August 29, 2014

Italy Posts Biggest Consumer Price Decline on Record Amid Slump

• Inflation rate based on E.U. ▼0.2% YoY (forecast ▼0.1%) in August
• Prices ▼0.2% MoM, record low in almost ten years
• Mostly due to an increased YoY decline of energy costs and to a slowdown in the price of services
• Italy’s economy contracted in Q2
• Draghi indicated last week that he may boost stimulus amid concerns about falling inflation expectations which could impact actual inflation as investors, consumers and companies pull back spending in anticipation of even weaker prices 

U.S. Consumer Spending Falls for Firs Time in Six Months

• Household purchases unexpectedly ▼0.1% in July, the first drop in six months; compared with ▲0.4% in June
• Income rose at the slowest pace of the year and savings climbed to the highest level since end of 2012
• Incomes ▲0.2% in July (▲0.3% forecast)
• The saving rate ▲ to 5.7% in July, the highest since December 2012
• While an improving job market is lifting confidence, it has yet to spur the broad-based increases in pay that will boost demand at retailers
• Spending on durable goods, including cars and trucks, ▼0.6% after adjusting for inflation, after ▲0.5% in June
• Purchases of non-durable goods, which include fuel and clothing, ▼0.2%

Consumer Sentiment in U.S. Unexpectedly Increased in August

• The Thomson Reuters / U. of Michigan final sentiment index ▲ to 82.5 from 81.8 in July (forecast 79.2)
• Payroll gains at the strongest pace since 1999 and muted firings are keeping consumers upbeat about the economic outlook.
• Alongside the decline in layoffs, employers have added an average 230,000 workers to payrolls a month so far this year
• Wage gains have been slower to materialize

Thought

Along with the article above, "U.S. Consumer Spending Falls for Firs Time in Six Months," two contrary articles suggest that labor market is not fully efficient yet. It means that Fed. will take more time to observe labor market before it eases QE.

London Property Market Falters on Price Resistance

• London’s property market stagnated for a second month in August as buyers became reluctant to accept high asking prices amid the prospect of increasing borrowing costs
• “Talk of a housing bubble and warning from the Bank of England have impacted sentiment,” Richard Donnell, director of research at Hometrack said.
• In London, 11% of postcode districts registered price ▲ this month, down from 87% in February
• Hometrack said that the number of new buyers registering with estate agents ▼0.9% this month
• Along with prospect of interest-rate increase and weak wage growth, the market will be price sensitive.

Thought

Okay, there were few articles that London's property market is overpriced. Along with regulations and higher-interest-rate expectation, decline in property market is expected. BOE was worried that bubble in the real estate market would hurt the U.K. economy, which recently get back on full-recession track. However, decline in real estate market may hurt U.K.'s service industry, which takes about 79% of GDP.

August 28, 2014

Japan’s July Output Misses Estimates as Spending Slumps

• Industrial production in Japan ▲ less than expected in July while household spending slumped and the inflation rate remained unchanged
• Industrial production ▲0.2% (forecast ▲1.0%) MoM; compared with ▼3.4% in June
• Consumer spending ▼5.9% YoY (forecast ▼3.0%); compared with ▼3.0% in June
• Private consumption, which comprises almost 60% of the economy, fell 5% in the Q2 QoQ as people cut spending after increase in sales tax
• ▼0.2% MoM (forecast ▲1.6%); compared with ▲1.5% in June
• Overall inflation was ▲3.4% and ▲2.3% YoY excluding perishable food and energy; same pace as June
• Consumer prices excluding fresh food ▲3.3% YoY, the same pace as June
• Inflation generated by the BOJ’s easing and the sales tax are cutting into consumers’ spending power. Adjusted for rising prices, disposable incomes ▼5.2% YoY in July

Thought:

Industrial production is slowdown because consumers don't buy products after sales tax increased in April. In this situation, BOJ can't revoke its policy to promote consumers spending; it might cause stagnation.

Additional stimulus is not the answer; BOJ has already put tremendous amount of stimulus in the economy. The problem is a labor market. Income is not rising as much as consumer price increases, which decreases consumer spending. Japanese government needs to implement regulation on holding liquid assets like Korean government did.

Widodo Committed to Reducing Indonesia Fuel Subsidy After Rebuff

• ▼ the cost of the fuel subsidy will give Widodo more room to fund a policy agenda that includes improving infrastructure and access to health care and education
• A clause in the budget requiring parliamentary approval for a fuel price change has been deleted, meaning the decision is the governments. A price rise is inevitable
• Indonesia’s system of providing set gasoline prices leaves the country, a net oil importer, economically vulnerable. A sudden rise in prices, such as from tensions in the Middle East, widens the budget deficit, worsens the trade balance and can weaken the rupiah.

Thought

Indonesia's economy is growing at the slowest pace. The issue of cutting fuel subsidy is that it will boost inflation. As a new president, Widodo wouldn't want to take a political risk. Yes, he will certainly decrease fuel subsidy, but the question is how much he will cut it. If he fails to adjust the cutting, it will hurt the economy.

Economy Grows More Than First Estimated on U.S. Investment Gains

• The biggest gain in U.S. business investment in over two years helped it to expand more than previous forecast in Q2; business investment ▲8.1% annualize rate, the most since Q1 2012
• The ▲GDP in last quarter came from bigger gains in corporate spending on structures and equipment and a smaller trade deficit that was partly offset by more tepid inventory building
• Final sales ▲3.1% (previously reported ▲2.8%), which advanced the biggest in four years
• GDP ▲4.2% YoY (forecast ▲4%) after a Q1 contraction
• Outlook for home sales improved in July, fewer people filed claims for jobless benefits last week, and consumer confidence climbed
• Factory order ▲; a surge in demand for airplanes helped push orders for durable goods up at a record pace in July, boosting prospects for sustained growth in manufacturing
• Consumers’ purchasing power ▲, with disposable income adjusted for inflation ▲ 4.2% in Q2, after ▲3.4% in Q1
• Gross domestic income ▲4.7% YoY, the most since early 2012
• Payrolls in July marked sixth month of gains exceeding 200,000
• The longest such stretch since 1997

Thought

U.S. economy is recovering very well. The question is when the tapering will be implemented. Like Yellen said, there is a room for a improvement in labor market. But how much? How long is she going to wait for it? Payroll is increasing and jobless claim is decreasing. Of course, it is unlikely that Fed will implement tapering very soon, but be aware that it will be happened.

Europe Economic Indicators

• Spain GDP ▲0.6% QoQ (forecast ▲0.6%), compared with ▲0.6% in Q1
• ▲1.2% YoY (forecast ▲1.2%), compared with ▲1.2%
• Italy’s retail sale ▼2.6% YoY (forecast ▼0.9%), compared with ▲0.4% last month
• It is stagnated MoM (forecast ▼0.2%), compared with ▼0.6% last month
• E.U. consumer confidence is -10.0, which matches with the forecast
• E.U. M3 supply 1.8% YoY (forecast 1.5%), compared with 1.6% last month
• Domestic loan ▼1.6% (forecast ▼1.5%), compared with ▼1.8% last month

Thought

Increase in M3 is related with currency market. As E.U. economic indicator shows weakness, euro fell the most against Swiss fran since 2001. So as against dollar, it has depreciated about 3.4% from last three months. It means that investors are escaping from euro area and they are looking for safe assets, like Swiss treasury bond.

The question now is that whether ECB will implement QE. If it is implemented, then euro will continuously fall.

Korea Economic Indicators

• Industrial production ▲1.1% MoM (forecast ▲0.3%), after ▲2.6% in June
• ▲3.4% YoY (forecast ▲2.7%), compared with ▲0.6% in June
• Retail sales ▲0.3% MoM (forecast ▲0.4%), compared with ▲0.3% in June

Thought

It is good sign that industrial production increased. It means that consumer is more willing to spend, which will increase consumer consumption in GDP. Thing is, retail sales is not increased as much as industrial production. Yet, Korean biggest holiday, Chu-seok (thanksgiving day), is coming soon. Retail sales is most likely rebound and inventory problem will be solved.

S&P 500 stayed almost the same. Tensions in Ukraine rose again, which decreased the stock value but good economic indicators brought it up. As you see in trading volume, it is significantly low compared with other days. It indicates that investors are waiting.

Nikkei dropped as economic indicator weakens. Notice that trading volume is increased when the index declines. It may mean that investors are highly sensitive with the indicator; they panicked

Growth tension in Ukraine again increased the demand of gold, which increased the price. However, trading volume is low. Generally, today's market shows low volume of trading. Investors like to take more time for observation.

August 26, 2014

Home Prices in 20 U.S. Cities Rose in June at a Slower Pace

• The S&P/Case-Shiller index of property values ▲8.1% YoY in June
• The smallest 12-month gain since January 2013
• Price gains are slowing as more houses are coming up for sale and investors retreat to the sidelines
• Property value ▲0.8% QoQ in Q2, after ▲1.3% in Q1.
• Residential real estate has yet to bounce back fully from a cold and wet winter that slowed sales early this year. Contracts on new homes ▼ unexpectedly in July

Thought

As a matter of fact, this decline in home sales is a good news. If labor market is significantly improving, the home sales should increase with it. So decline in home sales can imply that labor market is not in the best shape it can be, which supports Allen's statement that there is still a room for improvement in the labor market.

Consumer Confidence in U.S. Rises to Almost Seven-Year High

• Consumer confidence in U.S. ▲ to 92.4 (89.0 predicted), compared with ▲90.3 last month.
• The highest level in almost seven years
• Along with a pickup in the job market and stock prices advanced to records
• Americans’ assessments of current labor-market conditions were more upbeat
• The share of who said jobs were currently plentiful ▲ to 18.2%, the most since March 208. The ▲2.6% MoM, the biggest ▲ since January 2006

Draghi Pushes ECB Closer to QE as Deflation Risks Rise

• Stocks ▲, the euro ▼ and bond yields ▼ to record lows today as the comments fanned speculation the ECB is finally heading for a form of monetary stimulus it has long avoided
• The yield on Belgian two-year governments fell below 0 for the first time
• Italian 10-year yields ▼ to a record-low 2.44%
• Euro-area inflation slowed to ▲0.3% this month.
• Draghi’s fear is that if inflation expectations keep falling, they’ll affect actual inflation as investors, consumers and companies pull back spending in anticipation of even weaker prices
• That could tip Europe into a deflationary spiral that would be hard to reverse
• German weakness
• E.U. GDP stagnated in Q2, unemployment probably held at 11.5% in July; near the 12% set last year and almost twice as high as the U.S. rate
• Business confidence in Germany declined more than forecast this month
• Escalating international sanctions against Russia are adding to the trade risks
• French GDP has stagnated the past two quarters, and the economy minister call for fiscal stimulus to bolster growth

Thought:

Draghi said few months ago that he will do everything to restore economy. As tensions in Russia gets longer, German economy is stagnated so as France, Italy and Spain. This ECB QE will help out not only easing deflation risks, but also economy in euro area.

So yes, it is all about crisis in Ukraine. If it gets eased shortly, it is most likely E.U.'s economy will get better soon.

S&P is increased up to 2,000 points as expectation of QE from ECB rises. Tensions in Ukraine eased as German and Ukraine government began talk yesterday, and consumer confidence in U.S. recorded a almost seven-year high.

Concern that trading volume is significantly low, investors could be reluctant in the current market level. However, economic data and geopolitical issues are giving a positive signal in the economy.

Europe market also increases as geopolitical risk eased and ECB QE is expected. Even German Business Expectation is lower than forecast, it will get better once the risk is eased.

USD appreciated against EUR as QE is expected to implement in euro area. Weaken German business indicators also causes decrease in EUR.

August Week 2 Market Review

China's and Japan's markets stay high even though their economic data showed economic slowdown and (temporarily) recession. While the week started to rebound from last week's loss, the market kept bouncing up and down with geopolitical issues and bad economic indicators.

Highlight of the week was China's M2 momey supply decreased to 13.5% from 14.7% last month while new credit declined new credit to $385 billion from $1,080 billion in June. Japan announced that its Q2 GDP growth was -1.7% QoQ; -6.8% YoY.

Even the indicators was disastrous, investors expect additional stimulus from the government, which eventually bounced back the stock market.

S&P 500 continued to rise as company's earning has been improved. Even retail sales stagnated, geopolitical risks eased and decline in labor market suggests that tapering won't be implemented soon. German's market collapsed it experienced contraction in Q2, and geopolitical risk expanded on Friday (Ukraine troops attacked Russia).

EUR/USD stays almost the same as geopolitical tensions expanded at the end of week and expectation of stimulus rose.

August 14, 2014

BOK Cuts Rate for 1^st Time Since May 2013 to Boost Growth

• Risking inflaming record household debt as it backs government efforts to spur the economy
• Lowered the interest rate to 2.25 from 2.5
• Last month, BOK added 11.7 trillion won ($11.3 billion) stimulus
• Lower borrowing costs could encourage households to add to debt that was 135% of disposable income at the end of 2013
• Reduction follows the decision to expand a lending program for smaller firms by 3 trillion won
• Also unveiled the fiscal package and other measures aimed at boosting credit and encouraging companies to distribute more of their profits in wages and dividends
• Lower borrowing costs, combined with looser rules for home mortgages may accelerate the growth of household debt
• The government plans to boost household income and create more jobs to address the debt issue

Thought

Along with additional government stimulus, BOK decreases interest rate to boost economic growth. This decreased interest rate will take time to interfere economy. The government's goal is to expand real estate. Market already expected BOK to cut the rate; the market reflected the rate before it is announced.

China Seen Taking Steps to Aid Growth After Credit Plunge

• China’s ▼ in credit expansion last month and unexpected slowdown in investment spending flashed warnings on growth
• A property slump and dangers from rising bad loans are making it tougher to sustain the growth in China
• Tools include programs such as pledged supplementary lending that can direct credit to the economy, cuts in reserve requirements or interest rates, and fiscal spending on railways and affordable housing

Euro-Area Pickup Stalls as Big Economies Fail to Grow

• GDP was unchanged QoQ; ▲0.7% YoY
• Germany’s economy ▼0.2% QoQ, the first contraction since 2013
• France unexpectedly stagnated. Italy experienced recession with GDP ▼0.2% QoQ
• Spanish economy expanded at the fastest pace since 2007
• Consumer price ▼0.7% MoM compared with ▲0.1% last month; ▲0.4% YoY
• Core consumer price ▼0.8% MoM, and ▲0.8% YoY
• The Ukraine crisis is also weighing on the economies of eastern Europe
• The Czech unexpectedly stagnated last quarter and Romania’s economy ▼1% QoQ
• Polish growth slowed to 0.6% from 1.1%, and Hungary’s expansion cooled to 0.8% from 1.1%, while still beating estimates

Thought

Slow growth in euro area is anticipated and already reflected in the market. All important economic indicators such as PMI, factory orders and retail sales implied that growth in E.U. was slow down (and somehow contracted) in Q2.

As Ukraine crisis eased and additional stimulus is expected from ECB, the second half will rebound its economy. Yet there are sill risks. As U.S. quickly recovers from the recession, it may start tapering sooner than anticipated. It may effect financial market and therefore E.U.

France Risks EU Deficit Clash After Scrapping Targets

• The French government abandoned its 2014 deficit targets after the economy unexpectedly failed to growth for a second straight quarter
• Risking a clash with European partners striving to meet their own fiscal goals
• French GDP stagnated in Q2; 0% changed (forecasted ▲0.1%)
• The European Commission has already allowed France to delay deficit targets twice in the wake of the region’s sovereign debt crisis
• “While the Q2 weakness should remain temporary for Germany, France remains mired in stagnation due to lack of reform. We expect France to continue to underperform the currency area as a whole.”

Jobless Claims in U.S. Rise to Highest Level in Six Weeks

• Jobless claims ▲ by 21,000 to 311,000, the highest in six weeks (forecasted 295,000)
• The jump represents a departure from a run of low readings that showed employers had been holding firm on staffing levels in order to keep up with demand
• More muted firings typically pave the way for acceleration in job growth
• Employers added more than 200,000 workers to payrolls in July for a six straight month – the first time that’s happened since 1997. Employment ▲209,000 after a 298,000 increase in June
• The jobless rate ▲ to 6.2% from almost six-year low of 6.1%
• Job openings ▲ in June to the highest level in more than 13 years

Thought

This jobless claims is announced weekly. It means that it is highly volatile. Yes, jobless claim increased this week yet the job market is significantly improving (yet Yellen said that there is still room for improvement).

London Leads U.K. Housing Slowdown After Carney Warnings

• An index values in London ▼ to 10 from 30 in June, the lowest since March 2011
• Also shows that surveyors have cut their forecast for price growth as stricter lending rules and the prospect of increased borrowing costs weigh on the market
• In July, demand in the capital ▼ at the fastest pace in six years, after a surge in prices over the previous year stretched affordability and prompted concern a bubble may be forming

August 13, 2014

China Credit Gauge Plunges as Expansion in Money Supply Slows

• China’s broadest measure of new credit ▼ to the lowest since the global financial crisis
• China’s new credit was $385 billion in July (forecasted $780 billion), compared with $1,080 billion in June
• Softness in the housing market is becoming an increasingly drag on the economy
• Property investment ▲13.7% in the first seven months from a year ago, down from an annual rise of 14.1% in the first half
• Newly started property construction ▼12.8% YoY in the seven months
• Property sales ▼16.3% in July, compared with ▼0.2% in June
• Industrial output unexpectedly slowed
• Factory production ▲9% YoY; ▲9.2% in June, fixed-asset investment growth ▼ to 17% YoY (forecasted 17.4%)
• Retail sales ▲12.2% in July YoY (forecasted 12.5%)
• Aggregate financing was 273.1 billion yuan ($44.3 billion) in July
• The aggregate-financing number had three negative components for the month to make the broader figure less than new yuan loans
• Negative bankers’ acceptance bills (416 billion yuan), foreign-currency loans (16.9 billion yuan), and trust loans (15.8 billion yuan)

Thought:

Today's economic indicators are warning sign. Especially decline in new credit shows that PBOC's monetary policy is not working well; people still don't borrow money to invest even though interest rate is low. Additional stimulus is expected even the PBOC suffered from greater budget deficit

Japan’s Economy Shrinks the Most Since 2011 Quake on Tax

• As consumption and investment ▼ after an April sales-tax increase aimed at curbing the world’s biggest debt burden
• GDP ▼6.8% YoY (forecasted -7.1%), compared with ▲6.1% in Q1; ▼1.7% QoQ (forecasted -1.8%) compared with ▲1.5% in Q1
• Household consumption ▼ at an annualized pace of 19.2% QoQ, while private investment ▼9.7%
• The higher sales tax hit consumers who’ve seen little growth in incomes and rising costs of living as the BOJ strokes inflation with unprecedented easing
• CPI ▲3.6% in June YoY – nine times the increase in total cash earnings – with food prices ▲5.1%
• Imports tumbled 20.5% YoY while exports fell 1.8%
• The GDP deflator ▲2% YoY, the first increase in 19 quarters
• The gain reflected the impact of the higher sales levy as well as a rise in material prices and personnel costs

Thought

Depreciated Yen caused increase in net exports. Yet slowdown economic growth and sales-tax have hurt the economic growth. However, stock market already reflected in the market. In fact, Q3 GDP expected to rebound and additional stimulus by BOJ is expected as well.

Korea Unemployment Rate

• Labor force participation rate ▲63.2% in July; ▲0.8% YoY
• The number of employed persons ▲2.0% YoY
• Regular employees ▲3.0%, temporary employees ▲4.7%, daily workers ▼3.3% MoM
• The unemployment rate marked 3.4% in July, ▲0.3% YoY, compared with ▲3.6% last month

Thought

While MoM both regular and temporary employees increased this month, there is a good sign that YoY temporary employees is declined more than 5% while regular employees still increased. Along with additional stimulus expected Aug. 14, Korean market is promising.

Rise in labor market will promote higher income, which increases household spending. After Sewol crisis, which declined household spending in Q2, domestic consumption is expected to rebound.

Worst Retail Sales Showing in Six Months in Slow Start to Third Quarter

• Retail sales was unchanged in July QoQ (forecasted 0.2%) after ▲0.2% in June
• Greater employment opportunities have yet to translate into the incomes needed to invigorate consumers
• A sign the economy will have trouble sustaining the Q2 pickup in growth
• Core retail sales, which exclude cars, gas stations, buildings, etc, ▲0.1%, compared with ▲0.5% last month.
• The U.K. labor-market data showed wages ▼0.2% YoY in Q2 (forecasted -0.1%), the first decline since 2009, compared with ▲0.4% in Q1.
• Even with increased hiring, wages are lagging behind. That’s why ▼unemployment rate doesn’t reflect on retail sales
• With inflation ▲ to 1.9% in June, real wages for many Britons are continuing to decline
• Unemployment is 6.4% compared with 6.3% last month. Jobless claim ▼33,600 (forecasted -30,000). It is the lowest level since 2008

Thought

While inflation rate increases and unemployment drops, U.K. economy looked promising. However, unemployment declined while household income stays almost the same (even declined this month). Core retail sales increased little, which means that housing sales is declining. U.K. just started to expand, but it will slowdown if it can't help the income issue.

Spanish Prices Drop at Fastest Pace Since 2009 Credit Crunch

• As declining wages curbed the pricing power of retailers, Spanish prices ▼0.4% YoY (forecasted 0.3%). Core inflation was 0% and prices ▼1.5% on the month
• Greece and Portugal suffer from deflation and inflation close to Italy, so as Spain now
• Economists forecast euro-area inflation 1.2% next year, compared with ECB’s goal of under 2%

Thought

It is one of the big issues that ECB should consider. Along with Greece, Portugal and Italy, Spanish economy is not going up even stimulus implemented. ECB is expected to put additional stimulus soon.

August 12, 2014

German Investors Confidence Slumps on Ukraine Crisis

• German investor confidence ▼ to the lowest level since 2012; The ZEW index of investor and analyst expectations ▼ to 8.6 (forecasted 18.2) in August from 27.1 in July
• The eight consecutive monthly decline and the biggest in more than two years
• Crisis in Ukraine rose and a sluggish euro-area recovery
• A gauge of current condition ▼ to 44.3 in August (forecasted 44.3) from 61.8 in July. A measure of expectations for the E.U. ▼ to 23.7 (forecasted 43.1) from 48.1

U.K. Food Sales Plunge Amid Supermarket Price War

• U.K. food sales by value ▼ the most in at least 5 ½ years in the three months through July
• Because of price cuts by supermarkets, the British Retail Consortium said
• Continued aggressive discounting by Britain’s supermarket chains may help support consumer spending at a time of record-low wage growth
• But bad for retailers?
• While food sales ▼ in the three months through July, total sales ▲ 1.3%, driven by home and furniture spending. The increase was below the twelve-month average of 2.3%
• In July, total sales ▲ 1.3% YoY

India CPI Tops Estimate in Test for Rajan (central bank governor) as Industry Moderates

• The CPI ▲ 7.96% in July YoY (forecasted 7.4%); compared with ▲7.46% in June
• Industrial production ▲3.% in June YoY (forecasted 5.4%); compared with ▲5% in May
• Finance Minister Arun Jaitley backed Rajan’s Aug. 5 decision to keep the benchmark rate unchanged at 8% for a third meeting
• The highest borrowing costs threatens to narrow the budget deficit to a seven-year-low
• A Reserve Bank of India panel proposed adopting a 4% CPI target by 2014 +_ 2% points as part of an overhaul that would also establish an independent monetary policy committee
• Monsoon rains are the main threat to inflation. It was 17% below average, putting India on course for its driest year since 2009
• A crop failure can spur consumer prices, where food accounts for about 50% of the CPI basket

  

Asian market continued to rebound but it shows a restricted movement without specific economic indicator. The investors still wait for Wednesday and Thursday's releases to forecast economic growth.

ZEW index had not affected the market on Aug. 12; economic slowdown in E.U. will affect Asian market.

In fact, ZEW index widely impact on Europe and U.S. stock market

German index ▼1.21% as ZEW index indicates growth will be slowed as Ukraine tension rises. In fact, today's market was shaken when Russian trucks deliver aids to Ukraine, non-military action. It shows how investors are scared of tensions in Ukraine as you see in the graph below.

U.S. market was affected by European market

But trading volume was significantly low, which means that investors still look at how things go. The market is most likely to move as economic indicators such as European (and U.S.) GDP, inflation and unemployment are released.

Decline in energy sector is significant. Slow growth will decrease the demand of energy and it affects the sector these days.

USD appreciated against EURO as German ZEW index shows weakness and Ukraine tensions rises. However, the decline eased as the market continued. It forecasts that the decline is a temporary.

USD/JYP still goes up and down several days within a restricted range. Yet significant movement is expected if the BOJ added monetary policy to boost growth as Q2 GDP is largely contracted.

Sources:

http://www.bloomberg.com/news/2014-08-12/german-investor-confidence-slumps-as-ukraine-crisis-worsens-1-.html

http://www.bloomberg.com/news/2014-08-11/u-k-food-sales-plunge-amid-supermarket-price-war.html

http://www.bloomberg.com/news/2014-08-12/india-cpi-tops-estimate-in-test-for-rajan-as-industry-moderates.html

August 11, 2014

European Stocks Gain with Asia as Bonds Slide; Won Climbs

• As tension eased in Ukraine and t U.S. showed signs of pushing back militants in Iraq
• The euro weakened
• U.S. equities rallied on Aug. 8 Russia said warplanes ended drills near Ukraine. Israel and militants in the Gaza Strip agreed to an Egyptian-brokered truce

Treasuries Fall as Geopolitical Tensions Ease, Yields Dim Allure

• Treasuries ▲as easing political tensions in Ukraine and Gaza reduced demand for the safest assets before the U.S. sells $67 billion of notes and bonds this week
• Gains last week pushed 10-year yield to the lowest in more than a year, with the extra yield on the securities over the consumer-price index reaching the narrowest since April 2013 as geopolitical unrest fueled haven demand
• Treasuries have still underperformed stock this year, with the MSCI All-Country World Index ▲4.4% including reinvested dividends
• While U.S. economic growth rebounded last quarter from the biggest contraction in five years, inflation that has held in check helped lure investors to fixed-income securities

Thought

Like what I told in the "August Week 2 Preview," treasuries fall and stock index rises as geopolitical risks ease. Investors are frightened by geopolitical risks too much. A lot of economic indicators signs a positive signal, especially in U.S., China and U.K.

Fed’s Fischer Says Participation Drop May Reflect Slow Growth

• He said sluggish labor supply growth is a “source of concern”
• It may contribute to a slowdown in longer-run output of economy
• Which also faces a drag from housing and “broad based” slowing across emerging markets
• Falling labor-force participation largely reflects an aging population, though there’s “considerable uncertainty” about how much is due to the sluggish economy
• Share of working-age people in the labor force is 62.9%, near the lowest since 1978
• “Many of those who dropped out of the labor force may be discouraged workers. Further strengthening workers back into the labor market…”
• For the U.S., weakness in housing markets, a drag from government budget cuts and weaker European growth are “all prominent factors that have constrained the pace of economic activity”
• Recoveries in advanced economies have been “well below average” while the pace of growth developing nations “has been disappointing”
• Fischer said the so-called quantitative easing program has been “largely successful.”
• “Raising the rate of interest paid on excess reserves should play a central role in the eventual normalization of short-term interest rates. An overnight reserve repo facility could also play a useful part in setting a floor under money market rates."

Thought

high unemployment rate and increment in discouraged workers and part-time-job-for-economic-reason employ are the issues here. In fact, discouraged workers have been declined from 988 to 741 over a year. But what Fischer worries is that it tends to increase last three months (697K in May, 741K in July). It means that more people quit looking for a job, which will eventually decrease household spending and hurt economy.

Today, I'd like to focus on Asian market

Most of Asian stock increased today. NIKKEI raised 2.38%, which is the biggest increase in three months. Shanghai and Shenzhen also increased 1.38% and 1.48%.

They commonly had a big slump last week. Today's increment is more like a rebound from last week's slump. As geopolitical risks ease and big economic indicators await later this week, investors' expectation rose.

U.S. stock market showed increment yesterday; S&P 500 increased by 0.28%. Thanks to good earning on Sysco, CONS STPL sector increased by 0.76%.

Trading volume was significantly low. As economic indicator and earning season is almost over, there is engine to boost the stock market for now. Good news came from Fischer yesterday that the Fed considers the rising interest rate is the last resort, which means that it has no plan to do it soon. As the Fed keeps the fiscal policy as it is now, no surprise downturn or Fed taping is expected for a while.

EUR depreciated as ECB considers to use monetary policy as growth slowdown recently.

Overall, today's market shows a restricted movement. Not all geopolitical risks are solved (even though it eased) and no significant indicators have released. Similar movement is expected today

Sources:

http://www.bloomberg.com/news/2014-08-11/treasury-real-yield-at-15-month-low-before-67-billion-of-sales.html

http://www.bloomberg.com/news/2014-08-11/fed-s-fischer-says-participation-drop-may-reflect-slow-growth.html

Weekly Preview: August Week 2

Last week,

geopolitical risks had a negative impact on the E.U. Stock index in E.U. declined about 5%~9% in Southern Europe while France, Germany and U.K. defended the impact with 1.3%~2% drop. S&P 500 also tended to drop until the last day of the week, where it increased 1.15%. S&P 500 dropped 3.9% from July 24 to August 7.

With higher geopolitical risks, investors tend to look for safer asset like treasury. Oil price did not highly affected by the risk but there is still a possibility that it will affect the supply. As the days pass, geopolitical risks tend to have a temporarily effect.

This week,

• On Monday, there will be

1. Japanese M2 money stock
2. Japanese household confidence

• On Tuesday, there will be

1. Japanese industrial price index
2. French current account index
3. Italian CPI
4. German and E.U. Economic Sentiment Index

• On Wednesday, there will be

1. Korean imports and exports
2. Japanese GDP (prediction)
3. Chinese industrial outputs
4. French, German and Spanish CPI
5. U.K. unemployment rate and jobless claim along with chief of BOE speech
6. E.U. industrial outputs
7. U.S. retail sales and core retail sales with industrial inventory

• On Thursday, there will be

1. Korean unemployment rate with interest rate
2. U.K. house price
3. E.U., French and German GDP (prediction)
4. E.U. CPI and core CPI
5. Indonesian interest rate decision
6. U.S. import price index and jobless claim

• On Friday, there will be
1. No market in Korea, India and Italy (holiday)
2. U.K. GDP (prediction) with index of services
3. Hong Kong, Malaysia GDP
4. U.S. producer price index (and core), industrial outputs and Michigan sentiment index

Economic indicators in E.U. will tell how market goes this week. While Draghi said that ECB may put more stimulus on the economy, it is likely implemented if this week's indicators got worse. Unemployment rate and CPI will greatly affect E.U. and Fed's monetary policy. In case of Fed, it might decrease the interest rate early, but it depends on how labor market goes.

August Week 1 Market

30-year US treasury bond started at 3.30 this week and ended with 3.23 points while S&P 500 started at 1,926.26 and ended with 1,931.59. It closed at 1,909.78 on 7th but it rebound 1.15% increment on the 8th.

Trade volume at the last day of S&P 500 was the second-largest in three months. Without outstanding economic data, it indicates that people bought more stocks as economic rebound expectation raised. S&P 500 had dropped 3.9% from July 24 to August 7. As Ukraine crisis shows progress, expectation of rebound rose as well.

U.S. 30-year treasury keeps declining yield. As E.U. economy slows down and geopolitical risks hit the market, people tend to have safe asset.

USD appreciated against both Euro and KRW. USD tends to appreciate as geopolitical risk rises. Euro has been depreciated against USD as geopolitical risks rise and economic data (PMI, consumer spending, factory order, etc.) indicate slowdown in expansion. Italy even suffers from recession, which Draghi claimed it's a temporary.

KRW depreciated as geopolitical risk rises as well. Unlike Euro, its main cause came from Iraq.

Oil price increased when U.S. decided to airstrike Iraq. But easing Ukraine crisis and good U.S. economic data continuously declined the price.

Gold price also rose as people preferred safe asset, indicated by increase in volume; almost 7 peaks in three months. It is expected to decline as geopolitical risks ease and economic data shows progress next week.

August 8th, 2014

China Reports Record Trade Surplus

• Unexpected growth of export and decline in import accelerated the growth in July
• ▲14.5% in exports (forecasted 7.5%), ▼-1.6% in imports YoY (forecasted 3.0%)
• Export growth was 7.2% and import growth was 5.5% YoY in June
• The U.S. and European recoveries will help sustain expansion in Chinese economy
• Exports ▲17% to E.U. YoY; shipments to the U.S. ▲12.3% YoY
• ▼ in imports may be attributable to falling commodity prices
• Sales to the biggest markets of the U.S. and Europe ▲
• The surplus suggests pressure on the yuan to appreciate will probably increase if the central bank doesn’t actively intervene in the foreign-exchange market
• While an official index showed manufacturing expanded in July at the fastest pace in more than two years, a private gauge of services dropped to the record low, hurt by a real-estate slump

Thought
     Statistical data shows that imports declined in July. Well, the total price of price declined, but not the number of it. For example, China's iron ore imports ▲11% while the price ▼14.5% for seven months. The average price of soybeans ▼3.9% while the volume ▲20.2%. So, these data showing that the world's second-largest economy still consumes a lot of worldly goods, which may boost global economy.

     For instance, Japanese biggest trading partner is China. Japan needs China to expand its economy to expand its economy. Expansion in China is a good news for Japan, which suffers from decreased household spending and industrial output.

BOJ Holds Stimulus as Weaker Economy Challenges Kuroda

• After recent production and export data highlighted weakness, the BOJ pushes to stoke faster inflation; maintaining record stimulus
• The central bank stuck with a pledge to increase the monetary base at an annual pace of $687 billion
• Outbound shipments unexpectedly ▼ in June, while output slumped the most in more than three years as retail sales ▼
• Exports ▼1.1% in Q2 QoQ even after yen weakened 17% against the dollar since December 2012
• Production ▼ 3.3% in June MoM; the most since March 2011
• Retail sales ▼7% in Q2 QoQ
• Showing an economy struggling to rebound from a sales-tax increase last quarter
• The Topix index of shares ▼2.4% today in Tokyo, its biggest in three months
• U.S. President Barack Obama authorized air strikes in Iraq
• “Japan’s economy is likely to continue recovering moderately with the effect (of an April sales tax increase) seen gradually subsiding,” said Kuroda. “Exports and output have been weakening, but a positive economic cycle remains in place as job and income conditions steadily improve.”
• Consumer prices ▲3.6% in June YoY, outpacing a 0.4% gain in labor cash earning
• Stripped of the effects of the higher sales tax, core inflation was 1.3%, more than halfway to the central bank’s target

Thought
    Kuroda's confidence is come from the trade statistics (first 20 days of July) shows that exports ▲ 4.7% while imports ▼2.8% YoY while export declined 1.9% and imports rose 8.4% last month. Even geopolitical issues hits the Japanese market hard, those issues are not permanent.
     What matters are how well global economy and domestic spending expand. Trade balance in July imply that global economy are getting on the track to economic recovery (with growth in China and U.S.), and household spending is getting better (even though it is still -3.0%). Yes, like what Kuroda said the economic expansion had a setback. But it will get back on track this month.

E.U. Trade Balance

• German exports in June ▲1.1% YoY; imports ▲2.1% YoY
• Seasonally adjusted, exports ▲0.9% and imports ▲4.5% MoM in June
• The highest MoM increase in imports since November 2010
• In May, exports ▼1.1% MoM, and imports ▼3.4% MoM
• In YoY, exports ▲ 4.3% and imports ▼0.4% in May
• A surplus of 16.5 billion euros (17.8 billion euros in May)
• French manufacturing output ▲1.6% MoM in June, after a fall in May by 2.3%
• Output also ▲ in industrial production as a whole (1.3% MoM after -1.6% in May)
• Led by ▲4.6% in transport equipment, ▲1.9% in electronic and machine equipment
• Manufacture of coke and refined petroleum product ▼2.6%
• Manufacturing output ▼ by 1.2% QoQ, and Industry output ▼ by 0.5%
• ▼6.8% of refined petroleum products, ▼5.0% of electrical equipment and ▼7.9% in miming and quarrying, while ▲7.6% in water supply
• U.K. trade deficit was estimated to have been 2.5 billion pounds in June, compared with 2.4 billion pounds in May 2014
• 9.4 billion pound deficit on goods, estimated surplus of 7.0 billion pound on services
• The trade in goods deficit ▲ by 0.3 billion pound compared with May 2014
• Exports of goods ▼ 0.4 billion pound
• Reflecting falls in oil and manufactured goods
• Imports of goods ▼0.1 billion pound
• Reflecting falls in imports of oil and aircraft; these falls were offset by increases elsewhere in manufactured goods
• In Q2, exports ▼0.5 billion to 71.3 billion pound. Imports ▲0.4 billion to 98.7 billion pound, reflecting increases in imports of ships, cars and medical and pharmaceutical products
  

Thought
     ▲Even their main industry is a service industry, industrial industry and manufacturing take up to 20% of the economy. German exports decline was expected as E.U. had a slow economic growth and expansion of geopolitical risks.

     Good news came from France, which ▲1.3% industrial output in June after -1.3% last month. Yes, industrial output has been declined by 0.5% QoQ, but its increment in June is a start of comeback. Production of petroleum product is still expected to decline as the U.S. President Barack Obama approrved to strike Iraq.

     U.K. trade deficit widened by 1.3 billion pound YoY. While balance in services stayed the same, deficit balance in goods, especially to non-EU had a big growth. It is from increases in manufactured goods, which imply that consumer spending has been increased. Despite the deficit widened, ▲imports of manufactured goods implies that consumer are looking for more goods, which would boost U.K. economy while service industry keeps expanding.

DJIA and S&P 500 showed a significant rise on August 8th, 2014. Russia seeks a de-escalation of the conflicts in Ukraine. Even more, S&P had dropped 3.9% from July 24 to yesterday as the conflict of Ukraine and war between Israel and Hamas get worse. Today's rise is more like rebounding from the loss as the expectation of de-escalation came out.

FTSE declined as trade deficit widened, and NIKKEI also declined by almost 3% as U.S. approved airstrike on Iraq, which will boost oil price. Increase in commodity price will be a risk for Japanese economy as it seeks for expanding trade balance.

Sources:
http://www.bloomberg.com/news/2014-08-08/china-reports-record-trade-surplus.html
http://www.bloomberg.com/news/2014-08-08/boj-holds-stimulus-as-weaker-economy-challenges-kuroda.html