Mon 19 Feb 2018

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In Portfolioticker today

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

    Market indices

    The NASDAQ and NYSE markets are closed for the President’s Day holiday.

    The world’s biggest asset manager BlackRock Inc upgraded its view on U.S. stocks, citing very strong earnings momentum, while cutting European stocks to neutral.

    In a note on Monday, BlackRock’s global chief investment strategist Richard Turnill pointed to tax cuts in the United States and government spending plans as driving earnings growth and said the ratio of earnings upgrades to downgrades for U.S. large-capitalization companies was at its highest since records began in 1988. Turnill said the ‘swoon’ in equity markets in early Feb 2018 made U.S. valuations look more attractive, pushing BlackRock’s 3-month view on U.S. stocks to “overweight,” from neutral. [Also note BlackRock's Global Investment Outlook 2018 Here]

    It is BlackRock strategists’ first outright positive reading on U.S. stocks since May 2016.

    ‘We believe the coming positive effects of new U.S. tax and spending plans are still underappreciated by markets,’ BlackRock’s Turnill said in the note. ‘We find earnings growth matters more than valuations over shorter time horizons at this stage of the bull market,’ Turnill said, adding: ‘Economic strength was already changing the tone of earnings momentum, but U.S. tax cuts and government spending plans lit a fire under the trend.’

    Turnill noted that while earnings momentum in Europe was robust, it lagged other regions and said the euro’s strength is a ‘source of pain.’Reuters

    World stocks were set to post their first loss in 5 days on Monday, breaking a winning streak that saw them recover almost half their losses from a violent sell-off 2 weeks ago.

    In a day of relatively quiet trading owing to market holidays in the United States and China, losses in Europe weighed on stocks globally, which had earlier been propped up by gains in Japan.

    European markets had opened positive, setting up the MSCI world index for its 6th day of gains but, by afternoon, the pan-European STOXX index had slipped over half a percent. The MSCI world index, which tracks shares in 47 countries, was down 0.1%. The index has recovered nearly half what it lost between late January and last week’s low. The 4.3% gain it ultimately posted last week was its best weekly performance since Dec 2011.Reuters

    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 3.216 +0.00% 2.105 +4.85%
    Valuation Rate USD/AUD 0.79607 +0.04% 0.72663 +1.37%
    AUD-denominated Index AUD 4.043 -0.05% 2.895 +3.44%



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

    The Bloomberg Dollar Spot Index (DXY) edged up from 3-year lows.
    The EUR stood at USD 1.2396, backing down from Friday’s 3-year high of USD 1.2556.
    The USD traded at JPY 106.53, bouncing back from its 15-month low of 105.545 set on 16 Feb 2018.
    The USD has been weighed down by various factors, including worries about widening U.S. trade and budget deficits and speculation that Washington might pursue a weak USD strategy.
    There is also talk that foreign central banks may be re-allocating their reserves out of the USD.


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

    Oil and Gas Futures

    Futures prices

    Oil prices hit their highest level in nearly two weeks on Monday, lifted by a global equity market recovery and tensions in the Middle East, although concerns of rising U.S. production tempered gains.

    The U.S. oil rig count, an indicator of future production, rose by 7 to 798, its highest since Apr 2015, according to a weekly report from General Electric’s Baker Hughes unit. That marked the first time since June that drillers added rigs for 4 consecutive weeks, and the figure was well up on the 597 rigs that were active a year earlier as energy companies have boosted spending since mid-2016 when crude prices began recovering from a two-year crash.

    Surging U.S. production is offsetting efforts by the Organization of the Petroleum Exporting Countries (OPEC) and some other producers including Russia to curb production by 1.8 million barrels per day (bpd) until the end of 2018.

    Money managers slashed their bullish bets on Brent crude futures by the most in nearly eight months in the week to Feb. 13, InterContinental Exchange data showed.

    Speculators also cut net long U.S. crude futures and options positions in the week to 13 Feb 2018 by the most since late Aug 2017, the U.S. Commodity Futures Trading Commission (CFTC) said.Reuters

    Prices are as at 15:48 ET

    • NYMEX West Texas Intermediate (WTI): $62.50/barrel +1.33% (12:59) Chart
    • ICE (London) Brent North Sea Crude: $65.54/barrel +1.08% Chart
    • NYMEX Natural gas futures: $2.57/MMBTU +0.27% (12:59) Chart

    flag_australia AU: Household Debt Exposure to Monetary Policy

    Six out of every 10 Australians say their current financial situation causes them stress or loss of sleep, according to a UBank report released this week, which is actually surprisingly low given the pile of debt on which most Aussies sit and the current outlook for interest rates. UBank Report

    By early next year, if current economist predictions prove right, that figure should start rising due to a single fact – Australia’s next Reserve Bank rate hike will hurt more than ever before.

    Simply put, decisions on the cost of debt are pretty important when the average Australian mortgage borrower has $393,200 against their name – a record high, according to the Bureau of Statistics – and can’t find a pay rise. To really ram the point home, the average level of household debt for each man, woman and child in Australia has increased from $11,837 in 1990 to $93,943 now.

    If the Reserve Bank were to lift the official cash rate by just 2 per cent, you would expect to see household interest payments (relative to income) rise to where they were just prior to the GFC meltdown. This graph shows how significant it’d be.


    The Australian economy is in a precarious spot, but while 59 per cent say they’re stressed about their finances, they’re not showing it just yet.

    For now, Australians are managing to service their debt, with delinquency numbers actually dropping in the September quarter. And an important point is that rising debt levels have been eclipsed by the nation’s rising wealth.

    “Thanks to a surge in the value of houses and a rise in financial wealth, we are far richer. Wealth rose 9.5% last year to a new record,” says AMP chief economist Shane Oliver. While Australia’s Achilles’ heel remains high and still rising household debt level, according to Dr Oliver, “the trigger for major problems remains hard to see”.

    Chris Kohler, “What happens when interest rates go up?“, 19 Feb 2018 Domain

    flag_europe EU: Monthly Balance of Payments. Dec 2017

    Press Release Extract [eu_bop]

    Key Points:

    • In December 2017 the current account of the euro area recorded a surplus of €29.9 billion.
    • In the financial account, combined direct and portfolio investment recorded net disposals of assets of €24 billion and of liabilities of €23 billion.


    Current account

    The current account of the euro area recorded a surplus of €29.9 billion in December 2017. This reflected surpluses for goods (€30.9 billion), services (€7.3 billion) and primary income (€3.7 billion), which were partly offset by a deficit for secondary income (€12.0 billion).

    According to the preliminary results for 2017 as a whole, the current account recorded a surplus of €391.4 billion (3.5% of euro area GDP), compared with one of €367.6 billion (3.4% of euro area GDP) in 2016. This development was due to increases in the surpluses for services (from €39.0 billion to €80.9 billion) and primary income (from €95.3 billion to €112.8 billion). These were partly offset by a decrease in the surplus for goods (from €373.0 billion to €348.2 billion) and an increase in the deficit for secondary income (from €139.7 billion to €150.5 billion).

    Financial account

    In December 2017 combined direct and portfolio investment recorded net disposals of assets of €24 billion and of liabilities of €23 billion.
    Euro area residents recorded net disposals of €36 billion of direct investment assets as a result of net disinvestments in debt instruments (€49 billion), which were partly offset by net investments in equity (€13 billion). Direct investment liabilities decreased by €2 billion as a result of net disinvestments in euro area debt instruments (€21 billion) by non-euro area residents, which were partly offset by net acquisitions of euro area equity by non-euro area residents (€19 billion).

    As regards portfolio investment assets, euro area residents made net purchases of foreign securities amounting to €12 billion. This resulted from net acquisitions of short-term debt securities (€19 billion), which were partly offset by net sales/amortisations of long-term debt securities (€5 billion) and equity (€3 billion). Portfolio investment liabilities decreased by €21 billion as a result of non-euro area residents’ net sales/amortisations of euro area short-term debt securities (€25 billion) and long-term debt securities (€15 billion), which were partly offset by net acquisitions of equity (€19 billion).

    The euro area net financial derivatives account (assets minus liabilities) recorded negative net flows of €1 billion.

    Other investment recorded net disposals of assets amounting to €176 billion and of liabilities of €227 billion. The net disposal of assets was mainly due to MFIs (excluding the Eurosystem) (€159 billion) and, to a lesser extent, to other sectors (€27 billion). These were partly offset by increases in assets of the Eurosystem (€10 billion). The net reduction in liabilities was mainly attributable to MFIs (excluding the Eurosystem) (€349 billion) and, to a lesser extent, to other sectors (€33 billion) and general government (€15 billion). These were partly offset by net incurrences of liabilities by the Eurosystem (€170 billion).

    In 2017 as a whole, combined direct and portfolio investment recorded net acquisitions of assets of €712 billion and net incurrences of liabilities of €326 billion, compared with €804 billion and €165 billion respectively in 2016. Regarding direct investment, there was a decrease in activities of both euro area residents abroad and non-residents in the euro area, with a drop in the net acquisition of equity assets from €413 billion to €46 billion and a shift in equity liabilities, from net investments of non-euro area residents of €198 billion to net disinvestments of €39 billion. Concerning portfolio investment, on the asset side there was an increase in the net purchases of foreign equity by euro area residents from €23 billion to €176 billion. On the liabilities side, non-euro area residents increased the net purchases of euro area equities from €84 billion to €450 billion.

    According to the monetary presentation of the balance of payments, the net external assets of euro area monetary financial institutions (MFIs) decreased by €72 billion in 2017, compared with a decrease of €247 billion in 2016. The large current and capital account surplus (€361 billion) would suggest an increase of net external assets of the MFIs. However, the financial counterpart of the current and capital account transactions are essentially reflected in the net financial transactions of the non-MFIs, although in a more limited manner than in 2016.

    In December 2017 the Eurosystem’s stock of reserve assets decreased to €669.7 billion from €673.3 billion in the previous month (see Table 3). This decrease (€3.6 billion) was mainly due to negative exchange rate changes (€2.3 billion) and net disposals of assets (€1.6 billion), which were partly offset by positive price changes (€0.4 billion).

    European Central Bank, “Euro area monthly balance of payments (December 2017)“, 19 Feb 2018 More

    flag_europe EU: Sweden’s Concern About a Cashless Environment

    Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments. But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

    An annual survey by Insight Intelligence released last month found that only 25 percent of Swedes paid in cash at least once a week in 2017, down from 63% just 4 years ago. A full 36% never use cash, or just pay with it once or twice a year. Last year, the amount of cash in circulation in Sweden dropped to the lowest level since 1990 and is more than 40% below its 2007 peak. The declines in 2016 and 2017 were the biggest on record.

    A broad review of central bank legislation that’s under way is now taking a special look at the situation, with an interim report due as early as the summer. “If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review. He declined to give more details on the types of proposals that could be included in the report.

    Riksbank Governor Stefan Ingves has said Sweden should consider forcing banks to provide cash to customers. In its annual report on Monday, the Riksbank said the question is what role it should play in a future with even fewer cash payments.Bloomberg

    flag_japan Japan update

    International Trade. Jan 2018


    Customs and Tariff Bureau, Ministry of Finance, “Trade Statistics“, 19 Feb 2018 More

    Balance of Trade (Deficit)

    Japan’s trade deficit fell 13.6% to JPY 943 billion in Jan 2018 from JPY 1,092 billion in Jan 2017, better than market expectations of a deficit of JPY 1,002 billion. Exports rose 12.2% year-on-year, beating forecasts of a 10.3% rise and marking the 14th straight month of gains. Imports rose at a slower 7.9%, below expectations of an 8.3% gain but reaching the highest value in 3 years.

    Japan’s balance of trade averaged JPY 365.68 billion from 1963 until 2018, reaching an all time high of JPY 1608.67 billion in Sep 2007 and a record low of JPY -2795.12 billion in Jan 2014.


    Exports rose 12.2% year-on-year to JPY 6085 billion, beating forecasts of a 10.3% rise. Main upward contributions came from shipments of machinery (up 19.6%), namely semicon machinery (3.7%); chemicals (17.3%); electrical machinery (11.6%), namely electrical apparatus (17.8%); cars (6.6%); manufactured goods (14.3%), namely iron and steel products (10%) and nonferrous metals (27.4%).

    Sales rose to all main export partners: China (30.8%), the US (1.2%), South Korea (7.6%), Taiwan (9.8%), Hong Kong (11.6%), Thailand (5.4%), Germany (21%), Australia (2.8%), the UK (35%), Vietnam (21.9%), Indonesia (23.5%), the Netherlands (5.2%).


    Imports went up 7.9% year-on-year to JPY 7029 billion, slightly below forecasts of an 8.3% rise. Main upward contribution came from mineral fuels (up 9.7%), namely petroleum (11.4%); and chemicals (20.1%), namely medical products (25.3%).

    Imports rose from India (12%), the Middle East (15.4%) and the US (9.4%) but fell from China (-3.3%).TradingEconomics

    Fiscal Policy

    Japan pushed back its projections for achieving a primary budget surplus by two years to the 2027 fiscal year on Tuesday, highlighting the difficulty of restoring fiscal health as spending grows.

    The new projections presented by the Cabinet Office will provide the basis for a fresh fiscal reform plan, to be drawn up by the government this summer.

    The delay in the fiscal target was widely expected, but concerns still remain about how Japan will lower its debt burden, which is the industrial world’s heaviest at more than twice the size of its economy.

    Questions about fiscal discipline also affect the Bank of Japan, because it prints money to buy government debt under its aggressive monetary stimulus.

    The government expects to swing to a primary budget surplus of 800 billion yen ($7.23 billion) or 0.1 percent of gross domestic product in fiscal 2027, the latest forecasts showed.

    The government’s previous twice-yearly projections last July showed the budget would swing to a primary surplus of 1.8 trillion yen or 0.2 percent of GDP in fiscal 2025.

    The primary budget excludes debt servicing costs and income from bond sales.

    Originally the goal was to achieve the surplus in fiscal 2020, but Prime Minister Shinzo Abe’s ruling Liberal Democratic Party omitted this deadline from its campaign platform for last October’s election and made spending on education and welfare at the core of its campaign.Reuters

    Currency: USD/JPY

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

    Stockmarket: Nikkei 225

    n225 movements
    ^ Nikkei 225 movements over the past week Chart: Google Finance

    The Nikkei 225 stock market index closed up 429 points, or 2%, at 22,149 on Monday on the back of a weaker JPY, after latest data showed Japanese exports rose more than expected in Jan 2018 and the rebound in global equities continued following sharp losses earlier this month. Still, the Nikkei 225 was 2.7% lower than the year’s start. Historically, the Nikkei 225 reached an all time high of 38915.87 in Dec 1989 and a record low of 85.25 in Jul 1950.TradingEconomics

    flag_china China update

    Currency: USD/CNY

    CNY movements
    ^ CNY movements against the USD over the past month (mouseover for inverse) Chart:

    Stockmarket: CSI300

    China’s stock market remains closed for the Lunar New Year Holiday.