Tue 10 Apr 2018


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In Portfolioticker today

read_this Hey Jarvis, how did we go today?

Today at the stock market

bull/bearU.S. stocks climbed on Tuesday as investor concerns about rising trade tensions between the United States and China eased after Chinese President Xi Jinping promised to cut import tariffs.

  • The S&P 500 index rose 43.71 points, or 1.67%, to 2,656.87
  • The Dow Jones Industrial Average rose 428.9 points, or 1.79%, to 24,408
  • The Nasdaq Composite added 143.96 points, or 2.07%, to 7,094.30
  • Advancing issues outnumbered declining ones on the NYSE by a 3.16-to-1 ratio; on Nasdaq, a 3.93-to-1 ratio favored advancers.
  • The S&P 500 posted six new 52-week highs and one new low; the Nasdaq Composite recorded 53 new highs and 32 new lows.
  • Volume so far on U.S. exchanges was 7.14 billion shares, compared with the 7.33 billion-share average for the full session over the last 20 trading days.

The energy index had the highest percentage gain among the S&P’s 11 major sectors, adding 3.3% as oil broke above $70/barrel.

Only utilities and real estate, which are sensitive to interest rates, posted losses after U.S. producer prices rose more than expected in Mar 2018, indicating that inflation is strengthening, which could push interest rates up further.

However, the increase in producer prices did not prompt broader concerns about future market performance.

“It’s not enough to offset better expectations about the overall economy,” said Kate Warne, investment strategist at Edward Jones in St. Louis.

Earnings Reporting Season

U.S. stocks will face a major test in coming weeks as first-quarter earnings pour in. JPMorgan Chase, Citigroup and Wells Fargo will kick off the earnings season on Friday.

Analysts expect quarterly profits for S&P 500 companies to rise 18.5% from a year ago, which would be the biggest gain in seven years, according to Thomson Reuters I/B/E/S.

Technology

The technology sector which would be particularly exposed to a negative impact from tense trade relations with China, provided the biggest boost to the S&P 500.

Xi said China will widen market access for foreign investors, a point of contention for U.S. President Donald Trump’s administration.

His comments buoyed global markets, which have been under pressure as China and the United States threatened each other with billions of dollars in tariffs.

“With (Xi’s comments), we got the signal for ‘risk on’ in trading today,” said Mariann Montagne, portfolio manager at Gradient Investments in Arden Hills, Minnesota. “That’s why we’ve seen tech and biotech performing very strongly today.”

Facebook shares added the most gains to the S&P 500, rising 4.5% after Chief Executive Mark Zuckerberg began his testimony before Congress and took questions from lawmakers. It was Facebook’s biggest one-day percentage gain in nearly 2 years.

Zuckerberg’s testimony aimed to strike a conciliatory tone in an attempt to blunt possible regulatory fallout from the privacy scandal engulfing his social network.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) 2,656.87 +1.67% 2,238.83 -0.63%
DJIA INDU 24,408.00 +1.78% 19,762.60 -1.26%
NASDAQ IXIC 7,094.30 +2.07% 5,383.12 +2.76%

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 3.185 +1.99% 2.105 +3.83%
Valuation Rate USD/AUD 0.78142 +0.88% 0.72663 -0.50%
AUD-denominated Index AUD 4.078 +1.10% 2.895 +4.33%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 17 YTD
Alphabet A GOOGL $1,036.50 +1.60% $1,053.00 -1.57%
Alphabet C GOOG $1,031.64 +1.59% $1,045.65 -1.34%
Apple AAPL $173.25 +1.88% $169.23 +2.37%
Amazon AMZN $1,436.22 +2.14% $1,169.54 +22.8%
Ebay EBAY $39.59 +1.82% $37.76 +4.84%
Facebook FB $165.04 +4.50% $176.46 -6.48%
PayPal PYPL $76.79 +2.12% $73.61 +4.32%
Twitter TWTR $29.53 +5.42% $24.01 +22.99%
Visa V $120.72 +1.62% $114.02 +5.87%
VMware VMW $121.75 +1.06% $125.32 -2.85%

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 0.3% to the lowest in 2 weeks.
Japan’s JPY 0.4% to 107.16 per USD.
The EUR rose 0.3% to USD 1.2353, the highest in 2 weeks.
Britain’s GBP rose 0.3% to USD 1.4177, the strongest in more than 2 weeks.

The yield on 10-year Treasuries rose 2 basis points to 2.7972%.
Germany’s 10-year yield added 1 basis point to 0.516%.
Britain’s 10-year yield was little changed at 1.407%.
Bloomberg

AUD

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

Oil and Gas Futures

Futures prices

Prices are as at 15:47 EDT

  • NYMEX West Texas Intermediate (WTI): $65.74/barrel +3.66% Chart
  • ICE (London) Brent North Sea Crude: $71.14/barrel +3.63% Chart
  • NYMEX Natural gas futures: $2.66/MMBTU -1.37% Chart

Global Debt. Q4/2017

Global debt rose to a record $237 trillion in Q4/2017, more than $70 trillion higher from a decade earlier, according to an analysis by the Institute of International Finance (IIF).

Among mature markets, household debt/GDP hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. That’s a worrying signal, with interest rates beginning to rise globally. Ireland and Italy are the only major countries where household debt as a percentage of GDP is below 50%.

Still, the ratio of global debt/GDP fell for the 5th consecutive quarter as the world’s economic growth accelerated. The ratio is now around 317.8% of GDP, or 4 percentage points below the high in the third quarter of 2016, according to the IIF.

Among emerging markets, household debt to GDP is approaching parity in South Korea at 94.6%.Bloomberg IIF Global Debt Monitor

IMF Global Financial Stability Report. Apr 2018

Executive Summary

The global economic outlook has continued to improve, as discussed in the April 2018 World Economic Outlook, with the pace of economic growth picking up and the recovery becoming more synchronized around the world. While still supportive of economic growth, global financial conditions have tightened somewhat since the October 2017 Global Financial Stability Report (GFSR). Such a tightening reflects primarily the bout of equity volatility in early February and a decline in risky asset prices at the end of March following concerns about a wider escalation of protectionist measures.

Short-term risks to financial stability have increased somewhat relative to the previous GFSR, and medium-term risks continue to be elevated. Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk. Indeed, Growth-at-Risk analysis (described in Chapter 3 of the October 2017 GFSR) shows that risks to medium-term economic growth, stemming from easy financial conditions, remain well above historical norms.

In advanced economies, stronger growth momentum and the firming of inflation have eased to some extent a key challenge facing central banks: maintaining the monetary accommodation required to support the economic recovery while addressing medium-term financial vulnerabilities. But the firming of inflation also brings risks. For example, inflation may pick up faster than currently anticipated, possibly propelled by significant fiscal expansion enacted in the United States. Central banks may respond to higher inflation more aggressively than currently expected, which could lead to a sharp tightening of financial conditions. This tightening could spill over to risky asset prices, bank dollar funding markets, and both emerging market economies and low-income countries, as discussed below. To minimize these risks, central banks should continue to normalize monetary policy gradually and communicate their decisions clearly to support the economic recovery.

Valuations of risky assets are still stretched, with some late-stage credit cycle dynamics emerging, reminiscent of the precrisis period. This makes markets exposed to a sharp tightening in financial conditions, which could lead to a sudden unwinding of risk premiums and a repricing of risky assets. Moreover, liquidity mismatches and the use of financial leverage to boost returns could amplify the impact of asset price moves on the financial system. Although no major disruptions were reported during the episode of volatility in early February, market participants should not take too much comfort. Investors and policymakers must remain attuned to the risks associated with higher interest rates and greater volatility. Policymakers should address financial vulnerabilities by using more actively the micro- and macroprudential tools at their disposal or by enhancing their toolkits as needed—for example, to address risks in the nonbank financial sector.

The banking sector has become more resilient since the global financial crisis. However, it is important to ensure that the postcrisis regulatory reform agenda is completed. In advanced economies some weaker banks still need to strengthen their balance sheets, and some institutions operating internationally run dollar liquidity mismatches. A sudden spell of turbulence in financial markets could expose these mismatches and crystallize dollar funding strains.

A number of emerging market economies have taken advantage of an extended period of benign external financial conditions to improve their fundamentals. However, they could be vulnerable to a sudden tightening of global financial conditions or spillovers from monetary policy normalization in advanced economies, resulting in an increase in risk aversion and capital flow reversals. The severity of such potential shocks will differ across countries, depending on economic fundamentals and the policy responses to those shocks. Although regulators in China have taken steps to address risks stemming from the interconnectedness of the banking and shadow banking sectors, vulnerabilities remain high. Further regulatory actions are crucial to continue reducing risks in the financial sector.

The technology behind crypto assets has the potential to make the financial market infrastructure more efficient. However, crypto assets have been afflicted by fraud, security breaches, and operational failures, and have been associated with illicit activities. At present, crypto assets do not appear to pose financial stability risks, but they could do so should their use become more widespread without appropriate safeguards.

Chapter 2 takes a comprehensive look at the evolution of the riskiness of corporate credit allocation, given concerns that the continued search for higher yield may have led banks and investors to extend too much credit to risky borrowers. The chapter documents a pattern in which the firms obtaining more credit are relatively riskier during periods of strong credit expansion, especially when lending standards are loose or financial conditions are easy. An increase in the riskiness of credit allocation signals heightened downside risks to GDP growth and a higher probability of banking stress, in addition to the previously documented signals provided by credit growth. Country authorities can use the measures introduced in this chapter to monitor the buildup of vulnerabilities via risk taking in credit allocation. The chapter discusses policies that can mitigate the increase in credit riskiness during credit expansions.

Chapter 3 documents a striking increase in house price synchronization among 40 countries and 44 major cities in advanced and emerging market economies over the past several decades. The exposure of countries and cities to global financial conditions may help explain that increase. Rising housing valuations since the global financial crisis raise the specter of a simultaneous decline in house prices should financial conditions reverse. The chapter suggests that heightened synchronicity of house prices can signal a higher probability of adverse scenarios for the real economy, especially when credit is high or rapidly expanding.

IMF Executive Board Discussion Summary

Executive Directors broadly shared the key messages of the flagship reports and found the analytical chapters topical, relevant, and insightful. They welcomed the broad-based recovery of the global economy, supported by a pickup in investment and trade. Directors observed that global growth is expected to rise further in the near term. Meanwhile, inflation remains muted in many countries. Subdued labor productivity growth and population aging continue to hold back growth in advanced economies. While the recent commodity price increase has supported a recovery in commodity-dependent emerging market and developing economies, the ongoing adjustment processes continue to weigh on growth.

Directors agreed that risks around the short-term outlook are broadly balanced, but beyond the next several quarters, risks are tilted to the downside. On the upside, the cyclical pickup in advanced economy growth may prove stronger than expected as slack in labor markets may be larger than currently assessed. On the downside, a sharp tightening of global financial conditions could have negative repercussions for growth, while financial vulnerabilities accumulated over years of low interest rates could amplify the impact of asset price movements on the financial system, putting growth at risk in the medium term. Most Directors noted that the tax reform in the United States is procyclical and may trigger inflation pressure and a faster-than-anticipated withdrawal of monetary accommodation, as well as widen global imbalances, although the view was also expressed that the reform would boost investment and efficiency, and thus move the US economy to a higher, sustainable growth path. An abrupt tightening of global financial conditions, especially if accompanied by capital flow reversals, could be challenging for several emerging markets and low-income developing countries, notwithstanding improved resilience of their financial systems. Downside risks are particularly evident from escalating trade protectionism and inward-looking policies. Record high levels of global debt, geopolitical tensions, and climate events also threaten global growth prospects.

Against this backdrop, Directors underscored that the cyclical upswing provides a golden opportunity to advance policies and reforms to strengthen medium term prospects and reduce vulnerabilities. Priorities are to raise potential output, ensure the gains are widely shared, enhance economic and financial resilience, and safeguard debt sustainability. Directors stressed that a multilateral framework that is open, resilient, and adhered to by all can support growth and benefit the global economy. Enhanced commitment to multilateral cooperation is particularly needed to reduce trade barriers and distortionary trade practices, and to promote a rule-based multilateral trading system that works for all. Directors also called for multilateral cooperation to further reduce incentives for cross-border profit shifting and tax evasion, avoid tax competition, implement the postcrisis financial regulatory reform agenda, and address other shared challenges such as refugees, security threats, cyber risks, and climate change. Reducing excess external imbalances requires policy efforts to lift the contribution of domestic sources of growth above overall GDP growth in surplus countries and to boost potential output and saving in deficit countries.

Directors concurred that monetary accommodation should continue in advanced economies with inflation below target. Where output is close to potential and inflation is rising toward target, a gradual, data-dependent, and well-communicated withdrawal of monetary support is warranted. Directors supported the call for fiscal policy to start rebuilding buffers now, where appropriate, to create room for an eventual downturn and prevent fiscal vulnerabilities from becoming a source of stress. Fiscal adjustment is warranted in most countries, calibrated to avoid pro-cyclicality and anchored on fiscal reforms that increase productivity and promote human and physical capital.

In countries that have ample fiscal space and are operating at or close to capacity, fiscal policy should be used to facilitate growth-enhancing structural reforms. Directors also saw a role for fiscal policy in promoting equality, and for labor and immigration policies in boosting labor supply.

Directors agreed that digitalization presents both opportunities and risks. Digitalization can reduce tax compliance costs, improve spending efficiency, and enhance social protection. At the same time, it creates challenges for fiscal policy and the international tax system. Directors noted that mitigating risks from digitalization would require a comprehensive reform agenda, adequate resources, and a coordinated approach toward a long-term vision of the international tax architecture.

Directors welcomed the increased resilience of the banking system and stressed the importance of completing and implementing the postcrisis regulatory reform agenda. They encouraged policymakers to develop and deploy micro- and macroprudential tools to address financial vulnerabilities, and to closely monitor risks related to credit allocation and increasingly synchronized house prices across countries. The global implications of Brexit-related challenges also call for close cross-border cooperation. Directors concurred that, while crypto assets do not pose an immediate threat to financial stability, if widely used, they may raise issues about investor and consumer protection, money laundering, and tax evasion.

Directors agreed that enhancing the quality of credit intermediation, avoiding credit booms that lead to excessive risk taking, and, where feasible, permitting exchange rate flexibility can help emerging market and developing economies enhance their resilience to external shocks. Directors welcomed China’s progress in reducing financial vulnerabilities and encouraged further efforts to strengthen its regulatory and supervisory frameworks, particularly in the shadow banking sector.

Directors noted that low-income developing countries face multiple challenges in their effort to progress toward the 2030 Sustainable Development Goals.

They expressed concern over the broad-based increase in public debt burdens, the increasing number of countries at high risk of debt distress, and data gaps. These underscore the urgent need for fiscal prudence, improved debt management capacity, and greater debt transparency on the part of both debtors and creditors, as well as concerted efforts from the international community. Several countries need to make room in their budgets to accommodate higher spending on social services, such as health care and education, and public investment, by mobilizing domestic revenues and improving spending efficiency. Commodity exporters and those vulnerable to climate-related events face additional complex challenges of diversifying their economies. While country circumstances differ, common priorities for promoting economic diversification and employment include increasing access to credit, expanding vocational skills training, and improving the quality of infrastructure.

Directors expressed concern over the stalled progress in the catching-up process of emerging market and developing economies. They noted that, to facilitate income convergence, policies should aim to strengthen governance, improve educational and health outcomes, and lower entry barriers for new firms.

International Monetary Fund (IMF), “Global Financial Stability Report: A Bumpy Road Ahead“, 10 Apr 2018 Full Report

flag_europe EU: Quarterly Balance of Payments. Q4/2017

Press Release Extract [eu_bop]

The EU28 seasonally adjusted current account of the balance of payments recorded a surplus of €63.5 billion (1.6% of GDP) in the fourth quarter of 2017, down from a surplus of €67.4 billion (1.8% of GDP) in the third quarter of 2017 and from a surplus of €64.4 billion (1.7% of GDP) in the fourth quarter of 2016, according to estimates released by Eurostat, the statistical office of the European Union.

eu_bop_20180410

In the fourth quarter of 2017 compared with the third quarter of 2017, based on seasonally adjusted data, the surplus of the goods account increased (+€40.9 bn compared to +€40.3 bn), while the surplus of the services account decreased (+€49.7 bn compared to +€50.1 bn). The primary income account turned from balance into a deficit (-€4.1 bn compared to €0.0 bn). The deficit of the secondary income account increased slightly (-€23.0 bn compared to -€22.9 bn), while the deficit of the capital account decreased (-€3.9 bn compared to -€6.4 bn).

Main partners

In the fourth quarter of 2017, based on non-seasonally adjusted data, the EU28 recorded external current account surpluses with the USA (+€52.5 bn), Switzerland (+€14.8 bn), offshore financial centres (+€13.6 bn), Brazil (+€7.9 bn), Canada (+€7.3 bn), Hong Kong (+€6.1 bn) and India (+€0.9 bn). Deficits were registered with China (-€27.4 bn), Russia (-€6.5 bn) and Japan (-€0.9 bn).

Financial account

Based on non-seasonally adjusted data, direct investment assets of the EU28 increased in the fourth quarter of 2017 by €73.5 bn, as did direct investment liabilities by €77.0 bn. As a result, the EU28 was a net recipient of direct investment in the fourth quarter of 2017 by €3.5 bn. Portfolio investment recorded a net outflow of €21.7 bn, and for other investment there was a net outflow of €98.6 bn.

Current account of Member States (including intra-EU flows)

As concerns the total (intra-EU plus extra-EU) current account balances of the EU28 Member States, based on available non-seasonally adjusted data, seventeen recorded surpluses, nine deficits and two were in balance in the fourth quarter of 2017. The highest surpluses were observed in Germany (+€75.4 bn), the Netherlands (+€20.9 bn), Italy (+€15.6 bn) and Ireland (+€14.9), and the largest deficits in the United Kingdom (-€17.1 bn), Greece (-€2.8 bn) and Romania (-€1.4 bn).”

Eurostat, “Quarterly Balance of Payments. Q4/2017“, 10 Apr 2018 More

flag_usa US: Small Business Economic Trends. Mar 2018

Press Release Extract [eu_nbif]

Optimism Index

The Index of Small Business Optimism slipped in March to 104.7, 2.9 points below the February reading of 107.6, the second highest level in its history. The Index has been higher only 20 times of the last 432 surveys.

  • Taxes received the fewest votes as the #1 business problem since 1982, falling from 22 percent reporting it as their #1 business problem in November to 13 percent in March.
  • Labor quality remained the #1 problem for the third straight month.
  • Reports of improved earnings trends were the second best since 1987.
  • Reports of compensation increases held at the highest level since 2000.
  • Reported job creation posted another solid gain, best since 2006.
  • The net percent of owners reporting higher selling prices continued to rise, reaching the highest level since 2008.

Overall, the small business sector has responded very positively to the new management team and its economic policies, leading the economy to what appears to become 12 months of 3 percent GDP growth, much better than the eight years under the previous administration.

Labor Markets

Job creation remained solid in the small business sector as owners reported a seasonally-adjusted average employment change per firm of 0.36 workers, one of the best readings in survey history. Fifty-three percent reported hiring or trying to hire (up 1 point), but 47 percent (89 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill. Twenty-one percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, exceeding the percentage citing taxes or regulations. Thirty-five percent of all owners reported job openings they could not fill in the current period. A seasonally-adjusted net 20 percent plan to create new jobs, up 2 points from February and at historically high levels. The availability of qualified workers will undoubtedly moderate actual job growth, even if the labor force participation rate picks up again.

Credit Markets

Four percent of owners reported that all their borrowing needs were not satisfied, up 2 points and historically low. Thirty-one percent reported all credit needs met (down 1 point) and 47 percent said they were not interested in a loan, down 4 points. Only 2 percent reported that financing was their top business problem compared to 21 percent citing the availability of qualified labor. Four percent reported loans “harder to get”, historically low. In short, credit availability and cost are not issues and haven’t been for many years, even with the Federal Reserve raising interest rates. Thirty-two percent of all owners reported borrowing on a regular basis (up 1 point). The average rate paid on short maturity loans was up 40 basis points at 6.1 percent.

Sales and Inventories

A net 8 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months compared to the prior three months, unchanged and the fourth consecutive strong month. The net percent of owners expecting higher real sales volumes fell 8 points, to a net 20 percent of owners. The decline is surprising in light of the continuing good news for jobs and the economy, as well as continued reports of better sales from small business owners.

The net percent of owners reporting inventory increases fell 4 percentage points to a net 3 percent (seasonally adjusted), still positive and extending a three month run of substantial inventory building. The net percent of owners viewing current inventory stocks as “too low” was a net negative 6 percent, down 3 points, suggesting that current stocks are looking more excessive in light of diminished sales expectations. Consistent with weaker sales expectations and dissatisfaction with current stocks, the net percent of owners planning to build inventories fell 3 points to 1 percent.

Compensation and Earnings

Reports of higher worker compensation rose 2 points to a net 33 percent, the highest reading since 2000. Owners complain at record rates of labor quality issues, with 89 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions. Perhaps the recent gain in labor force participation has reduced the pressure to raise compensation a bit as hiring became somewhat easier. The decline in temporary employment as new jobs were added at a record high rate seems to support this view. The frequency of reports of positive profit trends declined 1 percentage point to a net negative 4 percent reporting quarter on quarter profit improvements, still one of the best readings in survey history. Reports of earnings gains surged 11 points in January and has remained elevated over the last two months.

Capital Spending

Fifty-eight percent reported capital outlays, down 8 points from February’s impressive reading (highest since 2004). Of those making expenditures, 39 percent reported spending on new equipment (down 6 points), 24 percent acquired vehicles (down 6 points), and 16 percent improved or expanded facilities (up 1 point). Eight percent acquired new buildings or land for expansion (up 2 points) and 12 percent spent money for new fixtures and furniture (down 3 points). Twenty-six percent plan capital outlays in the next few months, down 3 points.

Inflation

The net percent of owners raising average selling prices rose 3 points to a net 16 percent seasonally adjusted, after a 3-point increase in both February and January. Seasonally adjusted, a net 25 percent plan price hikes (up 1 point), the highest reading since 2008. With reports of increased compensation running high, there is more pressure to pass these costs on in higher selling prices, although tax cuts and growing operating profits alleviate some of this pressure.

Commentary

Growth in the fourth quarter was revised up to 2.9 percent, leaving growth at 3 percent for the last nine months of 2017. If the first quarter this year comes in at or close to 3 percent, the economy will have logged a full 12 months of 3 percent GDP growth, 50 percent better than growth in the prior administration. Job growth continues to produce high numbers and the labor force participation rate has improved as jobs are more plentiful.

The Federal Reserve is expected to raise rates several more times this year and continue its plan to not reinvest proceeds from maturing bonds in its portfolio. By itself, this reduces the demand for bonds and thus raises interest rates. Putting more pressure on rates is the Treasury’s need to sell a lot of bonds to finance the deficit, which imposes additional pressure on rates (higher rates must be paid to get private investors to take them). Rising interest rates will, of course, not be a positive development for equity prices or asset prices in general. Interest rates on variable price loans will rise. Less clear is the impact on long term rates, but they are likely to continue to move higher.

The percent of owners reporting higher average selling prices has risen steadily since October 2016, from a net 2 percent to a net 16 percent. This should raise the overall average increase in average prices for the economy. The Federal Reserve has predicted that the inflation rate would rise to 2 percent and then stay there (without explaining how the inflation rate would stop rising). Using 45 years of NFIB and inflation data makes it clear that serious inflation for the economy is dependent on serious inflation on Main Street – lots of firms raising average selling prices. So far, the percent raising prices is not supportive of serious inflation, but a clear trend has been established. A look at past inflation makes clear that the price of “things” has been falling steadily while the price of labor intensive “services” has been increasing. The small business sector is “labor intensive” and labor services are rising in cost, whether in areas like health care or in construction. Reports of compensation gains are running well ahead of reports of price increases, but the gap is narrowing.

The big picture remains solid, with small firms as optimistic, and inclined to spend and hire as they have ever been. Tax cuts will start to impact firms directly and positively impact their customers. Economic growth will continue to be strong and that will spur more capital investment and hiring on Main Street.“

National Federation of Independent Business (NFIB) Research Foundation, “Small Business Economic Trends, Mar 2018More

flag_usa US: Producer Price Index. Mar 2018

Press Release Extract [us_ppi]

The Producer Price Index for final demand advanced 0.3 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.2 percent in February and 0.4 percent in January. On an unadjusted basis, the final demand index increased 3.0 percent for the 12 months ended in March.

us_ppi_20180410_month

us_ppi_20180410_year

In March, 70 percent of the rise in the final demand index is attributable to a 0.3-percent advance in prices for final demand services. The index for final demand goods also climbed 0.3 percent.

The index for final demand less foods, energy, and trade services rose 0.4 percent in March, the same as in both February and January. For the 12 months ended in March, prices for final demand less foods, energy, and trade services increased 2.9 percent, the largest advance since 12-month percent change data were available in August 2014.

Final Demand

Final demand services: Prices for final demand services moved up 0.3 percent in March, the same as in both February and January. Over 70 percent of the broad-based advance in March can be traced to the index for final demand services less trade, transportation, and warehousing, which climbed 0.3 percent. Prices for final demand transportation and warehousing services rose 0.6 percent, and the index for final demand trade services increased 0.2 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: A major factor in the March advance in prices for final demand services was the index for outpatient care (partial), which climbed 0.4 percent. The indexes for machinery, equipment, parts, and supplies wholesaling; cable and satellite subscriber services; airline passenger services; food and alcohol wholesaling; and hospital inpatient care also moved higher. In contrast, margins for automotive fuels and lubricants retailing fell 10.4 percent. The indexes for apparel, footwear, and accessories retailing and wireless telecommunications services also decreased.

Final demand goods: Prices for final demand goods moved up 0.3 percent in March after edging down 0.1 percent in February. Most of the increase can be traced to prices for final demand foods, which advanced 2.2 percent. The index for final demand goods less foods and energy climbed 0.3 percent. Conversely, prices for final demand energy declined 2.1 percent.

Product detail: Over half of the March increase in the index for final demand goods is attributable to a 31.5- percent jump in prices for fresh and dry vegetables. The indexes for chicken eggs, meats, unprocessed finfish, motor vehicles, and iron and steel scrap also advanced. In contrast, prices for gasoline fell 3.7 percent. The indexes for primary basic organic chemicals and for fresh fruits and melons also moved lower.

Intermediate Demand by Commodity Type

Within intermediate demand in March, prices for processed goods decreased 0.3 percent, the index for unprocessed goods fell 4.8 percent, and prices for services advanced 0.3 percent.

Processed goods for intermediate demand: The index for processed goods for intermediate demand moved down 0.3 percent in March, the largest decline since a 0.9-percent drop in February 2016. The March decrease can be traced to prices for processed energy goods, which fell 3.1 percent. Conversely, the index for processed materials less foods and energy increased 0.3 percent, and prices for processed foods and feeds rose 1.4 percent. For the 12 months ended in March, the index for processed goods for intermediate demand climbed 4.6 percent.

Product detail: A major factor in the March decline in prices for processed goods for intermediate demand was the index for utility natural gas, which dropped 7.3 percent. Prices for primary basic organic chemicals, electric power, gasoline, diesel fuel, and jet fuel also moved lower. In contrast, the index for steel mill products rose 1.9 percent. Prices for fabricated structural metal products and prepared animal feeds also increased.

Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand moved down 4.8 percent in March, the largest decrease since a 4.9-percent decline in November 2015. Most of the March drop is attributable to prices for unprocessed energy materials, which fell 11.6 percent. In addition, the index for unprocessed foodstuffs and feedstuffs declined 1.0 percent. Conversely, prices for unprocessed nonfood materials less energy advanced 1.5 percent. For the 12 months ended in March, the index for unprocessed goods for intermediate demand increased 4.2 percent.

Product detail: Leading the March decrease in the index for unprocessed goods for intermediate demand, natural gas prices dropped 32.1 percent. The indexes for slaughter hogs, slaughter steers and heifers, raw milk, slaughter poultry, and wastepaper also moved lower. In contrast, prices for iron and steel scrap rose 4.3 percent. The indexes for crude petroleum and unprocessed finfish also increased.

Services for intermediate demand: Prices for services for intermediate demand advanced 0.3 percent in March after rising 0.5 percent in the previous month. Nearly three-quarters of the broad-based increase in March can be traced to the index for trade services for intermediate demand, which climbed 1.7 percent. Prices for transportation and warehousing services for intermediate demand and for services less trade, transportation, and warehousing for intermediate demand advanced 0.5 percent and 0.1 percent, respectively. For the 12 months ended in March, the index for services for intermediate demand rose 3.2 percent.

Product detail: In March, over 40 percent of the increase in the index for services for intermediate demand can be traced to margins for machinery and equipment parts and supplies wholesaling, which moved up 3.6 percent. The indexes for hardware, building materials, and supplies retailing; metals, minerals, and ores wholesaling; legal services; paper and plastics products wholesaling; and services related to securities brokerage and dealing (partial) also advanced. Conversely, prices for television advertising time sales declined 2.6 percent. The indexes for securities brokerage, dealing, and investment advice and furnishings wholesaling also moved lower.

Intermediate Demand by Production Flow

Stage 4 intermediate demand: Prices for stage 4 intermediate demand advanced 0.5 percent in March, the third straight increase. In March, the index for total services inputs to stage 4 intermediate demand rose 0.7 percent, and prices for total goods inputs moved up 0.5 percent. Increases in the indexes for machinery and equipment parts and supplies wholesaling; hardware, building materials, and supplies retailing; unprocessed finfish; ready-mix concrete; metals, minerals, and ores wholesaling; and legal services outweighed declines in prices for electric power, primary basic organic chemicals, and nonresidential property management fees. For the 12 months ended in March, prices for stage 4 intermediate demand moved up 3.6 percent.

Stage 3 intermediate demand: The index for stage 3 intermediate demand fell 0.5 percent in March, the first decline since inching down 0.1-percent in July 2017. In March, prices for total goods inputs to stage 3 intermediate demand decreased 1.4 percent. In contrast, the index for total services inputs climbed 0.4 percent. Declining prices for primary basic organic chemicals, slaughter hogs, slaughter steers and heifers, gasoline, jet fuel, and raw milk outweighed increases in the indexes for machinery and equipment parts and supplies wholesaling, ungraded chicken eggs, and slaughter cows and bulls. For the 12 months ended in March, prices for stage 3 intermediate demand climbed 3.8 percent.

Stage 2 intermediate demand: The index for stage 2 intermediate demand decreased 1.7 percent in March, the largest drop since a 4.3-percent decline in January 2015. In March, prices for total goods inputs to stage 2 intermediate demand fell 4.0 percent. Conversely, the index for total services inputs moved up 0.2 percent. Lower prices for gas fuels; primary basic organic chemicals; utility natural gas; securities brokerage, dealing, and investment advice; commissions from sales of insurance; and wireless telecommunication services outweighed advances in the indexes for hardware, building materials, and supplies retailing; crude petroleum; and steel mill products. For the 12 months ended in March, prices for stage 2 intermediate demand rose 4.3 percent.

Stage 1 intermediate demand: Prices for stage 1 intermediate demand moved down 0.2 percent in March, the first decrease since a 0.6-percent decline in August 2016. In March, the index for total goods inputs to stage 1 intermediate demand fell 0.6 percent. In contrast, prices for total services inputs rose 0.3 percent. Decreases in the indexes for primary basic organic chemicals, gas fuels, diesel fuel, wastepaper, electric power, and wireless telecommunication services outweighed rising indexes for machinery and equipment parts and supplies wholesaling; iron and steel scrap; and metals, minerals, and ores wholesaling. For the 12 months ended in March, prices for stage 1 intermediate demand moved up 5.2 percent.

Bureau of Labor Statistics, “Producer Price Index. Mar 2018“, 10 Apr 2018 (08:30) More

flag_usa US: Monthly Wholesale Trade: Sales and Inventories. Feb 2018

Press Release Extract [us_wholesale]

Sales

February 2018 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $495.9 billion, up 1.0 percent (±0.5 percent) from the revised January level and were up 6.8 percent (±0.7 percent) from the February 2017 level. The December 2017 to January 2018 percent change was revised from the preliminary estimate of down 1.1 percent (±0.7 percent) to down 1.5 percent (±0.7 percent).

Inventories

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $625.6 billion at the end of February, up 1.0 percent (±0.2 percent) from the revised January level. Total inventories were up 5.5 percent (±0.9 percent) from the revised February 2017 level. The January 2018 to February 2018 percent change was revised from the advance estimate of up 1.1 percent (±0.2 percent) to up 1.0 percent (±0.2 percent).

Inventories/Sales Ratio

us_wholesale_20180410

The February inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.26. The February 2017 ratio was 1.28.

US Census Bureau, “Monthly Wholesale Trade: Sales and Inventories. Feb 2018“, 10 Apr 2018 (10:00) More

flag_japan Japan update

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flag_china China update

Boao Forum for Asia: Xi Renews Pledges to Open Economy, Cut Tariffs in 2018 Website

Chinese President Xi Jinping announced plans on Tuesday to open up the Chinese economy, including lowering tariffs for autos and other products and enforcing the legal intellectual property of foreign firms.

Xi’s comments come amid escalating trade tensions between China and the U.S. as the world’s two largest economies take turns announcing punitive trade measures against each other.

The World Trade Organization said Tuesday that China filed a complaint challenging President Donald Trump’s tariffs on imported steel and aluminum. It said China has requested 60 days of consultations with the United States on the steel and aluminum dispute. If that fails, Beijing could request a ruling from a panel of trade experts, The Associated Press reported.

In a speech at the Boao Forum for Asia, an annual summit that’s been dubbed the “Asian Davos,” Xi said China will take the initiative to expand imports this year and “work hard” to import products that are required by the population.

“China does not seek [a] trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account,” Xi said, according to a translation of the speech.

Beyond that, he described China as a country upon which other nations had imposed unfair trade penalties: “We hope developed countries will stop imposing restrictions on normal and reasonable trade of high-tech products and relax export controls on such trade with China,” he said, not naming any specific country.

In his speech, the Chinese president sold a vision of China as a benevolent leader of the global economy, emphasizing that open systems are the best course of action for the world.

“We must refrain from seeking dominance and reject the zero-sum game, we must refrain from ‘beggar thy neighbor’ and reject power politics or hegemony while the strong bully the weak,” Xi said.

Instead, he said, countries should “stay committed to openness, connectivity and mutual benefits, build an open global economy, and reinforce cooperation within the G-20, APEC and other multilateral frameworks. We should promote trade and investment liberalization and facilitation, support the multilateral trading system.”

“This way, we will make economic globalization, more open, inclusive, balanced and beneficial to all,” he added.

China will continue to open up to the rest of the globe, he said.

One way is by pushing China’s state intellectual property office this year to step up law enforcement of relevant laws, Xi said.

“We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises and protect the lawful [intellectual property] owned by foreign enterprises in China,” he said.

Trump is taking Beijing to task over China’s large trade deficit with the U.S., which Washington says is in part due to unfair trade practices.

Last week, Trump asked U.S. trade officials to consider another $100 billion in tariffs on Chinese goods. China’s commerce ministry, for its part, said it would “fight back with a major response” if provoked.

Earlier in the year, the U.S. imposed tariffs on solar panels and steel and aluminum imports.

China, in turn, implemented additionaltariffs on 128 U.S. products, including fruit and pork, in response to the Trump administration’s decision to impose duties on steel and aluminum. It also announcedextra tariffs on 106 U.S. products last week, although no start date was given for those measures.

Trump said in a tweet on Sunday that China will remove trade barriers because that was the “right thing to do.” The president also expressed optimism that the countries would strike a deal on intellectual property.

‘Belt and Road’

In his speech, Xi downplayed any geopolitical ambitions China may have beyond its shores regarding the Belt and Road Initiative — an infrastructure and investment program widely seen as an attempt by China to construct a massive, multinational zone of economic and political influence that has Beijing at its center.

While the project may be initiated by China, the opportunities and outcomes will benefit the world, said Xi.

“China has no geopolitical calculations, seeks no exclusionary blocs and imposes no business deals on others,” the Chinese president added.CNBC

China Files WTO Complaint Against USA

China has filed a World Trade Organization complaint challenging U.S. President Donald Trump’s tariff hike on imported steel and aluminum, the trade body said Tuesday.

The tariff spat is one element of a wide-ranging trade dispute between Trump and Chinese President Xi Jinping’s government. Trump also has threatened to increase duties on $50 billion of Chinese goods in a separate conflict over technology policy.

China has requested 60 days of consultations with the United States on the steel and aluminum dispute, according to the WTO. If that fails, the next step could be for Beijing to request a ruling from a panel of trade experts.

Beijing says Trump’s decision to impose additional duties of 25 percent on steel and 10 percent aluminum violate international trade rules.

Steel and aluminum are among Chinese industries in which supply exceeds demand. China’s trading partners complain its mills are exporting their surplus at improperly low prices, threatening jobs in the United States and Europe.

The United States buys little Chinese steel and aluminum following earlier tariff hikes meant to offset what Washington says are improper subsidies to producers. But economists said Beijing responded in order to show it would defend itself.

China’s government issued a $3 billion list of U.S. goods including pork, apples and steel pipes on 23 Mar 2018 that it said might be targeted for retaliation if Trump fails to negotiate a settlement to the dispute over steel and aluminium charges.Associated Press

Filed Complaint

UNITED STATES – CERTAIN MEASURES ON STEEL AND ALUMINIUM PRODUCTS: REQUEST FOR CONSULTATIONS BY CHINA

The following communication, dated 5 April 2018, from the delegation of China to the delegation of the United States and to the Chairperson of the Dispute Settlement Body, is circulated in accordance with Article 4.4 of the DSU.

My authorities have instructed me to request consultations with the Government of the United States pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXII of the General Agreement on Tariffs and Trade 1994 (GATT 1994), and Article 14 of the Agreement on Safeguards with respect to certain measures by the United States to adjust imports of steel into the United States and to adjust imports of aluminum into the United States, including but not limited to, imposing additional ad valorem rate of duty on imports of certain steel and aluminum products and exempting certain selected WTO Members from the measures.

A. Measures at Issue

The United States imposed 25 percent and 10 percent of additional import duty respectively on certain steel products and aluminum products, from all countries except Canada, Mexico, Australia, Argentina, South Korea, Brazil and the European Union, which took effect from 23 March 2018. It is indicated that the president of the United States would consider further adjustments to the additional import duties, alternative means, or implementation of quota.

The measures at issue in this request include, but not limited to:

  • Adjusting Imports of Steel Into the United States, including the Annex, To Modify Chapter 99 of the Harmonized Tariff Schedule of the United States (Presidential Proclamation 9705, issued on 8 March 2018)
  • Adjusting Imports of Aluminum Into the United States, including the Annex, To Modify Chapter 99 of the Harmonized Tariff Schedule of the United States (Presidential Proclamation 9704, issued on 8 March 2018)
  • Adjusting Imports of Steel into the United States (Presidential Proclamation 9711, issued on 22 March 2018)
  • Adjusting Imports of Aluminum into the United States (Presidential Proclamation 9710, issued on 22 March 2018)
  • Requirements for Submissions Requesting Exclusions From the Remedies Instituted in Presidential Proclamations Adjusting Imports of Steel Into the United States and Adjusting Imports of Aluminum Into the United States; and the Filing of Objections to Submitted Exclusion Requests for Steel and Aluminum (U.S. Department of Commerce)
  • Section 232 Tariffs on Aluminum and Steel, Additional Duty on Imports of Steel and Aluminum Articles under Section 232 of the Trade Expansion Act of 1962 (U.S. Customs and Border Protection)
  • Section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. §1862), cited in the Presidential Proclamations above for vesting authorities in the President of the United States to take the actions therein
  • The Effect of Imports of Steel On the National Security, An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, As Amended (U.S. Department of Commerce, 11 January 2018)
  • The Effect of Imports of Aluminum On the National Security, An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, As Amended (U.S. Department of Commerce, 17 January 2018)

as well as any amendments, or successor, replacement, or implementing measures.

B. Legal Basis of the Complaint

The measures at issue, operating separately or together, appear to be inconsistent with the United States’ obligations under:

  • Articles XIX:1(a), XIX:2 of the GATT 1994 and Articles 2.1, 2.2, 4.1, 4.2, 5.1, 7, 11.1(a), 12.1, 12.2 and 12.3 of the Agreement on Safeguards, because with regard to the measures at issue which constitute safeguard measures in substance, the United States has failed to make proper determination and to provide reasoned and adequate explanation of “unforeseen developments”, imports “in such increased quantities” and “under such conditions”, and “cause or threaten to cause serious injury to domestic producers”, and the United States has also failed to follow proper procedural requirements including, for example, notification and consultation procedures, and has failed to apply the measures in a proper manner, for example, application irrespective of source of supply and only for necessary period of time.
  • Article II:1(a) and (b) of the GATT 1994, because the United States has imposed import duties on certain steel and aluminum products in excess of the duties set forth and provided in the United States’ Schedule of Concessions and Commitments annexed to the GATT 1994, and has failed to exempt products of China subject to the measures at issue from ordinary customs duties in excess of those set forth and provided in the United States’ Schedule of Concessions and Commitments annexed to the GATT 1994 and from all other duties or charges in excess of those imposed on the date of the GATT 1994 or those directly and mandatorily required to be imposed thereafter by legislation in force in the United States on that date.
  • Article I:1 of the GATT 1994, because the selective application by the United States of the additional import duties on certain steel and aluminum products originating in different Members, including providing exemption or applying alternative means, has failed to extend immediately and unconditionally to China any “advantage, favor, privilege or immunity” granted by the United States “[w]ith respect to customs duties and charges of any kind imposed on or in connection with” the importation of products originating in the territory of other Members, as well as with respect to “the method of levying such duties and charges” and the “rules and formalities in connection with importation”.
  • Article X:3(a) of the GATT 1994, because the United States has failed to administer its laws, regulations, decisions and rulings in relation to the measures at issue in a uniform, impartial and reasonable manner.

As a result of the foregoing, the measures at issue appear to nullify or impair benefits accruing to China directly or indirectly under the cited agreements.

China reserves the right to raise additional factual and legal claims and matters regarding the above mentioned measures during the course of the consultations and in any future request for panel proceedings.

China looks forward to receiving the reply of the United States to the present request and to setting a mutually convenient date and venue for consultations.WTO

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