Wed 14 Mar 2018


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Today at the stock market

bull/bearSimmering political tensions roiled stocks and bonds across the globe on Wednesday, with U.S. yield curves continuing to flatten and stock markets closing in the red as industrial companies took a beating. Despite strong economic data out of China and the United States this week, markets struggled to shake a hangover from news that U.S. President Donald Trump was looking to impose tariffs on up to $60 billion of Chinese imports.

  • The S&P 500 index fell 15.83 points, or 0.57%, to 2,749.48
  • The Dow Jones Industrial Average fell 248.91 points, or 1.00%, to 24,758.12
  • The Nasdaq Composite index fell 14.20 points, or 0.19%, to 7,496.81.

On Wednesday, a White House spokeswoman said the Trump administration is pressing China to cut its trade surplus with the United States by $100 billion.

Trump also spooked investors on Tuesday by firing Secretary of State Rex Tillerson, who was viewed as a supporter of free trade.

“There’s trade war talk going on,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. “We saw people taking profit amidst the uncertainty.”

Additionally on Wednesday, the Russian Foreign Ministry said it would retaliate after 23 of its diplomats were expelled by British Prime Minister Theresa May over a chemical attack on a former Russian double agent in England that May blamed on Moscow.

That helped continue a trend of flattening yield curves on U.S. government bonds, with the spread between 2- and 10-year Treasury yields down 3.2 basis points to 55.3 basis points.

Germany’s 10-year government bond yield fell to a 1½-month low on the trade war fears, while Italian borrowing costs rose after right-wing leader and aspiring prime minister Matteo Salvini reiterated his party’s view that the euro was a flawed currency.

Salvini also said he was open to forming any sort of coalition government as long as it did not include the Democratic Party.

His comments, along with the ongoing trade war concerns, sent European stocks slightly into the red despite a banner day for Adidas and a strong showing for mining stocks. Adidas, the German sports fashion company, gained more than 11% on Wednesday after announcing a share buyback of up to EUR 3 billion.

Wall Street’s losses were driven largely by plunges at industrial companies like Boeing, which tumbled 2.5%, leading losers on the Dow. That was despite encouraging economic news that had spurred the U.S. indexes to open higher on Wednesday morning.

China reported industrial output expanding at a surprisingly faster pace at the start of the year. Fixed asset investment also beat forecasts, while retail sales improved.

Political uncertainty outweighed that, said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “Given the rearrangement that [Trump] has made to his cabinet … it’s being read as a lot more protectionist now than it was 2 weeks ago.”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) 2,749.48 -0.58% 2,673.61 +2.83%
DJIA INDU 24,758.12 -1.00% 24,719.22 +0.15%
NASDAQ IXIC 7,496.81 -0.19% 6,903.39 +8.59%

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 3.357 -0.28% 3.068 +9.45%
Valuation Rate USD/AUD 0.79311 +0.36% 0.78528 +0.99%
AUD-denominated Index AUD 4.236 -0.64% 3.909 +8.38%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 17 YTD
Alphabet A GOOGL $1148.89 +0.78% $1053.00 +9.10%
Alphabet C GOOG $1149.49 +0.99% $1045.65 +9.93%
Apple AAPL $178.44 -0.86% $169.23 +5.44%
Amazon AMZN $1591.00 +0.17% $1169.54 +36.03%
Ebay EBAY $42.83 +0.02% $37.76 +13.42%
Facebook FB $184.19 +1.27% $176.46 +4.38%
PayPal PYPL $83.31 +3.87% $73.61 +13.17%
Twitter TWTR $36.60 +7.29% $24.01 +52.43%
Visa V $122.58 -0.51% $114.02 +7.50%
VMware VMW $124.75 +0.58% $125.32 -0.46%

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 0.1%.
The EUR fell 0.2% to USD 1.237.
Britain’s GBP rose less than 0.05% to USD1.3968.
Japan’s JPY rose 0.3% to 106.26 per USD.

The yield on 10-year Treasuries fell 3 basis points to 2.81%.
Germany’s 10-year yield fell 3 basis points to 0.59%.
Britain’s 10-year yield fell 5 basis points to 1.437%.
Bloomberg

AUD

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

Oil and Gas Futures

Stocks of crude oil in the United States went up 5.022 million barrels in the week ended 9 Mar 2018, after a 2.408 million increase in the previous period and way above market expectations of a 2.023 million rise. It was the largest build in crude oil stocks in seven weeks. Meanwhile, gasoline inventories fell 6.271 million, the biggest decline since Sep 2017, following a 0.788 million decrease in the previous week and compared to forecasts of a 1.176 million drop. Crude Oil Stocks Change in the United States averaged 0.06 BBL/1Million from 1982 until 2018, reaching an all time high of 14.42 BBL/1Million in Oct 2016 and a record low of -15.22 BBL/1Million in Jan 1999.TradingEconomics

Futures prices

Prices are as at 15:55 ET

  • NYMEX West Texas Intermediate (WTI): $60.86/barrel +0.28% Chart
  • ICE (London) Brent North Sea Crude: $64.79/barrel +0.23% Chart
  • NYMEX Natural gas futures: $2.74/MMBTU -1.76% Chart

flag_australia AU: Lending Finance. Jan 2018

Press Release Extract [au_lending]
Dec 2017 Jan 2018 Change
TREND ESTIMATES
Housing finance for owner occupation $ 21.097 bn $ 21.126 bn +0.1%
Personal finance $ 6.303 bn $ 6.298 bn -0.1%
Commercial finance $ 42.763 bn $ 43.245 bn +1.1%
Lease finance $ 0.564 bn $ 0.564 bn +0.1%
SEASONALLY ADJUSTED ESTIMATES
Housing finance for owner occupation $ 21.059 bn $ 21.165 bn +0.5%
Personal finance $ 6.078 bn $ 6.350 bn +4.5%
Commercial finance $ 42.996 bn $ 43.009 bn +0.0%
Lease finance $ 0.589 bn $ 0.553 bn -6.1%

JANUARY 2018 COMPARED WITH DECEMBER 2017:

Housing Finance for Owner Occupation

The total value of owner occupied housing commitments excluding alterations and additions rose 0.1% in trend terms.

The seasonally adjusted series rose 0.5%.

Personal Finance

The trend series for the value of total personal finance commitments fell 0.1%. Fixed lending commitments fell 0.1% and revolving credit commitments fell 0.1%.

The seasonally adjusted series for the value of total personal finance commitments rose 4.5%. Revolving credit commitments rose 8.5% and fixed lending commitments rose 2.3%.

Commercial Finance

The trend series for the value of total commercial finance commitments rose 1.1%. Revolving credit commitments rose 2.5% and fixed lending commitments rose 0.7%.

The seasonally adjusted series for the value of total commercial finance commitments was flat in January 2018, after a fall of 5.7% in December 2017. Revolving credit commitments rose 6.3%, following a rise of 15.7% in the previous month. Fixed lending commitments fell 1.9%, following a fall of 10.9% in the previous month.

The value of commitments for the purchase of dwellings by individuals for rent or resale (trend) fell 1.3% in January 2018 and the seasonally adjusted series fell 1.4%.

Lease Finance

The trend series for the value of total lease finance commitments rose 0.1% in January 2018 and the seasonally adjusted series fell 6.1%, after a rise of 8.7% in December 2017.

Australian Bureau of Statistics, “5671.0 Lending Finance. Jan 2018“, 14 Mar 2018 (11:30 AEDT) More

flag_europe EU: Employment (National Accounts). Q4/2017

Press Release Extract [eu_employment]

The number of persons employed increased by 0.3% in the euro area (EA19) and by 0.2% in the EU28 in the fourth quarter of 2017 compared with the previous quarter, according to national accounts estimates published by Eurostat, the statistical office of the European Union. In the third quarter of 2017, employment increased by 0.4% in the euro area and by 0.2% in the EU28. These figures are seasonally adjusted.

Compared with the same quarter of the previous year, employment increased by 1.6% in the euro area and by 1.5% in the EU28 in the fourth quarter of 2017 (after +1.7% and +1.6% respectively in the third quarter of 2017).

Eurostat estimates that, in the fourth quarter of 2017, 236.8 million men and women were employed in the EU28, of which 156.7 million were in the euro area. These are the highest levels ever recorded in both areas. These figures are seasonally adjusted.

Over the whole year 2017, employment rose by 1.6% in both areas, compared with +1.3% in the euro area and +1.2% in the EU28 in 2016.

These data on employment provide a picture of labour input consistent with the output and income measure of national accounts.

Employment growth in Member States

eu_employment_20180314

Among Member States for which data are available for the fourth quarter of 2017, Malta (+1.8%), Estonia (+1.6%), Finland (+1.2%), Luxembourg (+1.1%) and Latvia (+0.9%) recorded the highest increases compared with the previous quarter. In contrast, decreases were observed in Italy, Poland (both -0.3%), Greece and Lithuania (both -0.1%), while employment remained stable in the Czech Republic.

Eurostat, “Employment (National Accounts). Q4/2017“, 14 Mar 2018 More

flag_europe EU: Industrial Production. Jan 2018

Press Release Extract [eu_production]

In January 2018 compared with December 2017, seasonally adjusted industrial production fell by 1.0% in the euro area (EA19) and by 0.7% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In December 2017, industrial production rose by 0.4% in the euro area and by 0.3% in the EU28.

eu_ip_20180314

In January 2018 compared with January 2017, industrial production increased by 2.7% in the euro area and by 3.0% in the EU28.

Monthly comparison by main industrial grouping and by Member State

The decrease of 1.0% in industrial production in the euro area in January 2018, compared with December 2017, is due to production of energy falling by 6.6%, durable consumer goods by 1.9% and intermediate goods by 1.0%, while production of capital goods rose by 1.2% and non-durable consumer goods by 0.1%.
In the EU28, the decrease of 0.7% is due to production of energy falling by 3.3%, durable consumer goods by 1.4%, intermediate goods by 0.6% and non-durable consumer goods by 0.3%, while production of capital goods rose by 1.2%.

Among Member States for which data are available, the largest decreases in industrial production were registered in the Netherlands (-5.7%), Romania (-2.9%) and Spain (-2.5%), and the highest increases in Portugal (+2.5%), Estonia (+1.9%) and Denmark (+1.8%).

Annual comparison by main industrial grouping and by Member State

The increase of 2.7% in industrial production in the euro area in January 2018, compared with January 2017, is due to production of capital goods rising by 8.5%, intermediate goods by 5.1%, durable consumer goods by 3.8% and non-durable consumer goods by 3.0%, while production of energy fell by 10.4%.

In the EU28, the increase of 3.0% is due to production of capital goods rising by 8.3%, intermediate goods by 5.1%, durable consumer goods by 4.2% and non-durable consumer goods by 2.7%, while production of energy fell by 7.4%.

Among Member States for which data are available, the highest increases in industrial production were registered in Romania (+8.5%), Estonia (+7.7%) and Sweden (+7.1%), and the largest decreases in the Netherlands (-6.6%), Malta (-1.7%) and Greece (-1.6%).

Eurostat, “Industrial Production. Jan 2018“, 14 Mar 2018 More

flag_usa US: Producer Price Index. Feb 2018

Press Release Extract [us_ppi]

The Producer Price Index for final demand advanced 0.2 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.4 percent in January and were unchanged in December. On an unadjusted basis, the final demand index increased 2.8 percent for the 12 months ended in February.

In February, the rise in final demand prices is attributable to a 0.3-percent advance in the index for final demand services. In contrast, prices for final demand goods edged down 0.1 percent.

The index for final demand less foods, energy, and trade services climbed 0.4 percent in February, the same as in January. For the 12 months ended in February, prices for final demand less foods, energy, and trade services increased 2.7 percent, the largest rise since 12-month percent change data were available in August 2014.

us_ppi1_20180314

us_ppi2_20180314

Final Demand

Final demand services: Prices for final demand services moved up 0.3 percent in February, the same as in January. Most of the February advance can be traced to the index for final demand services less trade, transportation, and warehousing, which increased 0.3 percent. Prices for final demand transportation and warehousing services also moved higher, rising 0.9 percent. Conversely, margins for final demand trade services declined 0.2 percent.

Product detail: A major factor in the February advance in prices for final demand services was the index for traveler accommodation services, which climbed 3.7 percent. The indexes for automotive fuels and lubricants retailing, food retailing, bundled wired telecommunications access services, hospital inpatient care, and airline passenger services also moved higher. In contrast, margins for machinery, equipment, parts, and supplies wholesaling fell 1.4 percent. The indexes for apparel, jewellery, footwear, and accessories retailing and for cable and satellite subscriber services also decreased.

Final demand goods: Prices for final demand goods edged down 0.1 percent in February, the first decline since falling 0.5 percent in May 2017. In February, a 0.4-percent decrease in the index for final demand foods and a 0.5-percent decline in prices for final demand energy slightly outweighed a 0.2-percent increase in the index for final demand goods less foods and energy.

Product detail: Leading the February decrease in the index for final demand goods, prices for fresh and dry vegetables dropped 27.1 percent. The indexes for gasoline, light motor trucks, diesel fuel, and liquefied petroleum gas also moved lower. Conversely, prices for primary basic organic chemicals jumped 7.2 percent. The indexes for chicken eggs, residential natural gas, and beef and veal also advanced.

Bureau of Labor Statistics, “Producer Price Index. Feb 2018“, 14 Mar 2018 (08:30) More

flag_usa US: Advance Monthly Sales for Retail and Food Services. Feb 2018

Press Release Extract [us_retail]

Advance Estimates of U.S. Retail and Food Services

Advance estimates of U.S. retail and food services sales for February 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $492.0 billion, a decrease of 0.1 percent (±0.5 percent) from the previous month, but 4.0 percent (±0.7 percent) above February 2017. Total sales for the December 2017 through February 2018 period were up 4.3 percent (±0.5 percent) from the same period a year ago. The December 2017 to January 2018 percent change was revised from down 0.3 percent (±0.5 percent) to down 0.1 percent (±0.3 percent).

Retail trade sales were down 0.1 percent (±0.5 percent) from January 2018, but 4.2 percent (±0.7 percent) above last year. Nonstore Retailers were up 10.1 percent (±1.4 percent) from February 2017, while Gasoline Stations were up 7.9 percent (±1.6 percent) from last year.

US Census Bureau, “Advance Monthly Sales for Retail and Food Services. Feb 2018“, 14 Mar 2018 (08:30) More

flag_usa US: Manufacturing and Trade: Inventories and Sales. Jan 2018

Press Release Extract [us_manuf]

Sales

The combined value of distributive trade sales and manufacturers’ shipments for January, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,426.0 billion, down 0.2 percent (±0.2 percent) from December 2017, but was up 5.7 percent (±0.4 percent) from January 2017.

Inventories

Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,917.0 billion, up 0.6 percent (±0.1 percent) from December 2017 and were up 3.7 percent (±0.3 percent) from January 2017.

Inventories/Sales Ratio

us_inventories_20180314

The total business inventories/sales ratio based on seasonally adjusted data at the end of January was 1.34. The January 2017 ratio was 1.37.

US Census Bureau, “Manufacturing and Trade: Inventories and Sales. Jan 2018“, 14 Mar 2018 (10:00) More

flag_japan Japan update

Minutes of BOJ Monetary Policy Meeting

Press Release Extract [jp_boj]

I. Summary of Staff Reports on Economic and Financial Developments

A. Market Operations in the Intermeeting Period

The Bank, in accordance with the short-term policy interest rate of minus 0.1 percent and the target level of the long-term interest rate, both decided at the previous meeting on December 20 and 21, 2017, had been providing funds through purchases of Japanese government bonds (JGBs) and other measures. In this situation, 10-year JGB yields had been at around 0 percent, and the shape of the JGB yield curve had been consistent with the guideline for market operations.

B. Recent Developments in Financial Markets

In the money market, interest rates on both overnight and term instruments had generally been in negative territory. The uncollateralized overnight call rate had been in the range of around minus 0.03 to minus 0.05 percent on the whole. As for interest rates on term instruments, yields on three-month treasury discount bills (T-Bills) had been at around minus 0.15 percent recently.

The Nikkei 225 Stock Average had risen, due mainly to the rise in U.S. stock prices and expectations for corporate profits, and was moving in the range of 23,500-24,000 yen recently. In the foreign exchange market, amid currencies having generally appreciated against the U.S. dollar, the yen also had appreciated somewhat against it. Meanwhile, the yen basically was more or less unchanged against the euro.

C. Overseas Economic and Financial Developments

Overseas economies continued to grow at a moderate pace on the whole.

The U.S. economy continued to recover firmly, mainly in household spending, owing to a steady improvement in the employment and income situation. Exports had been on a moderate increasing trend, while business fixed investment also had increased. As for prices, both the year-on-year rate of increase in the personal consumption expenditure (PCE) deflator for all items and that for all items excluding food and energy had been at around 1.5 percent.

The European economy continued to recover steadily. Exports had been increasing moderately. Private consumption had been on an increasing trend, partly supported by improvements in the labor market and consumer sentiment, while business fixed investment also had been on a moderate increasing trend. With regard to prices, the year-on-year rate of change in the Harmonized Index of Consumer Prices (HICP) for all items had been at around 1.5 percent, and that for all items excluding energy and unprocessed food had been in the range of 1.0-1.5 percent. Meanwhile, the pace of economic recovery in the United Kingdom had been slowing as the rise in prices had been weighing on private consumption.

With regard to emerging economies, the Chinese economy continued to see stable growth on the whole, partly due to the effects of authorities’ measures to support economic activity. As for prices, the year-on-year rate of increase in the consumer price index (CPI) had been in the range of 1.5-2.0 percent. In the NIEs and the ASEAN countries, domestic demand had been resilient, as business and household sentiment had improved, with exports being on an increasing trend. Economic activity in Russia and Brazil had been recovering moderately, mainly on the back of the decline in their inflation rates. In India, an upheaval in the economy due to the effects of the introduction of the Goods and Services Tax (GST) was coming to an end, and the economy was recovering moderately.

With respect to overseas financial markets, U.S. and European long-term interest rates had risen, mainly against the background of economic indicators that were stronger than market expectations and an increase in inflation expectations associated largely with a rise in crude oil prices. Meanwhile, stock prices in advanced economies had been at high levels as a positive response mainly to solid corporate profits and the enactment of U.S. tax reform legislation, and capital inflows to emerging economies continued.

D. Economic and Financial Developments in Japan

1. Economic developments

Japan’s economy was expanding moderately, with a virtuous cycle from income to spending operating.

Exports had been on an increasing trend on the back of the growth in overseas economies. Those to advanced economies continued on their increasing trend when fluctuations were smoothed out; those to emerging economies had picked up for a wide range of items including electronic parts, intermediate goods, and capital goods to Asia.

Exports would likely continue their increasing trend for the time being, as those of capital goods and IT-related goods were likely to be firm, and thereafter were expected to continue their moderate increasing trend, with the growth in overseas economies continuing.

Public investment had been more or less flat, remaining at a relatively high level. It was likely to start declining as the positive effects resulting from the government’s large-scale stimulus measures formulated in fiscal 2016 diminished, and then remain at a relatively high level, mainly underpinned by Olympic Games-related construction.

Business fixed investment continued on an increasing trend with corporate profits and business sentiment improving. Machinery orders and construction starts in terms of planned expenses for private and nondwelling construction — both of which were leading indicators of business fixed investment — continued on an increasing trend, albeit with monthly fluctuations. Business fixed investment was likely to continue increasing for the time being, mainly on the back of an improvement in corporate profits, accommodative financial conditions, and heightened growth expectations. Thereafter, particularly with cyclical adjustments in capital stock becoming evident, downward pressure on business fixed investment was expected to intensify.

As for the employment and income situation, supply-demand conditions in the labor market continued to tighten steadily and employee income had increased moderately. The active job openings-to-applicants ratio had followed a steady improving trend, and the unemployment rate had declined to the range of 2.5-3.0 percent.

Private consumption had been increasing moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. The consumption activity index (CAI) — calculated by combining various sales and supply-side statistics — had dropped for the July-September quarter of 2017, mainly due to the effects of irregular weather, but had turned upward again since October. Private consumption was expected to follow a moderate increasing trend, supported by an increase in employee income and the wealth effects stemming from the rise in stock prices, as well as replacement demand for durable goods.

Housing investment had been more or less flat.

Industrial production had been on an increasing trend against the background of rises in demand at home and abroad. It would likely continue to increase firmly for the time being on the back of the rises in demand at home and abroad. Thereafter, it was projected to continue on a moderate increasing trend with the growth in overseas economies.

As for prices, the rate of increase in the producer price index (PPI) relative to three months earlier — adjusted for the effects of seasonal changes in electricity rates — had been at around 1 percent recently, reflecting developments in international commodity prices and foreign exchange rates. The year-on-year rate of change in the CPI for all items less fresh food was around 1 percent, while the rate of change for all items less fresh food and energy remained slightly positive. With regard to the outlook, the year-on-year rate of change in the CPI (all items less fresh food) was likely to continue on an uptrend and increase toward 2 percent, mainly on the back of an improvement in the output gap and a rise in medium- to long-term inflation expectations.

2. Financial environment

Financial conditions were highly accommodative.

Inflation expectations had been more or less unchanged. Real long-term interest rates — calculated as long-term interest rates minus medium- to long-term inflation expectations — had been negative.

Firms’ funding costs had been hovering at extremely low levels. With regard to credit supply, financial institutions’ lending attitudes — as perceived by firms — had been highly accommodative. Issuing conditions for CP and corporate bonds had been favorable. Firms’ credit demand continued to increase, such as for funds related to mergers and acquisitions, as well as for those for business fixed investment. Against this backdrop, the year-on-year rate of increase in the amount outstanding of bank lending had been at around 2.5 percent. The year-on-year rate of increase in the amount outstanding of CP and corporate bonds had been at a relatively high level. Firms’ financial positions had been favorable.

The monetary base had been increasing at a high year-on-year growth rate in the range of 10-15 percent. The year-on-year rate of growth in the money stock had been in the range of 3.5-4.0 percent.

II. Treatment of the Loan Support Program and Other Measures

A. Staff Reports

In order to continue to (1) encourage financial institutions’ proactive efforts, as well as those of firms and households, with a view to stimulating bank lending and strengthening the foundations for economic growth, and (2) support financial institutions in disaster areas in their efforts to meet the demand for funds for rebuilding, the staff proposed that the Bank extend by one year the deadlines for new applications for such measures as the Fund-Provisioning Measure to Stimulate Bank Lending, the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth, and the Funds-Supplying Operation to Support Financial Institutions in Disaster Areas affected by the Great East Japan Earthquake and by the 2016 Kumamoto Earthquake. The staff therefore proposed that the Bank amend the Principal Terms and Conditions for the Loan Support Program and other related rules.

B. Discussion by the Policy Board and Vote

Members voted unanimously to approve the proposal. They agreed that an outline of the decision should be included in the Statement on Monetary Policy. As for the details, they concurred that the staff should accordingly make these public after the meeting.

III. Summary of Discussions by the Policy Board on Economic and Financial Developments and the January 2018 Outlook for Economic Activity and Prices

A. Economic Developments

Regarding global financial markets, members shared the recognition that U.S. and European long-term interest rates had been rising, mainly against the backdrop of solid economic indicators. Many members shared the view that, despite the rise in long-term interest rates, investors had generally maintained their risk-taking stance, as stock prices in advanced economies had been at high levels, particularly in light of expectations for an increase in corporate profits and the enactment of U.S. tax reform legislation, and as capital inflows to emerging economies continued. On this basis, some members pointed out that U.S. stock prices — which had recorded a historical high — were increasingly viewed by market participants as being overvalued judging mainly from valuation indicators. One member expressed the view that developments in long-term interest rates also warranted attention, taking into account factors such as the continued increase in the amount outstanding of credit to nonfinancial firms in the United States. Based on this discussion, some members noted that it was necessary to continue to closely monitor developments in U.S. stock prices and long-term interest rates, as they could have a significant impact on global financial markets.

With respect to overseas economies, members shared the recognition that these continued to grow at a moderate pace on the whole. They agreed that, amid production and trade activities in the manufacturing sector having become active globally, advanced economies continued to recover steadily and emerging economies had been recovering moderately overall. One member expressed the opinion that the recent recovery in the manufacturing sector was to some extent attributable to not only cyclical factors but also the creation of new demand associated with new technologies such as the Internet of Things (IoT) and artificial intelligence (AI)

With regard to developments in overseas economies by region, members concurred that the U.S. economy continued to recover firmly, mainly in household spending, as seen, for example, in the fact that the real GDP growth rate on an annualized quarter-on-quarter basis had been marking an increase in the range of 3.0-3.5 percent recently. As for the outlook, they shared the recognition that the economy was likely to continue to see firm growth driven by domestic private demand. One member added that the economy was likely to continue growing at a pace above its potential, led by private consumption and business fixed investment, and that housing investment, which had been declining mainly as a result of the effects of the recent hurricanes, was likely to pick up.

Members shared the recognition that the European economy continued to recover steadily, with both domestic and external demand increasing moderately. One member pointed out that, despite facing the issues of refugees and terrorism, consumer confidence continued to improve and private consumption had been consistently resilient. As for the outlook, members concurred that the European economy would likely continue its moderate recovery, while uncertainty, including over negotiations on the United Kingdom's exit from the European Union (EU), was likely to weigh on economic activity.

Members shared the recognition that emerging economies had been recovering moderately overall. They agreed that, of these economies, the Chinese economy continued to see stable growth on the whole, as shown by such developments as the real GDP growth rate remaining in the range of 6.5-7.0 percent on an annual basis. One member, noting that the economic trend continued to exhibit no change after the National Congress of the Communist Party of China held in October 2017, said that, for the time being, it was worth paying attention to how the termination of tax cuts on small cars would affect automobile sales. Members concurred that, in the NIEs and the ASEAN countries, with exports being on an increasing trend, domestic demand also had been resilient, mainly reflecting improvements in business and household sentiment and the effects of economic stimulus measures. They also shared the recognition that commodity-exporting economies such as Russia and Brazil had been recovering moderately, mainly reflecting the decline in their inflation rates and the effects of monetary easing measures. As for the outlook, members agreed that a recovery in emerging economies was likely to take hold, due mainly to the spread of the effects of steady growth in advanced economies and the effects of economic stimulus measures taken by emerging economies. They shared the recognition that the Chinese economy was likely to broadly follow a stable growth path as authorities conducted fiscal and monetary policy in a timely manner.

Members concurred that financial conditions in Japan were highly accommodative. They shared the view that, under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, firms' funding costs had been hovering at extremely low levels and financial institutions' lending attitudes as perceived by both large and small firms continued to be proactive.

Based on the above deliberations on economic and financial conditions abroad and financial conditions in Japan, members discussed the state of Japan's economy.

... More ...

B. Outlook for Economic Activity and Prices

In formulating the January 2018 Outlook for Economic Activity and Prices (hereafter the Outlook Report), with regard to the baseline scenario of the outlook for Japan's economic activity, members shared the view that the economy was likely to continue its moderate expansion. They shared the recognition that, through fiscal 2018, domestic demand was likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, on the back of highly accommodative financial conditions and underpinnings through the government's past stimulus measures. Members also agreed that exports were likely to continue their moderate increasing trend on the back of the growth in overseas economies. They shared the recognition that, in fiscal 2019, the economy was likely to continue expanding, supported by external demand, although the growth pace would probably decelerate due to a slowdown in domestic demand. Based on this discussion, members shared the view that Japan's economy was likely to continue growing at a pace above its potential, mainly through fiscal 2018. They then agreed that the growth rates for the projection period of fiscal 2017-2019 were more or less unchanged compared with those presented in the October 2017 Outlook Report.

.. More ...

IV. Summary of Discussions on Monetary Policy for the Immediate Future

Based on the above assessment of economic and financial developments, members discussed monetary policy for the immediate future.

… More …

Bank of Japan, “Minutes of BOJ Monetary Policy Meeting of 22-23 Jan 2018“, 13 Mar 2018 More

Currency: USD/JPY

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

Stockmarket: Nikkei 225

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Total Retail Sales of Consumer Goods. Feb 2018

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China’s retail trade increased by 9.7% from a year earlier in Jan-Feb 2018, following a 9.4% rise in Dec 2017 while markets expected a 9.8% growth. Sales rose at a faster pace for: automobiles (9.7% from 2.2% in Dec 2017); building materials (6.8% from 5.2%); jewellery (3.0% from 0.4%); personal care (10.1% from 5.4%) and home appliances (9.2% from 8.7%). Meantime, sales grew less for: telecoms (10.7% from 13.4%); oil and oil products (9.1% from 10.6%); furniture (8.5% from 12.5%); garments (7.7% from 9.7%) and cosmetics (12.5% from 13.8%). On the other hand, sales fell for office supplies (-0.9% from 12.7%). Retail Sales YoY in China averaged 12.61% from 2010 until 2018, reaching an all time high of 19.90% in Jan 2011 and a record low of 9.40% in Dec of 2017.TradingEconomics

Press Release Extract [cn_retail]

In the first two months, under the leadership of the Central Committee of the Communist Party of China with Comrade Xi Jinping as the core, all regions and departments took Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as the guideline, implemented the spirit of the 19th National Congress of the Communist Party of China (CPC) and the Central Economic Work Conference, adhered to the general working guideline of making progress while maintaining stability, stuck to the new development philosophy, focused on the supply-side structural reform and strongly promoted high-quality development, therefore the overall economy maintained steady performance and good growth momentum, getting off to a good start with new growth drivers thrived, economic structure optimized and quality and efficiency improved.

1. Industrial Production Developed and the Leading Role of New Industries and New Products Strengthened.

In the first two months, the total value added of the industrial enterprises above designated size was up by 7.2 percent year-on-year in real terms, 1.0 percentage point higher than that in December last year, or 0.9 percentage point higher than that in the same period of last year. An analysis by types of ownership showed that the value added of state holding enterprises went up by 9.0 percent year-on-year; collective enterprises down by 2.3 percent; share-holding enterprises up by 7.3 percent; and enterprises funded by foreign investors or investors from Hong Kong, Macao and Taiwan up by 5.9 percent. The value added of mining industry was up by 1.6 percent year-on-year; manufacturing up by 7.0 percent and production and supply of electricity, heat, gas and water up by 13.3 percent. The new industries and new products enjoyed fast growth and the industrial structure continued to improve. The value added of high-tech industry and equipment manufacturing industry grew by 11.9 percent and 8.4 percent respectively, 4.7 percentage points and 1.2 percentage points higher than that of the industrial enterprises above designated size. The production of new energy vehicles, integrated circuits and industrial robots grew by 178.1 percent, 33.3 percent and 25.1 percent respectively. The sales ratio of industrial enterprises above designated size was 97.9 percent. In February, the total value added of the industrial enterprises above designated size was up by 0.57 percent month-on-month.

2. The Service Sector Sustained Growth and Industries Related to New Growth Drivers and Consumption Stayed within the Expansion Range.

In the first two months, the Index of Services Production increased by 8.0 percent year-on-year, 0.1 percentage point higher than that of December last year and 0.2 percentage point lower than that in the same period of last year. Specifically, information transmission, software and information technology services, rental and business services maintained fast growth. In February, Business Activity Index for services stood at 53.8 percent. Specifically, the Business Activity Index for sectors relevant to the Spring Festival spending and consumption upgrade, such as retail sales, catering industry, railway transport, air transport, telecommunication, broadcast, television and satellite transmission services, internet and software information technology services, ecological protection and environment treatment industry continued to stay within the expansion range of over 56.0 percent. In terms of market demand, the New Order Index for the service industry was 50.7 percent, seeing its 10th straight month of expansion. In terms of market expectation, the Business Activities Expectation Index was 60.4 percent, maintaining within the expansion range of 60.0 percent and above for nine months in a row.

3. The Investment in Fixed Assets Witnessed Steady Growth and the Investment Structure Continued to be Optimized.

In the first two months, the total investment in fixed assets (excluding rural households) was 4,462.6 billion yuan, a year-on-year growth of 7.9 percent, which was 0.7 percentage point higher than that of last year and 1.0 percentage point lower than that in the same period of last year. Of the total, private investment reached 2,698.8 billion yuan, up by 8.1 percent. The investment in the primary industry reached 113.2 billion yuan, up by 27.8 percent year-on-year; that in the secondary industry was 1,485.0 billion yuan, up by 2.4 percent, of which, that in manufacturing grew by 4.3 percent; the investment in the tertiary industry was 2,864.4 billion yuan, up by 10.2 percent, of which, that in infrastructure grew by 16.1 percent. The investment structure of industries continued to be optimized. The year-on-year growth rates of investment in the high-tech manufacturing and services were 3.4 percentage points and 2.3 percentage points higher than that of total investment respectively. The growth of investment in areas of weakness accelerated. The investment in ecological protection and environment treatment industry, management of public facilities and agriculture grew by 39.3 percent, 15.6 percent and 22.9 percent year-on-year, which were 31.4 percentage points, 7.7 percentage points and 15.0 percentage points higher than that of total investment respectively. The investment in fixed assets (excluding rural households) in February witnessed a month-on-month growth of 0.61 percent.

4. The Floor Space of Commercial Buildings for Sale Continued to Decrease and the Investment in Real Estate Development Maintained Growth.

In the first two months, the total investment in real estate development was 1,083.1 billion yuan, up by 9.9 percent year-on-year, which was 2.9 percentage points higher than that of last year, or 1.0 percentage point higher than that in the same period of last year. Of the total, the investment in residential buildings went up by 12.3 percent. Floor space of houses newly started was 177.46 million square meters, up by 2.9 percent year-on-year. Specifically, the floor space of residential buildings newly started increased by 5.0 percent. The floor space of commercial buildings sold reached 146.33 million square meters, up by 4.1 percent year-on-year. Of this total, that of residential buildings went up by 2.3 percent. The sales of commercial buildings were 1,245.4 billion yuan, up by 15.3 percent year-on-year. Of this total, the sales of residential buildings grew by 15.7 percent. The land space purchased by real estate development enterprises was 23.45 million square meters, down by 1.2 percent year-on-year. At the end of February, the floor space of commercial buildings for sale was 584.68 million square meters, down by 4.55 million square meters compared with that at the end of last year. The funds in place for real estate development enterprises in the first two months reached 2,398.8 billion yuan, up by 4.8 percent year-on-year.

5. The Consumer Market was Active and New Forms and New Models of Consumption Grew Rapidly.

In the first two months, the total retail sales of consumer goods reached 6,108.2 billion yuan, a year-on-year increase of 9.7 percent, which was 0.3 percentage point higher than that of December last year and 0.2 percentage point higher than that in the same period of last year. Analyzed by different areas, the retail sales in urban areas reached 5,204.6 billion yuan, up by 9.6 percent, and those in rural areas stood at 903.6 billion yuan, up by 10.7 percent. Grouped by consumption patterns, the total income of catering industry was 661.3 billion yuan, up by 10.1 percent; and retail sales of goods were 5,446.9 billion yuan, up by 9.7 percent. Upgraded consumer goods registered fast growth. The retail sales of traditional Chinese and Western medicines, cosmetics and communication equipments from units above designated size went up by 10.1 percent, 12.5 percent and 10.7 percent respectively. In February, the total retail sales of consumer goods went up by 0.76 percent month-on-month.

In the first two months, the online retail sales reached 1,227.1 billion yuan, up by 37.3 percent year-on-year, 5.1 percentage points higher than that of last year and 5.4 percentage points higher than that in the same period of last year. Of the total, the retail sales of physical goods stood at 907.3 billion yuan, an increase of 35.6 percent, accounting for 14.9 percent of the total retail sales of consumer goods. The online retail sales of non-physical goods were 319.8 billion yuan, an increase of 42.4 percent. Travel spending, box office revenue and mobile payment witnessed fast growth.

6. The Consumer Price Rose Mildly and the Growth of Industrial Products Prices Declined.

In the first two months, the consumer price went up by 2.2 percent year-on-year, which was 0.4 percentage point higher than that of December last year, or 0.5 percentage point higher than that in the same period of last year. Grouped by categories, prices for food, tobacco and liquor rose by 1.9 percent; clothing up by 1.2 percent; housing went up by 2.5 percent; articles and services for daily use grew by 1.7 percent; transportation and communication increased by 0.8 percent; education, culture and recreation grew by 2.3 percent; health care up by 6.1 percent; and other articles and services grew by 1.4 percent. In terms of food, tobacco and liquor prices, that for grain grew by 1.2 percent, pork down by 9.0 percent and fresh vegetables up by 5.6 percent. Specifically, in January and February, the consumer price went up by 1.5 percent and 2.9 percent year-on-year respectively, or up by 0.6 percent and 1.2 percent month-on-month respectively.

In the first two months, the producer prices for industrial products grew by 4.0 percent year-on-year, down by 0.9 percentage point and 3.3 percentage points respectively compared with that of last December and the same period of last year. Specifically, in January, the producer prices for industrial products increased by 4.3 percent year-on-year, or up by 0.3 percent month-on-month; in February, the producer prices for industrial products grew by 3.7 percent year-on-year, or down by 0.1 percent month-on-month. In the first two months, the purchasing prices for industrial producers increased by 4.8 percent year-on-year, 1.1 percentage points and 4.3 percentage points lower than that of last December and the same period of last year respectively.

7. Imports and Exports Grew Rapidly and the Structure of Foreign Trade was Upgraded.

In the first two months, the total value of imports and exports reached 4,515.8 billion yuan, a year-on-year increase of 16.7 percent. Specifically, the total value of exports was 2,439.0 billion yuan, up by 18.0 percent; and that of imports was 2,076.8 billion yuan, up by 15.2 percent. The trade surplus was 362.2 billion yuan. The import and export of general trade increased by 22.0 percent, accounting for 58.7 percent of the total value of imports and exports, 2.5 percentage points higher than that in the same period of last year. The export of the mechanical and electrical products rose by 18.0 percent, accounting for 58.4 percent of the total export.

In the first two months, the export delivery value of the industrial enterprises above designated size reached 1,704.0 billion yuan, up by 9.5 percent year-on-year, 0.2 percentage point higher than that in December last year and 0.7 percentage point higher than that in the same period of last year.

Generally speaking, the national economy has maintained stable and sound development in the first two months of 2018 with new growth drivers fostered, making a good start for high quality development. However, we should be aware that international context is still complex and volatile, domestic problems caused by unbalanced and inadequate development are yet to be addressed, and the improvement of quality and efficiency remains a daunting task. In the next stage, we will implement fully the decisions and arrangements made by the Party Central Committee with Comrade Xi Jinping at its core, put into practice the targets and tasks set in the report on the work of the government, take promoting high-quality development as fundamental requirement and greatly promote supply-side structural reform. We will coordinate effort to maintain stable growth, promote reform, make structural adjustments, improve living standards, and guard against risks, take tough steps to forestall and defuse major risks, carry out targeted poverty alleviation and prevent and control pollution, so as to achieve higher quality, more efficient, fairer, and more sustainable development.

National Bureau of Statistics of China, “Monthly Report on Total Retail Sales of Consumer Goods. Feb 2018“, 14 Mar 2018 More

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The Shanghai Composite index fell 19 points, or 0.6%, to 3,291 on Wednesday despite strong China factory and investment data and amid risks of escalation in US-China trade tensions, after US President Donald Trump on Tuesday fired Secretary of State Rex Tillerson, regarded as a moderate in his administration. Historically, the China Shanghai Composite Stock Market Index reached an all time high of 6092.06 in Oct 2007 and a record low of 99.98 in Dec 1990.TradingEconomics

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