Mon 2 Apr 2018


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In Portfolioticker today

read_this Hey Jarvis, how did we go today?

Today at the stock market

bull/bearThe first trading day of the second quarter began with a broad selloff concentrated in the technology and consumer discretionary sectors, as losses by Amazon.com, Tesla and Microsoft, among others, took center stage from retaliatory trade measures China unveiled on Sunday.

“It’s more complicated than just a tech selloff. What’s hurting everything is that the S&P went through its 200-day moving average. That attracts momentum sellers and they don’t care what the fundamentals are,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.”

  • The S&P 500 index fell 58.99 points, or 2.23%, to 2,581.88
  • The Dow Jones Industrial Average fell 458.92 points, or 1.9%, to 23,644.19 after dipping below its 200-day moving average
  • The Nasdaq Composite index fell 193.33 points, or 2.74%, to 6,870.12.
  • All 11 major sectors of the S&P 500 closed lower, with the biggest losses seen by the consumer discretionary (-2.8%) and technology (-2.5%) indexes.
  • Declining issues outnumbered advancing ones on the NYSE by a 4.17-to-1 ratio; on Nasdaq, a 4.14-to-1 ratio favored decliners.
  • Volume on U.S. exchanges was 7.71 billion shares, compared to the 7.29 billion average over the last 20 trading days.

The tech-heavy Nasdaq was dragged lower by Microsoft, Intel, Apple Inc, Facebook and Alphabet.

Shares of Tesla Inc ended the day down 5.1% after the company was reported to be making 2,000 Model 3s per week, missing its 2,500 target. The electric automaker’s losses extend last week’s near 14% decline as investigations of a fatal California crash and a Moody’s credit downgrade weighed on the stock.

Health insurer Humana Inc’s shares closed up 4.4% on news it was in talks with Walmart to expand their partnership or possibly be acquired by the retailer. Walmart stock fell 3.8%.Reuters

Market indices

Market indices
^ S&P500 Index today (mouseover for 12 month view) [Chart: Google Finance]

Index Ticker Today Change 31 Dec 17 YTD
S&P 500 SPX (INX) 2,581.88 -2.60% 2,673.61 -3.44%
DJIA INDU 23,644.19 -2.47% 24,719.22 -4.35%
NASDAQ IXIC 6,870.12 -3.01% 6,903.39 -0.49%

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 3.068 -1.61% 3.068 +0.01%
Valuation Rate USD/AUD 0.77138 -0.23% 0.78528 -1.78%
AUD-denominated Index AUD 3.978 -1.39% 3.909 +1.78%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 17 YTD
Alphabet A GOOGL $1,012.63 -2.37% $1,053.00 -3.84%
Alphabet C GOOG $1,006.47 -2.46% $1,045.65 -3.75%
Apple AAPL $166.68 -0.66% $169.23 -1.51%
Amazon AMZN $1,371.99 -5.21% $1,169.54 +17.31%
Ebay EBAY $39.36 -2.19% $37.76 +4.23%
Facebook FB $155.39 -2.76% $176.46 -11.95%
PayPal PYPL $75.00 -1.15% $73.61 +1.88%
Twitter TWTR $28.04 -3.35% $24.01 +16.78%
Visa V $118.39 -1.03% $114.02 +3.83%
VMware VMW $120.48 -0.66% $125.32 -3.87%

Selected Tech News Headlines

  • Apple Plans to Use Its Own Chips in Macs From 2020, Replacing Intel “Apple Inc. is planning to use its own chips in Mac computers beginning as early as 2020, replacing processors from Intel Corp., according to people familiar with the plans. The initiative, code named Kalamata, is still in the early developmental stages, but comes as part of a larger strategy to make all of Apple’s devices — including Macs, iPhones, and iPads — work more similarly and seamlessly together, said the people, who asked not to be identified discussing private information. The project, which executives have approved, will likely result in a multi-step transition. The shift would be a blow to Intel, whose partnership helped revive Apple’s Mac success and linked the chipmaker to one of the leading brands in electronics. Apple provides Intel with about 5% of its annual revenue, according to Bloomberg supply chain analysis. Intel shares dropped as much as 9.2%, the biggest intraday drop in more than 2 years, on the news.” Bloomberg1 Bloomberg2

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 less than 0.05% to 1,124.38.
The EUR was virtually unchanged at USD 1.2303.
Japan’s JPY rose 0.3% to 105.92 per USD.
Britain’s GBP rose 0.2% to USD 1.4046, the first advance in a week.

The yield on 10-year Treasuries was little changed at 2.74%.
The yield on 2-year Treasuries fell 2 basis points to 2.25%.
Bloomberg

AUD

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

Oil and Gas Futures

Oil prices rise …

Oil rose towards $70/barrel on Monday, lifted by a drop in drilling activity in the United States and concerns that Washington could reintroduce sanctions against Iran.

U.S. drillers cut 7 oil rigs in the week to 29 Mar 2018, bringing the total down to 797, the first decline in 3 weeks. The rig count is closely watched as an indicator of future U.S. oil output.

Brent crude, the international benchmark, rose 58 cents to $69.92/barrel at 0850 GMT. It was still below its 2018 high of $71.28 reached on 25 Jan 2018. U.S. crude added 38 cents to $65.32.

Trading volume was lower than normal as many countries were still on Easter holiday.

“The market is set for a re-test of the highs of 2018. The Iranian factor is going to be a very significant input for the next 4 weeks. It is going to be an underlying support for the whole month,” said Olivier Jakob, oil analyst at Petromatrix.

U.S. President Donald Trump has threatened to pull out of a 2015 international nuclear deal with Tehran under which Iranian oil exports have risen. He has given the European signatories a 12 May 2018 deadline to “fix the terrible flaws” of the deal.

Oil has risen from a multi-year low near $27 in Jan 2016, helped by production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, which started in 2017 and is due to run until the end of 2018.

The revival in prices has helped to support a surge in U.S. drilling, which has boosted U.S. production to a record 10.43 million barrels per day (bpd), taking it past top exporter Saudi Arabia.

Russian oil output rose in Mar 2018 despite the output deal, to 10.97 million bpd from 10.95 million bpd in Feb 2018, Russian Energy Ministry data showed, putting Russia ahead of the United States as the world’s biggest crude producer.

Also potentially weighing on markets were rising trade tensions between the United States and China.

China increased tariffs by up to 25% on 128 U.S. products from Monday, escalating a spat between the world’s biggest economies in response to U.S. duties on imports of aluminium and steel.

“Investors took their cue from falling U.S drilling counts. But increasing trade friction between China and the U.S. is likely to rock global markets and tarnish bullish sentiment in crude oil markets,” said Wang Xiao of Guotai Junan Futures.Reuters

… and then fall

Oil fell by more than 2% on Monday, pressured by a rise in Russian production, expectations that Saudi Arabia will cut prices of the crude it sends to Asia and a deepening trade spat between China and the United States.

Trade sources told Reuters on Monday that Saudi Arabia is expected to cut prices for all crude grades it sells to Asia in May 2018 to reflect weaker prices for its Middle East benchmark Dubai crude.

“There is speculation that the Saudis are going to lower prices for their Asian customers,” said Bob Yawger, director of energy futures at Mizuho in New York. “That is not really the kind of thing you do when you want to keep production cuts in place.”

Oil has risen from a multi-year low near $27 in Jan 2016, helped by production cuts led by the Organization of the Petroleum Exporting Countries and Russia, which started in 2017 and are due to run until the end of 2018.

But Russian oil output rose in Mar 2018 despite the output deal, to 10.97 million bpd from 10.95 million bpd in Feb 2018, Russian energy ministry data showed.Bloomberg

Futures prices

Prices are as at 15:49 EDT

  • NYMEX West Texas Intermediate (WTI): $63.09/barrel -2.85% Chart
  • ICE (London) Brent North Sea Crude: $67.72/barrel -2.34% Chart
  • NYMEX Natural gas futures: $2.67/MMBTU -2.23% Chart

flag_usa US: Monthly Construction Spending. Feb 2018

Press Release Extract [us_const]

Total Construction

Construction spending during February 2018 was estimated at a seasonally adjusted annual rate of $1,273.1 billion, 0.1 percent (±1.2 percent) above the revised January estimate of $1,272.2 billion. The February figure is 3.0 percent (±1.5 percent) above the February 2017 estimate of $1,235.7 billion. During the first two months of this year, construction spending amounted to $176.3 billion, 4.4 percent (±1.3 percent) above the $168.9 billion for the same period in 2017.

Private Construction

Spending on private construction was at a seasonally adjusted annual rate of $982.0 billion, 0.7 percent (±1.6 percent) above the revised January estimate of $974.8 billion. Residential construction was at a seasonally adjusted annual rate of $533.4 billion in February, 0.1 percent (±1.3 percent) above the revised January estimate of $532.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $448.6 billion in February, 1.5 percent (±1.6 percent) above the revised January estimate of $441.9 billion.

Public Construction

In February, the estimated seasonally adjusted annual rate of public construction spending was $291.1 billion, 2.1 percent (±1.6 percent) below the revised January estimate of $297.4 billion. Educational construction was at a seasonally adjusted annual rate of $74.6 billion, 0.5 percent (±2.6 percent) below the revised January estimate of $75.0 billion. Highway construction was at a seasonally adjusted annual rate of $88.5 billion, 0.2 percent (±5.4 percent) below the revised January estimate of $88.7 billion.

US Census Bureau, “Construction Spending (Construction Put in Place). Feb 2018“, 2 Apr 2018 (10:00) More

flag_usa US: IHS Markit Manufacturing PMI. Mar 2018

Press Release Extract [us_pmi]

Key findings:

  • PMI rises to highest since March 2015
  • Output and new orders continue to increase markedly
  • Input costs rise to the greatest extent since November 2012

us_ihs_pmi_20180402

March PMI survey data signalled a strong overall improvement in operating conditions across the U.S. manufacturing sector. Output and new orders continued to rise markedly, despite rates of growth softening slightly since February. Job creation also remained strong and backlogs of uncompleted work increased solidly as a result of the recent upturn in client demand. Business confidence about the year ahead meanwhile rose to the highest since February 2015.

Inflationary pressures intensified, however, with rates of both input price and output charge inflation accelerating to multi-year peaks.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.6 in March, up from 55.3 in February. The latest PMI reading indicated the strongest improvement in manufacturing business conditions since March 2015. The average PMI reading over the opening three months of 2018 meanwhile indicated the best quarterly performance since the third quarter of 2014.

Output levels at manufacturing firms continued to expand strongly in March. Although the rate of growth softened to a four-month low, the pace of expansion remained comfortably above the long- run series average. Panellists commonly reported that the latest rise was driven by firmer client demand.

In a reflection of more favourable demand conditions, new orders received by manufacturers expanded sharply, despite growth edging down to a three-month low. Anecdotal evidence commonly attributed the upturn to the acquisition of new clients. Furthermore, new export orders continued to increase, extending the current sequence of expansion to eight months.

On the price front, cost burdens faced by goods producers rose sharply in March. Notably, the rate of inflation accelerated to the fastest since November 2012, with companies stating that price rises often stemmed from recently announced tariffs and higher raw material costs. Average prices charged also continued to increase, with the rate of inflation quickening to the fastest since December 2013.

Firmer demand conditions drove the strongest expansion in buying activity since September 2014, though firms also increased efforts to stockpile inputs. Consequently, firms signalled greater pressure on supply chains, with delivery times lengthening to the greatest extent since February 2014.

In line with sustained growth in new orders, employment rose further in March. The rate of job creation remained strong, albeit dipping to a four- month low.

Finally, expectations towards the year-ahead outlook for production among manufacturing firms were the most positive for just over three years.

Comment

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“US factories reported a strong end to the first quarter, with the PMI advancing to a three-year high. The goods producing sector should therefore make a positive contribution to economic growth in the first quarter, as rising demand fueled further improvements in factory production.

“Optimism about the year ahead has meanwhile also risen to its highest for three years, generating yet another solid payroll gain and suggesting strong growth momentum will be sustained in the second quarter.

“Companies cited rising demand at home and abroad plus recent government policy announcements as helping shore up confidence in terms of their future production levels.

“However, recent tariff announcements were already reported to have added to inflationary pressures, and also led to the stockpiling of goods expected to rise further in price in coming months. Input cost inflation consequently hit the highest since 2012. Increased costs were often passed on to customers, meaning prices charged for goods at the factory gate showed the steepest rise in over four years.”

IHS Markit, “IHS Markit Manufacturing PMI. Mar 2018“, 2 Apr 2018 (09:45) More

flag_usa US: ISM Manufacturing PMI. Mar 2018

Press Release Extract [us_ism_pmi]

Economic activity in the manufacturing sector expanded in March, and the overall economy grew for the 107th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The March PMI® registered 59.3 percent, a decrease of 1.5 percentage points from the February reading of 60.8 percent. The New Orders Index registered 61.9 percent, a decrease of 2.3 percentage points from the February reading of 64.2 percent. The Production Index registered 61 percent, a 1 percentage point decrease compared to the February reading of 62 percent. The Employment Index registered 57.3 percent, a decrease of 2.4 percentage points from the February reading of 59.7 percent. The Supplier Deliveries Index registered 60.6 percent, a 0.5 percentage point decrease from the February reading of 61.1 percent. The Inventories Index registered 55.5 percent, a decrease of 1.2 percentage points from the February reading of 56.7 percent. The Prices Index registered 78.1 percent in March, a 3.9 percentage point increase from the February reading of 74.2 percent, indicating higher raw materials prices for the 25th consecutive month. Comments from the panel reflect continued expanding business strength. Demand remains robust, with the New Orders Index at 60 or above for the 11th straight month, and the Customers’ Inventories Index at its lowest level since July 2011. The Backlog of Orders Index continued a 14-month expansion with its highest reading since May 2004, when it registered 63 percent. Consumption, described as production and employment, continues to expand, with indications that labor and skill shortages are affecting production output. Inputs, expressed as supplier deliveries, inventories and imports, were negatively impacted by weather conditions; Asian holidays; lead time extensions; steel and aluminum disruptions across many industries; supplier labor issues; and transportation difficulties due to driver and equipment shortages. Export orders remained strong, supported by a weaker U.S. currency. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. In March, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation’s employment resources and supply chains are still struggling to keep up.”

Of the 18 manufacturing industries, 17 reported growth in March, in the following order: Fabricated Metal Products; Plastics & Rubber Products; Computer & Electronic Products; Paper Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Transportation Equipment; Petroleum & Coal Products; Wood Products; Machinery; Chemical Products; Textile Mills; Electrical Equipment, Appliances & Components; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Primary Metals. The only industry reporting a decrease during the period is Apparel, Leather & Allied Products.

MANUFACTURING INDEX SUMMARIES

PMI®

Manufacturing expanded in March as the PMI® registered 59.3 percent, a decrease of 1.5 percentage points from the February reading of 60.8 percent. “This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March PMI® indicates growth for the 107th consecutive month in the overall economy and the 19th straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the PMI® for March (59.3 percent) corresponds to a 4.9 percent increase in real gross domestic product (GDP) on an annualized basis.”

New Orders

ISM®’s New Orders Index registered 61.9 percent in March, which is a decrease of 2.3 percentage points when compared to the 64.2 percent reported for February, indicating growth in new orders for the 27th consecutive month. “New orders expansion continues at a strong pace — slower compared to February’s reading, but still at or above 60 percent for the 11th straight month. Customer Inventories remain too low, and backlog expansion maintained high levels,” says Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Fifteen of 18 industries reported growth in new orders in March, listed in the following order: Wood Products; Nonmetallic Mineral Products; Computer & Electronic Products; Paper Products; Transportation Equipment; Plastics & Rubber Products; Chemical Products; Printing & Related Support Activities; Fabricated Metal Products; Primary Metals; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; and Machinery. The only industry reporting a decrease in new orders in March compared to February is Apparel, Leather & Allied Products.

Production

ISM®’s Production Index registered 61 percent in March, which is a decrease of 1 percentage point when compared to the 62 percent reported for February, indicating growth in production for the 19th consecutive month. “Production expansion continues, with the index at 10 straight months over 60 percent. Activity appears to be stabilizing at high rates as the spring/summer selling season approaches. However, labor constraints and supply chain disruptions will continue to prevent or limit maximum production potential,” says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 14 industries reporting growth in production during the month of March — listed in order — are: Printing & Related Support Activities; Plastics & Rubber Products; Paper Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Petroleum & Coal Products; Chemical Products; Primary Metals; Machinery; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The two industries reporting a decrease in production in March compared to February are: Apparel, Leather & Allied Products; and Textile Mills.

Employment

ISM®’s Production Index registered 61 percent in March, which is a decrease of 1 percentage point when compared to the 62 percent reported for February, indicating growth in production for the 19th consecutive month. “Production expansion continues, with the index at 10 straight months over 60 percent. Activity appears to be stabilizing at high rates as the spring/summer selling season approaches. However, labor constraints and supply chain disruptions will continue to prevent or limit maximum production potential,” says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 14 industries reporting growth in production during the month of March — listed in order — are: Printing & Related Support Activities; Plastics & Rubber Products; Paper Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Petroleum & Coal Products; Chemical Products; Primary Metals; Machinery; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The two industries reporting a decrease in production in March compared to February are: Apparel, Leather & Allied Products; and Textile Mills.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in March, as the Supplier Deliveries Index registered 60.6 percent. This is 0.5 percentage point lower than the 61.1 percent reported for February. “This is the 18th straight month of slowing supplier deliveries, and that continues to be a constraint to production growth. Lead-time extensions in many areas, including steel; supplier labor shortages; and transportation delays will continue to restrict production output for the foreseeable future,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 13 industries reporting slower supplier deliveries in March — listed in order — are: Textile Mills; Machinery; Fabricated Metal Products; Nonmetallic Mineral Products; Computer & Electronic Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; Plastics & Rubber Products; Petroleum & Coal Products; Transportation Equipment; and Paper Products. The only industry reporting faster supplier deliveries in March compared to February is Primary Metals.

Inventories

The Inventories Index registered 55.5 percent in March, which is a decrease of 1.2 percentage points when compared to the 56.7 percent reported for February, indicating raw materials inventories grew in March. “Suppliers were not able to maintain desired inventory expansion levels consistent with production demands. Broad supplier lead-time extensions and freight uncertainties will continue to impact inventory accounts,” says Fiore. An Inventories Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The nine industries reporting higher inventories in March — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Printing & Related Support Activities; Fabricated Metal Products; Transportation Equipment; Nonmetallic Mineral Products; Petroleum & Coal Products; Computer & Electronic Products; and Chemical Products. The two industries reporting lower inventories in March are: Primary Metals; and Paper Products. Seven industries reported no change in raw materials inventories in March compared to February.

Customers’ Inventories

ISM®’s Customers’ Inventories Index registered 42 percent in March, which is 1.7 percentage points lower than the 43.7 percent reported for February, indicating that customers’ inventory levels were still considered too low in March. “Customers’ inventory levels remain too low for the 18th consecutive month and are at their lowest level since July 2011, when the index registered 40.4. This month’s low level, coupled with continued strong expansion in backlogs, indicates strong demand will continue for the foreseeable future in spite of the slowing in new orders expansion,” says Fiore.

The only manufacturing industry reporting customers’ inventories as too high during the month of March is Miscellaneous Manufacturing. The 10 industries reporting customers’ inventories as too low during March — listed in order — are: Wood Products; Primary Metals; Machinery; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Plastics & Rubber Products; Paper Products; Transportation Equipment; Fabricated Metal Products; and Chemical Products. Seven industries reported no change in customers’ inventories in March compared to February.

Prices

The ISM® Prices Index registered 78.1 percent in March, an increase of 3.9 percentage points from the February level of 74.2 percent, indicating an increase in raw materials prices for the 25th consecutive month. In March, 57.1 percent of respondents reported paying higher prices, 0.8 percent reported paying lower prices, and 42.1 percent of supply executives reported paying the same prices as in February. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. “The increases in prices across industry sectors are inhibiting the panel from reporting all commodities up in price. Therefore, the commodities list doesn’t represent the total market activity because prices are changing every day. The Business Survey Committee noted price increases continue in metals (all steels, steel components, aluminum and copper), corrugate and parts made from plastics. Shortages continue in electronics,” says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Seventeen industries reported paying increased prices for raw materials in March, in the following order: Apparel, Leather & Allied Products; Textile Mills; Furniture & Related Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; Paper Products; Plastics & Rubber Products; Chemical Products; Primary Metals; Transportation Equipment; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Computer & Electronic Products; Printing & Related Support Activities; and Petroleum & Coal Products. No industry reported a decrease in prices in March compared to February.

Backlog of Orders

ISM®’s Backlog of Orders Index registered 59.8 percent in March, which is the same as reported in February, indicating growth in order backlogs for the 14th consecutive month. “Backlog expansion continued during the period, with the index at the same reading as February and the highest level since May 2004, when it registered 63 percent. Strong backlog, near-seven-year lows in customer inventory levels and continued strong new order expansion indicates that production requirements should remain robust through Q2,” says Fiore.

The 11 industries reporting growth in order backlogs in March — listed in order — are: Wood Products; Textile Mills; Nonmetallic Mineral Products; Paper Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Machinery; Chemical Products; Primary Metals; and Plastics & Rubber Products. The three industries reporting a decrease in order backlogs during March are: Petroleum & Coal Products; Furniture & Related Products; and Food, Beverage & Tobacco Products.

New Export Orders

ISM®’s New Export Orders Index registered 58.7 percent in March, a decrease of 4.1 percentage points when compared to the 62.8 percent reported for February, indicating growth in new export orders for the 25th consecutive month. “All six big industry sectors continued to expand export activity during the period. Exports remained strong, with many survey respondents commenting on the currency advantage,” says Fiore.

The 11 industries reporting growth in new export orders in March — listed in order — are: Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; Machinery; Transportation Equipment; Computer & Electronic Products; Fabricated Metal Products; and Miscellaneous Manufacturing. The two industries reporting a decrease in new export orders in March are Primary Metals; and Plastics & Rubber Products.

Imports

ISM®’s Imports Index registered 59.7 percent in March, a decrease of 0.8 percentage point when compared to the 60.5 percent reported for February, indicating that imports grew in March for the 14th consecutive month. “Imports continued to expand in order to support production demand, but at slightly slower expansion rates. Many comments reflected the negative impact of the Asian holiday period, concerns about tariffs and difficulties in moving containers from ports to using locations,” says Fiore.

The 12 industries reporting growth in imports during the month of March — listed in order — are: Nonmetallic Mineral Products; Petroleum & Coal Products; Computer & Electronic Products; Printing & Related Support Activities; Transportation Equipment; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; Miscellaneous Manufacturing; Machinery; and Plastics & Rubber Products. The four industries that reported a decrease in imports during March compared to February are: Furniture & Related Products; Apparel, Leather & Allied Products; Primary Metals; and Paper Products.

Buying Policy

Average commitment lead time for Capital Expenditures decreased in March by six days, to 139 days. Average lead time for Production Materials decreased by one day, to 63 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased by one day, to 34 days. “Capital expenditure lead time decreased six days during this period. Reported production material lead times decreased one day, contrary to many comments from panelists about lead times being extended across broad categories of materials. The April report will likely reflect continued extensions of production material lead times,” says Fiore.

Institute for Supply Management, “Report on Business (PMI) – Manufacturing. Mar 2018“, 2 Apr 2018 (10:00) More

flag_japan Japan update

Nikkei Japan Manufacturing PMI. Mar 2018

Press Release Extract [jp_pmi]

Key points:

  • Output and new order growth weakens
  • Firms hire new staff amid capacity constraints
  • Output prices rise at historically marked pace

jp_pmi_20180402

“The health of the Japanese manufacturing sector continued to improve during March, albeit to a softer extent. Nonetheless, expansionary trends were sustained in both output and new orders, encouraging firms to raise employment and input buying. Capacity pressures remained elevated, as firms noted higher levels of unfinished work and longer supplier lead times. Reports of supply shortages and strong input demand coincided with a stronger increase in average costs. In turn, firms raised output charges to a relatively sharp extent.

The headline Nikkei Japan Manufacturing Purchasing Managers’ Index™ (PMI)® – a composite single-figure indicator of manufacturing performance – fell to 53.1 in Mar 2018, from 54.1 in Feb 2018 to signal a solid, albeit weaker, improvement in operating conditions for Japanese manufacturers. That said, the headline PMI has recorded in expansionary territory for 19 successive months.

Japanese goods producers increased output for a twentieth successive month during Mar 2018. Anecdotal evidence suggested that favourable order receipts had prompted them to increase production. That said, the rate of growth eased to an eight-month low. Similarly, new business expanded at a softer rate during the latest survey period. Nevertheless, the pace of growth was broadly in line with the average seen across the current 18-month sequence of rising demand. Firms attributed higher new orders to new customer wins and product launches. Sales to overseas clients also rose during March. Panellists noted Europe, China and South Korea as destinations for export orders.

As a result of increased incoming new business, capacity pressures were tested across the Japanese manufacturing sector. Backlogs of work rose, with production lines incapable of meeting demand requirements. Consequently, firms completed orders using their stocks of finished goods. To help clear outstanding work, businesses recruited additional staff in Mar 2018. That said, the rate of job creation slowed to a 3-month low.

Survey data also signalled that the sustained upturn in demand had impacted supply chains. Average lead times for inputs lengthened markedly in March and to the sharpest extent since May 2011. This encouraged businesses to bolster their holdings of raw materials and semi-manufactured goods. Input stocks increased for a third successive month.

Operating expenses faced by Japanese manufacturers rose sharply during Mar 2018. Higher prices for food, fuel and metals were reported by panellists. In an effort to guard against profit margin erosion, businesses raised selling prices. The rate of output price inflation accelerated to the second- fastest pace since October 2008.

Firms maintained a positive outlook regarding output over the forthcoming year. Survey respondents attributed their upbeat expectations to new marketing initiatives, Olympic Games-related opportunities and the development of new products.

Comment

Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

“Latest survey data presented a second successive decline in the Manufacturing PMI for Japan. That said, the overall picture remains upbeat. The reading of 53.1 still indicates a fairly solid pace of improvement in business conditions. Moreover, the average across Q1 is consistent with a robust growth rate and bodes well for official data.

“On a further positive note, new orders have now expanded in each of the last 18 survey months. This sustained upturn in demand has appeared to impact supply chains, with delivery times slowing to the sharpest extent since the aftermath of the 2011 earthquake. This could create headwinds for the manufacturing economy if further capacity pressures begin to impact production capabilities.

“Meanwhile, survey data signalled the second- fastest rate of output price inflation since October 2008, the sharpest being that seen in January. More aggressive pricing behaviour is an encouraging sign; however the uptick was spurred on primarily by intensified cost pressures, particularly from food and energy.”

IHS Markit, “Nikkei Japan Manufacturing PMI. Mar 2018“, 2 Apr 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

n225 movements
^ Nikkei 225 movements this week [Chart: Google Finance]

Obstacles are piling up in Japan, everything from political scandal to a rising JPY. Foreign investors are fleeing and now Goldman Sachs Group Inc. says its forecasts for stocks were too high. The brokerage lowered its 3-month target for the Topix gauge by 5.6% to 1,700, implying a slight decline from its current level. Goldman also reduced its 6-month and 12-month targets 2.7% and 2.5%, respectively, to 1,800 and 1,950. The index closed at 1,817.56 points last year.

Foreign investors yanked JPY 8.2 trillion out of Japanese stocks in Q1/2018, mainly from futures, due to uncertainty surrounding domestic politics, a rising yen, global trade concerns and mixed macroeconomic data, according to Goldman.

“These headwinds will cap the upside for Japanese equities,” strategists led by Kathy Matsui wrote in a note dated 29 Mar 2018.

Matsui still expects a medium-term recovery for the Topix, which is down more than 5% this year. Goldman sees “limited” downside risk as the market has priced in the possibility of a 10% drop in earnings per share in fiscal 2018, whereas Goldman sees growth of 2.5%.

There is one caveat: the exchange rate would have to stay around the JPY 105 per USD mark.

The JPY surged to a 16-month high against the USD last month as the U.S. and China slapped new tariffs on each others’ products. At home, Prime Minister Shinzo Abe’s support rating slipped against the backdrop of a cronyism scandal involving the sale of government land to a school with alleged ties to the premier.

The Topix index rose as much as 0.4% and the Nikkei 225 Stock Average climbed 0.7% Monday, the first trading day of Q2/2018. Goldman analysts also published a separate note dated 29 Mar 2018 citing the turn-of-the-month effect where the Nikkei 225 has risen on the first trading day of each month from Jul 2016 to Feb 2018.Bloomberg

flag_china China update

Growth in China’s manufacturing sector picked up more than expected in Mar 2018 as authorities lifted winter pollution restrictions and steel mills cranked up production as construction activity swings back into high gear.

The official Purchasing Managers’ Index (PMI) released by China’s National Bureau of Statistics on Saturday rose to 51.5 in Mar 2018, from 50.3 in Feb 2018, and was well above the 50-point mark that separates growth from contraction on a monthly basis. Analysts surveyed by Reuters had forecast the reading would pick up only slightly to 50.5.

The findings add to a growing amount of data which suggest that China’s economy has carried more momentum into the first quarter from last year than analysts had expected, which should keep synchronized global growth on track for a while longer even as trade tensions build.

February’s print had been the lowest in 1½ years, but many analysts suspected it was due to disruptions related to the long Lunar New Year holidays, not a sharp drop in consumption. Indeed, the Mar 2018 survey showed manufacturers shifted into higher gear as usual as seasonal demand picked up at home and abroad. The sub-index for output jumped to 53.1 in Mar 2018 from 50.3 in Feb 2018, while total new orders rose to 53.3 in Mar 2018 from 51.0 in Feb 2018 and export orders climbed to 51.3 in Mar 2018 from 49.0 in Feb 2018.

The China Logistics Information Centre, in a commentary on the PMI figures, said it expected Q1/2018 economic growth to be about 6.8%. Early this year, economists polled by Reuters were penciling in a fade to around 6.6%.Reuters 31 Mar 2018

Caixin China General Manufacturing PMI. Mar 2018

Press Release Extract [cn_pmi]

Key Points:

  • Output, new orders and export sales all rise at weaker rates
  • Quicker decline in headcounts
  • Input price inflation cools to nine-month low

cn_pmi_20180402

Chinese manufacturing companies signalled only a marginal improvement in overall operating conditions at the end of the first quarter. Production and total new orders both expanded at the weakest rates for four months, while export sales increased only marginally. At the same time, staff numbers declined at the quickest pace since last August amid reports of cost- cutting plans. Overall inflationary pressures meanwhile cooled further, with input costs increasing at the slowest rate for nine months, while firms raised their selling prices only modestly. Encouragingly, confidence towards growth prospects improved to a one-year high amid forecasts of greater investment and expectations of better market conditions.

Adjusted for seasonal factors, the headline Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single- figure snapshot of operating conditions in the manufacturing economy – posted 51.0 in March, down from 51.6 in February. Although the reading signalled a further improvement in the health of the sector, the latest upturn was only slight and the weakest recorded since last November.

The amount of total new work placed with Chinese manufacturers increased again in March, though the pace of expansion softened to a four-month low. Weaker growth in overall new orders was in part driven by relatively muted foreign demand, as new export work increased only slightly at the end of the first quarter.

Reflective of the trend for new work, production levels rose to the softest extent since last November, and only modestly overall. Concurrently, relatively subdued sales contributed to a marginal increase in inventories of finished items.

Companies continued to reduce staff numbers, with the rate of job shedding quickening slightly to the most marked for seven months. A number of respondents mentioned that efforts to lower costs had been behind the latest drop in employment.

A combination of lower staff and higher order volumes led to a further increase in backlogs of work. Furthermore, the rate of accumulation quickened slightly since February.

Sustained growth in new orders underpinned a further rise in purchasing activity across China’s manufacturing sector. In line with the trend for new orders and output, the rate of growth was the weakest seen for four months. Nonetheless, the rise was sufficient to lead to a further increase in stocks of inputs, albeit one that was marginal.

Environmental inspection policies were cited as the key driver of longer lead times for inputs during March. Vendor performance has now deteriorated for 19 months in a row.

Average input price inflation continued to soften from September’s recent peak, with cost burdens rising to the weakest extent for nine months in March. At the same time, factory gate prices increased only modestly.

Although demand conditions softened slightly, confidence towards the 12-month outlook for production improved to a one-year high in March.

Comment

Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

“The Caixin China General Manufacturing PMI fell to 51.0 in March. The sub-indices of output and employment both fell from the previous month, while new orders increased at a slightly slower rate, highlighting that the deceleration in the manufacturing sector was mainly driven by the supply side and that demand has remained relatively stable.

“Output prices rose at a faster pace in March than in the previous month while the increase in input costs weakened markedly, which will help shore up manufacturers’ profits.

IHS Markit, “Caixin China General Manufacturing PMI. Mar 2018“, 2 Apr 2018 More

Currency: USD/CNY

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Stockmarket: CSI300

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