In Portfolioticker today
Today at the stock market
“U.S. stocks ran out of steam on Wednesday after an early surge, in a sign that investors are still spooked by the market’s recent retreat and wary more fallout is to come.
In an up-and-down session, the benchmark S&P 500 faded at the close after trading higher for much of the afternoon, following 2 days of big moves, including its largest single-day percentage loss in more than 6 years on Monday. The S&P 500 had rebounded 1.7% on Tuesday.
“Obviously there’s a lot of concerned and nervous people. You might have had day traders trying to get out at the end of the day. Who knows what tomorrow brings,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
While Wednesday’s trading lacked the wild swings of the prior 6 sessions, the DJIA moved in a roughly 500-point range, more than 3 times the average daily swing over the past year.
“There are going to be people that are going to be selling into any kind of strength and then you are going to have some value-conscious investors taking advantage of these multiple 100-point drops. Now that everybody is on edge, you’re going to see the volatility swing in both directions” said Alan Lancz, president of Alan B. Lancz & Associates, an investment advisory firm in Toledo, Ohio.
Technology shares fell 1.4%, with Apple (AAPL.O) down 2.1%, while energy dropped 1.7% as oil prices slumped. Gains for the industrials and financials sectors supported the market.
After regular cash trading on Wednesday, S&P e-mini futures fell 1%, suggesting the negative tone would continue on Thursday.
Investors were weighing whether the sharp swings were the start of a deeper move down or just clearing the way before a resumption of the aging bull market, which would turn 9 on 9 Mar 2018.
The market’s pullback came with concerns about rising bond yields and higher inflation, reinforced by Friday’s January U.S. jobs report that prompted worries the Federal Reserve will raise benchmark interest rates at a faster pace than expected this year.
“Although there are a couple of things in the way of perfect scenarios, that being interest rates and bond yields and what not, people are still looking at equities as a good investment and they still believe that there is going to be continued upside,” said Peter Costa, president of trading firm Empire Executions in New York.
On Wednesday, the U.S. Senate reached a 2-year bipartisan budget deal worth around $300 billion in an attempt to end the kind of squabbling over fiscal issues that has plagued Washington for years.” Reuters
^ Market indices today (mouseover for 12 month view) Chart: Google Finance
|Index||Ticker||Today||Change||31 Dec 17||YTD|
|S&P 500||SPX (INX)||2,681.66||-0.51%||2,673.61||+0.30%|
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting
|Index||Currency||Today||Change||31 Dec 17||YTD|
Portfolio stock prices
|Stock||Ticker||Today||Change||31 Dec 17||YTD|
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg
“The Bloomberg Dollar Spot Index (DXY) rose 0.5% to the highest in more than 2 weeks.
The EUR fell 0.9% to USD 1.227, the weakest in more than 2 weeks.
Britain’s GBP fell 0.5% to USD 1.3878, the weakest in almost 3 weeks.
Japan’s JPY fell less than 0.05% to 109.60 per USD.
The yield on 10-year Treasuries rose 4 basis points to 2.84%, the highest in about 4 years.
Germany’s 10-year yield rose 5 basis points to 0.75%.
Britain’s 10-year yield rose 3 basis points to 1.551%.” Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
Prices are as at 15:49 ET
- NYMEX West Texas Intermediate (WTI): $61.74/barrel -2.60% Chart
- ICE (London) Brent North Sea Crude: $65.51/barrel -2.02% Chart
- NYMEX Natural gas futures: $2.70/MMBTU -2.07% Chart
“Oil prices were broadly steady on Wednesday, as the boost from a report showing a drop in U.S. crude inventories last week was offset by evidence of soaring U.S. output.
The oil price has fallen by 3.2% in the last week, but has still performed better than shares on Wall Street, which have lost more than 4%.
“The risk-off move impacted oil, but that impact has been limited because commodities are consumption or real assets, as opposed to equities or bonds, which are investment assets. The curve pays you for being long oil … the main issue affecting oil prices was “the efforts of supply restraint by producers that in the second half of 2017 started to bear fruit,” BNP Paribas head of commodity strategy Harry Tchilinguirian said.
The Organization of the Petroleum Exporting Countries and other producers, including Russia, have cut production since January 2017 to force down global inventories.
Crude inventories in the United States have fallen by 20% since hitting record highs in Apr 2017.
The futures curve shows prompt prices for oil are above those for future delivery, suggesting investors are counting on demand outpacing supply.
Data on Tuesday showed U.S. crude inventories fell by 1.1 million barrels in the week to 2 Feb 2018 to 418.4 million barrels, helping support the oil price.
“Evidence points to a global inventory market that has arguably already balanced – with days of forward cover in the low single digits or possibly even lower – which should support the spot price going forward,” said Richard Robinson, manager of the Ashburton Global Energy fund.
But rising U.S. oil production has been looming over the market. Output has risen by 1 million barrels per day (bpd) in the last year to about 10 million bpd.
The U.S. Energy Information Administration (EIA) expects U.S. output to reach an average of 10.59 million bpd in 2018 and 11.18 million bpd by 2019, potentially overtaking Russia as the world’s largest producer.
“The strong growth that is expected in U.S. production supports our more bearish outlook for the oil market,” Hamza Khan, head of ING commodities strategy, said in a note. Reuters
AU: Selected Living Cost Indexes. Dec 2017
Press Release Extract [au_cost]
Weighted average of 8 capital cities Q3/17 to Q4/17 Q4/16 to Q4/17 Selected Living Cost Indexes (LCIs) – Household type: Pensioner and Beneficiary LCI (PBLCI) 0.8% 2.3% Employee LCI 0.7% 2.0% Age pensioner LCI 0.6% 2.1% Other Government Transfer Recipient LCI 1.0% 2.4% Self-funded Retiree LCI 0.6% 1.6% Consumer Price Index (CPI) 0.6% 1.9%
Pensioner and Beneficiary Households (+0.8%)
The living cost index for PBLCI rose 0.8% in the December quarter 2017. The main contributors to the rise are alcohol and tobacco (+4.8%) and transport (+3.5%). The rise in alcohol and tobacco is driven by tobacco due to the flow on effects of the federal excise tax increase effective 1 September 2017. The rise in transport is driven by automotive fuel with all fuel types recording rises this quarter.
Health (-2.0%) contributed the most significant partial offset this quarter, driven by pharmaceutical products due to the cyclical increase in the proportion of consumers exceeding the Pharmaceutical Benefits Scheme (PBS) safety net.
The LCI for PBLCI (+0.8%) recorded a larger rise compared to the CPI (+0.6%) this quarter.
Over the last twelve months the PBLCI rose 2.3% while the CPI rose 1.9%.
Employee Households (+0.7%)
The living cost index for employee households rose 0.7% in the December quarter 2017. The main contributors to the rise are transport (+2.7%) and alcohol and tobacco (+3.0%). The rise in transport is driven by automotive fuel with all fuel types recording rises this quarter. The rise in alcohol and tobacco is driven by tobacco due to the flow on effects of the federal excise tax increase effective 1 September 2017.
Furnishings, household equipment and services (-0.8%) contributed the most significant partial offset this quarter, driven by household textiles. This is due to ongoing competition and continued discounting activity in the retail industry.
The LCI for employee households (+0.7%) recorded a larger rise compared to the CPI (+0.6%) this quarter.
Over the last twelve months the LCI for employee households rose 2.0% while the CPI rose 1.9%.
Age Pensioners (+0.6%)
The living cost index for age pensioner households rose 0.6% in the December quarter 2017. The main contributors to the rise are transport (+3.3%) and food and non-alcoholic beverages (+1.4%). The rise in transport is driven by automotive fuel with all fuel types recording rises this quarter. The rise in food and non-alcoholic beverages is driven by fruit due to rises in berries, particularly strawberries and grapes.
Health (-1.7%) contributed the most significant partial offset this quarter, driven by pharmaceutical products due to the cyclical increase in the proportion of consumers exceeding the Pharmaceutical Benefits Scheme (PBS) safety net.
The LCI for age pensioner households recorded the same movement as the CPI (+0.6%) this quarter.
Over the last twelve months the LCI for age pensioner households rose 2.1% while the CPI rose 1.9%.
Other Government Transfer Recipient Households (+1.0%)
The living cost index for other government transfer recipient households rose 1.0% in the December quarter 2017. The main contributors to the rise are alcohol and tobacco (+5.6%) and transport (+3.5%). The rise in alcohol and tobacco is driven by tobacco due to the flow on effects of the federal excise tax increase effective 1 September 2017. The rise in transport is driven by automotive fuel with all fuel types recording rises this quarter.
Health (-2.5%) contributed the most significant partial offset this quarter, driven by pharmaceutical products due to the cyclical increase in the proportion of consumers exceeding the Pharmaceutical Benefits Scheme (PBS) safety net.
The LCI for other government transfer recipient households (+1.0%) recorded a larger rise compared to the CPI (+0.6%) this quarter. Other government transfer recipient households have a higher expenditure on alcohol and tobacco, which rose this quarter, when compared to the CPI population.
Over the last twelve months the LCI for other government transfer recipient households rose 2.4% while the CPI rose 1.9%.
Self-Funded Retiree Households (+0.6%)
The living cost index for self-funded retiree households rose 0.6% in the December quarter 2017. The main contributors to the rise are transport (+2.3%) and food and non-alcoholic beverages (+1.2%). The rise in transport is driven by automotive fuel with all fuel types recording rises this quarter. The rise in food and non-alcoholic beverages is driven by fruit due to rises in berries, particularly strawberries and grapes.
Furnishings, household equipment and services (-1.2%) contributed the most significant partial offset this quarter, driven by household textiles. This is due to ongoing competition and continued discounting activity in the retail industry.
The LCI for self-funded retiree households recorded the same movement as the CPI (+0.6%) this quarter.
Over the last twelve months the LCI for self-funded retiree households rose 1.6% while the CPI rose 1.9%.”
Percentage change, Commodity group – September Quarter 2017 to December Quarter 2017
Weighted average of 8 capital cities Pensioner &
Employee Age pensioner Other govt
Self-funded retiree CPI Food and non-alcoholic beverages 1.3 1.0 1.4 1.2 1.2 1.0 Alcohol and tobacco 4.8 3.0 3.4 5.6 1.9 3.2 Clothing and footwear -0.3 -0.2 -0.4 -0.4 -0.5 -0.3 Housing 0.2 0.3 0.2 0.3 0.3 0.3 Furnishings, household
equipment and services
-1.0 -0.8 -1.2 -0.8 -1.2 -0.8 Health -2.0 -0.3 -1.7 -2.5 -0.7 -0.5 Transport 3.5 2.7 3.3 3.5 2.3 2.4 Communication -1.3 -1.3 -1.2 -1.4 -1.3 -1.3 Recreation, culture 0.8 0.7 1.0 0.4 0.8 0.6 Education 0.1 0.1 0.0 0.1 0.1 0.1 Insurance and
1.1 0.8 1.4 0.8 1.5 0.2 All Groups 0.8 0.7 0.6 1.0 0.6 0.6
Australian Bureau of Statistics, “6467.0 Selected Living Cost Indexes. Dec 2017“, 2 Feb 2018 More
EC Economic Forecast. Winter 2018
Press Release Extract [eu_gdp]
“Momentum in the global economy remains strong, as the broad-based cyclical upswing continues, buoyed by the rebound in investment and trade, still favourable financial conditions and a supportive policy mix. Higher commodity prices are also proving supportive for commodity exporters. The near-term outlook is slightly stronger than projected in autumn, with global GDP growth outside the EU now expected at 4.1% in both 2018 and 2019, compared to 3.8% in 2017. Upward revisions since the autumn are mostly concentrated in advanced economies, particularly the US, but growth prospects have also improved for some emerging markets, including China. Sustained, robust momentum in the near term is consistent with the broad-based strength in business and household confidence across most emerging markets and advanced economies.
In the US, economic activity remains buoyant, supported by a number of benign factors, namely easy financial conditions, a weaker dollar, expansion in the energy sector, and strong external demand. The recent US tax reform is expected to add to this momentum, generating a fiscal stimulus of around 11⁄2 pps. of GDP over 2018-2019, and boosting economic growth further in the near term due to higher business investment, as well as household spending. However, given the advanced stage of the cycle, some of the stimulus may be offset by faster monetary policy normalisation and higher interest rates than assumed earlier. Given the temporary nature and heavy frontloading of some tax reform elements and the current above- potential growth, US growth might turn lower in the longer term. As regards emerging markets, the near-term growth outlook has also improved slightly, including in commodity exporters and China, where export growth is buoyant and service sector momentum has strengthened.
Global import volumes (outside the EU) are expected to have grown by 4.6% (y-o-y) in 2017 (compared to 1.3% in 2016), driven by solid imports in advanced economies, and buoyant trade across Asia and most other emerging market economies. The momentum is expected to carry into 2018 and to moderate only slightly in 2019. Global import growth is expected to pick up by 4.7% in 2018 and 4.5% in 2019 (up from 4.1% for both years in the autumn forecast). This reflects an upward revision to the outlook for global GDP growth and a further uptick in the elasticity of trade, largely driven by stronger investment dynamics.
The extension of an agreement on production cuts between OPEC and Russia, as well as geopolitical tensions in the Middle East, lifted Brent oil prices to nearly 70 USD/bbl in January, considerably higher than assumed in the autumn forecast. Further price rises, however, are projected to be more limited as higher oil prices would weigh on global demand growth and non-OPEC producers (notably the US) are expected to increase output. Based on futures markets, prices for Brent oil are assumed to increase by an average of 24.6% to 68.3 USD/bbl in 2018 compared to 2017, before falling by 5.9% to 64.2 USD/bbl in 2019 …
The growth outlook for 2018 has been revised upwards compared to the autumn forecast. Diminishing uncertainty, improving sentiment and the synchronous rebound outside Europe led to a stronger-than-expected expansion in the second half of last year. With a stronger carry-over from 2017 and continued growth momentum in early 2018, GDP is now expected to grow by 2.3% this year in both the euro area and the EU. While growth is still forecast to moderate gradually, this now looks likely to set in later than previously expected.
Over the forecast horizon, the expansion is set to remain solid, broad-based across sectors and countries, and increasingly self-sustained. As in autumn, it is expected to continue benefiting from a supportive policy mix, with monetary policy remaining overall accommodative, and a broadly neutral fiscal policy stance in the euro area as whole. Although the output gap is set to become positive, the remaining slack in the labour market offers scope for solid growth to continue. Moreover, all euro area countries are set to grow in the forecast years, with growth differentials narrowing further.
Domestic demand is set to remain the main growth engine in 2018, with private consumption continuing to grow at a robust pace and investment continuing to recover. Exports are also expected to support the expansion going forward, on the back of strong external demand. With job creation expected to ease from its current brisk pace, the resulting slowdown in household purchasing power growth implies a slight moderation in momentum towards 2019.
Given the ongoing negotiations over the terms of the UK’s withdrawal from the EU, projections for 2019 are based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the UK. As in the autumn, this is for forecasting purposes only and has no bearing on the outcome of the talks underway in the context of the Article 50 process.
Private consumption should continue benefitting from high consumer confidence and labour market improvements this year and next, though at a slower pace. Lower deleveraging needs, as well as past increases in house prices could further support the near-term outlook.
Investment should continue to grow at a robust pace this year and next. According to the European Commission’s latest investment survey, investment volumes in the euro area manufacturing sector are expected to accelerate this year compared to 2017. Overall respondents report the best investment climate in 10 years. The pick-up in investment intentions is also underpinned by the continuing rise in capacity utilisation, which is now well above its long-term average and at its highest since 2008-Q2.
Favourable financing conditions, diminished uncertainty, strong sentiment, and increasing corporate profitability are all set to support business investment. The improved external demand outlook should further translate into a stronger impetus for equipment investment. As in the autumn, assuming that the overall monetary stance remains accommodative, market expectations of a steepening yield curve should only have a limited negative impact on investment.
Furthermore, the Investment Plan for Europe is expected to boost investment through improved access to finance.
The strengthening external environment creates scope for European exports to perform even better than expected in the autumn. This is consistent with surveys showing an improvement in export order book expectations over the last three months. Despite the euro’s appreciation, euro area export growth is expected to remain robust with imports following their historical elasticity to final demand.
Overall, euro area GDP is forecast to continue growing in 2018 at broadly the same pace as in 2017 (2.3%), before moderating to 2.0% in 2019. The expected gradual withdrawal of policy stimulus, the uncertainty around the Brexit transition agreement and the emergence of supply-side constraints are set to weigh on economic activity. The expected slowing of economic growth in 2019 is also consistent with a gradual convergence of actual growth towards potential growth in the medium term.“
European Commission, “European Economic Forecast. Winter 2018 (Interim)“, 7 Feb 2018 More
US: Congress Agrees Budget Deal
“U.S. congressional leaders, in a rare display of bipartisanship, on Wednesday reached a two-year budget deal to raise government spending by almost $300 billion, attempting to curb Washington’s fiscal policy squabbling but also widening the federal deficit.
The agreement, announced by the Republican and Democratic leaders of the Senate and House of Representatives, would lift caps on defense funding and some domestic spending. It also would postpone a reckoning with the federal debt limit.
Along with President Donald Trump’s tax cuts that were approved by Congress in December, the new round of spending would further add to the bulging deficit and may face resistance in the House from Democrats as well as Republican fiscal hawks.
“This bill is the product of extensive negotiations among congressional leaders and the White House,” Senate Majority Leader Mitch McConnell, a Republican, said on the Senate floor.
The plan will need to be passed in the House and the Senate, both controlled by Trump’s fellow Republicans, before it can be sent to the White House for the president to sign into law.
House Democrats have warned they will not back the deal unless Republican House Speaker Paul Ryan promises to advance separate legislation on immigration policy.
Chuck Schumer, leader of the Senate Democrats, touted the deal, saying, “It should break the long cycle of spending crises that have snarled this Congress and hampered our middle class.”
The defense spending increase in it should allow Trump to make good on his campaign promise for a military build-up.
The White House said the deal includes an extension, until Mar 2019, of the government’s debt ceiling. The Treasury Department has been warning that without an extension in borrowing authority from Congress, the government would run out of borrowing options in the first half of next month, risking an unprecedented debt default.
The agreement also funds disaster relief, infrastructure and programs addressing opioid abuse, the Senate leaders said.
White House legislative affairs director Marc Short said the deal would increase spending by “just shy” of $300 billion.
A senior congressional aide said this amount of additional spending would not be offset by any spending cuts or new tax revenue, meaning an increase in the federal deficit.
“This really is the moment where it has become clear that despite record levels of debt and approaching trillion dollar deficits, Congress has stopped caring about what they’re doing to the fiscal health of the country,” said Maya MacGuineas, head of the Committee for a Responsible Federal Budget, a group that advocates for long-term fixes to Washington’s debt problems.
Aside from the budget deal, lawmakers were also trying to reach agreement by Thursday to avoid a government shutdown and fund the government until 23 Mar 2018. If that fails, the U.S. government would suffer its second shutdown this year, after a partisan standoff over immigration policy led to a three-day partial shutdown last month.” Reuters
^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com
Stockmarket: Nikkei 225
^ Nikkei 225 movements over the past week Chart: Google Finance
^ CNY movements against the USD over the past month (mouseover for inverse) Chart: xe.com
“China’s CNY advanced toward the strongest level since before its devaluation in 2015, shrugging off central bank signals that appreciation should slow.
The onshore yuan rose 0.3% to 6.2620 per USD as of 5:10 p.m. local time, its third day of gains. The currency is at its strongest since 11 Aug 2015. Wednesday’s increase came after the People’s Bank of China set the daily reference rate 75 pips weaker than the average estimate in a Bloomberg survey, the biggest discrepancy in four months. A Bloomberg replica of the CFETS RMB Index climbed above 97 for the first time.
The PBOC has set the fixing more than 40 pips weaker than estimates 3 times in the past week, something that hasn’t been seen since Oct 2017. Inflows into China’s bond market and confidence over the country’s economy have helped drive the CNY up 3.9% against the USD this year, making it Asia’s top-performing currency, stoking concern that too fast an appreciation could jeopardize the economy.
“Not only the RMB Index level but the pace of strengthening is worrying, making policy makers jittery about the appreciation risk,” said Ken Cheung, Hong Kong-based currency strategist at Mizuho Bank Ltd. “However, the weaker-than-forecast fixing isn’t strong enough to slow down the pace.”
The PBOC said Tuesday it would allow market forces to play a bigger role in the exchange rate, while ensuring the CNY’s stability was at a “reasonable” level. The offshore yuan was also stronger Wednesday, rising 0.16% to 6.2721 per USD.” Bloomberg
^ Shanghai CSI300 movements over the past week Chart: Google Finance