growth forecast for 2018 and 2019 has also been revised up for other advanced economies, reflecting in particular stronger growth in advanced Asian economies, which are especially sensitive to the outlook for global trade and investment. The growth forecast for Japan has been revised up for 2018 and 2019, reflecting upward revisions to external demand, the supplementary budget for 2018, and carryover from stronger-than-expected recent activity.

    The aggregate growth forecast for the emerging markets and developing economies for 2018 and 2019 is unchanged, with marked differences in the outlook across regions.

    • Emerging and developing Asia will grow at around 6.5 percent over 2018–19, broadly the same pace as in 2017. The region continues to account for over half of world growth. Growth is expected to moderate gradually in China (though with a slight upward revision to the forecast for 2018 and 2019 relative to the fall forecasts, reflecting stronger external demand), pick up in India, and remain broadly stable in the ASEAN-5 region.
    • In emerging and developing Europe, where growth in 2017 is now estimated to have exceeded 5 percent, activity in 2018 and 2019 is projected to remain stronger than previously anticipated, lifted by a higher growth forecast for Poland and especially Turkey. These revisions reflect a favorable external environment, with easy financial conditions and stronger export demand from the euro area, and, for Turkey, an accommodative policy stance.
    • In Latin America, the recovery is expected to strengthen, with growth of 1.9 percent in 2018 (as projected in the fall) and 2.6 percent in 2019 (a 0.2 percentage point upward revision). This change primarily reflects an improved outlook for Mexico, benefiting from stronger U.S. demand, a firmer recovery in Brazil, and favorable effects of stronger commodity prices and easier financing conditions on some commodity-exporting countries. These upward revisions more than offset further downward revisions for Venezuela.
    • Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is also expected to pick up in 2018 and 2019, but remains subdued at around 3½ percent. While stronger oil prices are helping a recovery in domestic demand in oil exporters, including Saudi Arabia, the fiscal adjustment that is still needed is projected to weigh on growth prospects.
    • The growth pickup in Sub-Saharan Africa (from 2.7 percent in 2017 to 3.3 percent in 2018 and 3.5 percent in 2019) is broadly as anticipated in the fall, with a modest upgrade to the growth forecast for Nigeria but more subdued growth prospects in South Africa, where growth is now expected to remain below 1 percent in 2018–19, as increased political uncertainty weighs on confidence and investment.
    • Growth this year and next is projected to remain above 2 percent in the Commonwealth of Independent States, supported by a slight upward revision to growth prospects for Russia in 2018.

    Risks

    Risks to the outlook are broadly balanced in the near term, but—as in the October 2017 WEO—remain skewed to the downside over the medium term. One notable threat to growth is a tightening of global financing terms from their current easy settings, either in the near term or later.

    In the near term, the global economy is likely to maintain its momentum absent a correction in financial markets—which have seen a sustained run-up in asset prices and very low volatility, seemingly unperturbed by policy or political uncertainty in recent months. Such momentum could even surprise on the upside in the near term if confidence in the global outlook and easy financial conditions continue to reinforce each other.

    The reaction of longer-term bond yields and the U.S. dollar to the change in U.S. tax policy appears to have been limited so far, and markets currently anticipate a more gradual pace of monetary policy tightening than incorporated into the WEO baseline. A financial market correction could be triggered, for example, by signs of firmer inflation in the United States, where the boost to demand will exert downward pressure on the already very low unemployment rate. Higher inflation pressure, together with faster Fed policy rate tightening than anticipated in the baseline, could contribute to a larger decompression of term premiums in the United States, a stronger U.S. dollar, and lower equity prices. The tightening of global financial conditions would have implications for global asset prices and capital flows, leaving economies with high gross debt refinancing needs and unhedged dollar liabilities particularly exposed to financial distress.

    Also on the downside, the response of U.S. investment to tax policy changes could be more modest than envisaged in the baseline, with attendant repercussions on the strength of external demand for the main U.S. trading partners.

    Over the medium term, a potential buildup of vulnerabilities if financial conditions remain easy, the possible adoption of inward-looking policies, and noneconomic factors pose notable downside risks.

    • Buildup of financial vulnerabilities. If financial conditions remain easy into the medium term, with a protracted period of very low interest rates and low expected volatility in asset prices, vulnerabilities could accumulate as yield-seeking investors increase exposure to lower-rated corporate and sovereign borrowers and less credit-worthy households. As noted in the October 2017 Global Financial Stability Report, the share of companies with low investment-grade ratings in advanced economy bond indices has increased significantly in recent years. Non-financial corporate debt has grown rapidly in some emerging markets, calling for a policy response. The Chinese authorities have made a welcome start by recently tightening the regulation of non-bank intermediation. Credit risks on these exposures may be hidden while near-term global growth momentum is maintained and refinancing needs remain low. The absence of near-term warning flags, in turn, may reinforce yield-seeking behavior and amplify the buildup of financial vulnerabilities that come to the fore over the medium term.
    • Inward-looking policies. Important long‑standing commercial agreements, such as NAFTA and the economic arrangements between the United Kingdom and rest of the European Union, are under renegotiation. An increase in trade barriers and regulatory realignments, in the context of these negotiations or elsewhere, would weigh on global investment and reduce production efficiency, exerting a drag on potential growth in advanced, emerging market, and developing economies. A failure to make growth more inclusive and the widening of external imbalances in some countries, including the United States, could increase pressures for inward-looking policies.
    • Noneconomic factors. The medium-term global outlook is also clouded by geopolitical tensions, notably in East Asia and the Middle East. Political uncertainty also gives rise to reform implementation risks or the possibility of reoriented policy agendas, including in the context of upcoming elections in several countries (such as Brazil, Colombia, Italy, and Mexico). Recent extreme weather developments—hurricanes in the Atlantic, drought in sub-Saharan Africa and Australia—point to the risk of recurrent, potent climate events that impose devastating humanitarian costs and economic losses on the affected regions. They may also add to migration flows that could further destabilize already fragile recipient countries.

    Policies

    Two common policy objectives tie advanced, emerging, and developing economies together. First, the need to raise potential output growth—through structural reforms to lift productivity and, especially in advanced economies with aging populations, enhance labor force participation rates—while making sure that the gains from growth are shared widely. Second, the imperative to increase resilience, including through proactive financial regulation and, where needed, balance sheet repair and strengthening fiscal buffers. Action is particularly important in a low-interest-rate, low-volatility environment with potential for disruptive portfolio adjustments and capital flow reversals. The current cyclical upswing provides a unique opportunity for structural and governance reforms.

    Against a backdrop of common priorities, the optimal policy mix differs across countries depending on cyclical considerations and available policy space:

    • In advanced economies where output is close to potential, still-muted wage and price pressures call for a cautious and data‑dependent monetary policy normalization path. However, where unemployment is low and projected to decline further, such as in the United States, a faster pace of policy normalization may be required if inflation were to pick up more than currently anticipated. In advanced economies where output gaps persist and inflation remains below the central bank target, continued monetary accommodation is desirable. Fiscal policy in both cases should focus on medium-term objectives —including public investment to boost potential output and initiatives to raise labor force participation rates where gaps exist—while ensuring that public debt dynamics are sustainable and excessive external imbalances are reduced. Where fiscal consolidation is needed, its pace should be calibrated to avoid sharp drags on growth, while orienting policy toward boosting the quality of public health and education, and protecting the vulnerable, including those that may be adversely affected by structural transformation.
    • In emerging market economies, improved monetary policy frameworks have helped lower core inflation, which provides scope for using monetary policy to support demand should activity weaken. Fiscal policy is generally more constrained by the need to gradually rebuild buffers, especially in commodity-dependent emerging market and developing economies. With the recent respite provided by the cyclical rebound in commodity prices, policymakers should guard against the temptation to defer reforms and budgetary adjustments for later. Exchange rate flexibility can complement domestic policy settings by preventing sustained misalignments in relative prices, facilitating adjustment to shocks, and curtailing the buildup of financial and external imbalances.
    • The policy challenges for low-income countries are particularly complex, as they involve multiple, sometimes conflicting goals. These include supporting near-term activity; diversifying their economies and lifting potential output to maintain progress toward their Sustainable Development Goals; building buffers to enhance resilience, especially in commodity-dependent economies grappling with a subdued outlook for commodity prices; and tackling high and rising debt levels in many cases. Policy initiatives should continue to focus on broadening the tax base, mobilizing revenue, improving debt management, reducing poorly targeted subsidies, and channeling spending into areas that lift potential growth and improve the livelihoods of all (infrastructure, health, and education). Efforts to strengthen macroprudential frameworks and greater exchange rate flexibility would improve resource allocation, reduce vulnerabilities, and boost resilience.

    Cooperative multilateral effort remains vital to safeguard recent momentum in global activity, strengthen medium-term prospects, and ensure the benefits from technological progress and global economic integration are shared more widely. Priority areas include continuing the financial regulatory reform agenda; avoiding competitive races to the bottom in taxes, labor, and environmental standards; modernizing the rules‑based multilateral trade framework; strengthening the global financial safety net; preserving correspondent banking relationships; curbing cross-border money laundering, organized crime, and terrorism; and mitigating and adapting to climate change.

    International Monetary Fund, “World Economic Outlook – Update – Brighter Prospects, Optimistic Markets, Challenges Ahead“, 22 Jan 2018 (09:00 EDT) (Released at the WEF, Davos) Report

    Comments (at WEF Davos)

    IMF chief economist Maurice Obstfeld told reporters at the World Economic Forum in Davos that USA’s tax cuts would likely widen the U.S. current account deficit, strengthen the U.S. dollar and affect international investment flows. “Political leaders and policymakers must stay mindful that the current economic momentum reflects a confluence of factors that is unlikely to last for long,” Obstfeld said. He said economic gains from the tax cuts would be partially paid back later in the form of lower growth as temporary spending incentives, notably for investment, expired and as rising federal debt took a toll.

    Obstfeld said a sudden rise in interest rates could lead to questions about the debt sustainability of some countries and lead to a disruptive correction in “elevated” equity prices.

    IMF Managing Director Christine Lagarde pointed to a “troubling” increase in debt levels across many countries and warned policymakers against complacency, saying now was the time to address structural deficiencies in their economies.Reuters

    flag_usa US: Government Shutdown Status

    Day 3: Press Reports

    Thousands of federal employees began the week on Monday trying to figure out if they would be working and getting paid, as U.S. Senate leaders tried to reach a deal to reopen the government open hours before a full Senate vote.

    During shutdowns, non-essential government employees are furloughed, or placed on temporary unpaid leave. Those deemed essential, including those in public safety and national security, keep working.

    The federal Office of Personnel Management warned on Twitter it may not be able to provide updates on the government’s operating status on its social media accounts due to the shutdown.More

    Federal employees received notices on Saturday about whether they were exempt from the shutdown, White House budget director Mick Mulvaney said. Depending on their schedules, some were told to stay home or to go to work for up to four hours on Monday to shut their operation, then go home. None will get paid.

    The U.S. government has not been shut down since Oct 2013, when about 800,000 federal workers were put on furlough. That impasse prevented passage of a needed funding bill centered on former Democratic President Barack Obama’s healthcare law.

    The problem this time focuses on immigration policy, principally President Donald Trump’s order last year ending an Obama program called Deferred Action for Childhood Arrivals (DACA), which gave legal protections to “Dreamer” immigrants. The “Dreamers” are young people who were brought to the United States illegally as children by their parents or other adults, mainly from Mexico and Central America, and who mostly grew up in the United States.More

    Day 3: Temporary Funding Deal Agreed – Shutdown Ends

    U.S. senators struck a deal on Monday to lift a 3-day government shutdown and try to end a fight between Democrats and President Donald Trump’s Republicans over immigration and border security.

    Legislation to renew federal funding to the government cleared a procedural hurdle in the Senate and was expected soon to pass votes in the Senate and House of Representatives, allowing government to re-open through Feb 8.

    Tens of thousands of federal workers had begun closing down operations for lack of funding on Monday, the first weekday since the shutdown, but essential services such as security and defense operations had continued.

    Senate Democratic leader Chuck Schumer said he had come to an arrangement with Senate Majority Leader Mitch McConnell to keep the government open for the next few weeks after the Republican promised to let a bill on immigration reach the Senate floor.

    The U.S. government cannot fully operate without funding bills that are voted in Congress regularly. Washington has been hampered by frequent threats of a shutdown in recent years as the two parties fight over spending, immigration and other issues. The last U.S. government shutdown was in 2013.

    This shutdown, which began on the Friday’s first anniversary of Trump’s inauguration as president, undercut his self-crafted image as a dealmaker who would repair the broken culture in Washington.

    It had forced Trump to cancel a planned weekend trip to his Mar-a-Lago estate in Florida and created uncertainty around his scheduled trip this week to the World Economic Forum in Davos, Switzerland.

    In negotiations over the shutdown, Democrats had insisted that legislation to keep the government running include protections for young undocumented immigrants known as “Dreamers.”

    Republicans in turn said they would not negotiate on immigration until Democrats gave them the votes needed to reopen the government.

    Trump was expected to sign the legislation, which would give Congress more time to try to reach agreement on a long-term spending bill that would resolve issues including immigration, border security and spending caps.

    flag_europe EU: Eurogroup Meeting

    Agenda

    Press Release Extract [eu_eurogroup]

    The agenda for today’s Eurogroup meeting included:

    • Appointment of the new President of the Eurogroup Working Group: The Eurogroup will appoint a newly elected President of its preparatory body – the Eurogroup Working Group. Hans Vijlbrief will succeed Thomas Wieser, who has been presiding over the group since Jan 2012. Press Release
    • European Semester: 2018 euro area recommendation: The Eurogroup will discuss the draft Council recommendation on the economic policy of the eurozone for 2018, issued in the context of the European Semester, the EU’s policy coordination mechanism. Following a discussion within the Eurogroup, the draft recommendation is expected to be approved by the Economic and Financial Affairs Council on 23 Jan 2018. It will be formally adopted by the Council after endorsement in the March European Council.
    • Greece’s programme: state of play: The Eurogroup will be briefed on the progress achieved in the third review of Greece’s economic adjustment programme, with a focus on the implementation of the remaining prior actions. Background
    • Post-programme surveillance mission to Portugal: The Eurogroup will be informed about the results of the 7th post-programme surveillance mission to Portugal, which took place between 28 No 2017 and 6 Dec 2017. Post-programme surveillance (PPS) is carried out by the European Commission in liaison with the European Central Bank. PPS missions are usually coordinated with the International Monetary Fund and the European Stability Mechanism. The aim of the PPS is to establish any possible risks to the country’s ability to repay loans received from the European financial stabilisation mechanism (EFSM) and European financial stability facility (EFSF) under its earlier adjustment programme. The surveillance continues until at least 75% of the loan has been repaid.
    • IMF Article IV consultation with the euro area: The Eurogroup will exchange views on the International Monetary Fund’s presentation of its main preliminary findings from its interim mission relating to the Article IV consultation with the eurozone. The IMF carries out such a consultation every year with all of the IMF members, both individual countries and currency regions, including the eurozone. This is done in accordance with Article IV of the IMF’s Articles of Agreement. The final IMF mission is expected to take place in spring.
    • Economic and Monetary Union: Following the Euro Summit which took place on 15 Dec 2017, the ministers will have a follow-up discussion on the further steps towards deepening of the EMU.

    Eurogroup, “Agenda Highlights, 22/01/2018“, 22 Jan 2018 More

    Statement on Greece

    The Eurogroup welcomes the implementation of almost all of the agreed prior actions for the third review, following the staff level agreement on the policy package that was presented to the 4 December Eurogroup. Notably, the Greek authorities have adopted the 2018 State Budget which is compliant with the agreed primary surplus target of 3.5% of GDP. Moreover, the European institutions’ compliance report shows that the Greek authorities have over-achieved the fiscal targets set over the last three years (2015-2017). The Greek authorities have also continued to strengthen tax collection through the Independent Authority of Public Revenue and enhanced the fairness and effectiveness of the social welfare system. The business environment has been improved by further actions aimed at opening up regulated professions, improving the investment licensing system, lifting regulations that unnecessarily restrict competition in product markets as well as the opening-up the energy markets. Progress in the framework supporting non performing loan (NPL) resolution was achieved through further actions related to the effective operationalization of the out-of-court workout scheme and the start-up of electronic auctions.

    The Eurogroup reconfirms the importance of an ambitious comprehensive growth strategy with strong ownership from the Greek authorities. The authorities are invited to finalize it in cooperation with the institutions well before the end of the programme.

    The Eurogroup calls on the Greek authorities to complete the outstanding prior actions as a matter of urgency. The Eurogroup mandates the Eurogroup Working Group (EWG) to verify the full implementation of the outstanding prior actions on the basis of an assessment by the European institutions. This will include an assessment to confirm that a continuous and unimpeded flow of electronic auctions is ensured as well as the completion of government pending actions in the field of privatization.

    Following the full implementation of the prior actions and subject to the completion of national procedures, the European Stability Mechanism (ESM) governing bodies are expected to endorse the supplemental MoU and approve the disbursement of the fourth tranche of the ESM programme. The fourth tranche under the ESM programme amounting to EUR 6.7 bn will be disbursed to Greece in two disbursements, starting with a first disbursement in February of EUR 5.7 bn to cover debt servicing needs, to allow the further clearance of arrears and to support the build-up of the cash buffer of the Greek State, in order to support Greece’s return to the market. The subsequent disbursement for arrears clearance may be approved by the EWG in Spring, subject to a positive reporting by the European Institutions on the clearance of net arrears using also own resources and a confirmation from the European institutions that the unimpeded flow of e-auctions has continued.

    The Eurogroup will now turn its attention to the final stages of the ESM programme, which is expected to end in August 2018. The Eurogroup confirms the start of the technical work by the EWG on the growth-adjustment mechanism, as part of the medium-term debt relief measures to be implemented, if needed, following the successful conclusion of the programme, in line with the agreement in the Eurogroup of 15 June 2017. The Eurogroup invites the European institutions and the IMF to take into account the holistic Greek growth strategy when updating the debt sustainability analysis (DSA).

    Eurogroup, “Eurogroup statement on Greece“, 22 Jun 2018 Statement

    Referenced document (DSA): International Monetary Fund, “2016 Article IV Consultation — Press Release; Staff Report; and Statement By The Executive Director for Greece“, 6 Feb 2017 PDF

    flag_japan Japan update

    Reuters Tankan Manufacturer Confidence Index. Jan 2018

    Confidence among Japanese manufacturers jumped in Jan 2017 to an 11-year high, the Reuters Tankan poll showed on Monday, highlighting corporate optimism driven by nearly 2 years of uninterrupted economic expansion and a buoyant stock market.

    The monthly poll, which tracks the Bank of Japan’s (BOJ) closely-watched tankan quarterly survey, followed a key gauge of capital spending out last week showing Japan Inc’s readiness to spend some of their huge cash pile, potentially spurring a virtuous cycle of investment, consumption and growth.

    The positive data should bolster the confidence of the BOJ, which is set to issue a rosy view of the economy at its 2-day policy-setting meeting ending on Tuesday.

    Stability in currencies, global demand for electronics and cars, and capital expenditure were cited among factors behind bullish manufacturing sentiment seen in the Reuters poll of 547 large and mid-sized companies.

    Some 255 companies responded to the anonymous survey during the January 4-17 polling period.

    “The market related to industrial machinery and semiconductors is buoyant, with the latter in particular skyrocketing,” a manager at a rubber manufacturer wrote in the survey.

    The Reuters Tankan sentiment index for manufacturers stood at 35 in January, up from 27 in Dec 2017, the first rise in 3 months.

    Manufacturers in areas such as steel/nonferrous metals and chemicals, and metal production machinery led the gain.

    The index matched the high reached in Jan 2007, around the time a booming economy allowed the BOJ to end a previous spell of quantitative easing and zero interest rates. The index is expected to remain unchanged over the next three months.

    BOJ Governor Haruhiko Kuroda is expected to reassure markets at this week’s policy-setting meeting that the central bank has no imminent plan to whittle down its huge monetary stimulus until its 2 percent inflation target is achieved.

    In the Reuters Tankan, the service-sector sentiment index slipped to 33 in Jan 2018 from 34 in Dec 2017, with the information/communications industry falling from previous highs. The service-sector index is expected to fall to 29 in Apr 2018.

    The BOJ’s latest tankan showed last month that big manufacturers’ confidence improved for a fifth straight quarter in Dec 2017 to hit an 11-year high, a sign of the economy’s broadening recovery on solid external demand and hefty corporate profits.

    The Reuters Tankan’s sentiment indexes subtract the percentage of companies saying conditions are poor from those saying conditions are good. A positive number means optimists outnumber pessimists.Reuters

    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

    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