September 26, 2014

Two major issues pulled DJI up for 0.99% today. Corrected U.S. GDP and Michigan Consumer Sentiment proposed strong economic growth. The 4.6% growth GDP was mainly dragged by high consumer spending, which increased by 2% compared with 1.4% growth in Q1, as consumers gain confidence back.

Notice that nonresidential fixed investment increased by 9.7% compared with 1.6% in Q1. It highlights that companies are willing to invest more as the economy gains its strength back. Yet there is a concern that this significant increase was due to weather. It rises a question whether companies are still willing to invest during Q2 and Q3.

Michigan Consumer Expectations was above expectation. It highlights that consumers are still looking at the bright side of economy and willing to consumer. Along with recent strong labor market data, it brights the U.S. economy.

Recently Nikkei continuously increased as additional stimulus was expected. Japan still suffers from inflation rate. National Core CPI decreased by 0.2% YoY from last month, arises a question about the BOJ's monetary policy. Since low inflation rate policy is not working well, market expects larger stimulus package. As a consequence, USD/JPY rate keeps increasing.

September 25, 2014

DJI declined by 1.54% with increased geopolitical issues and fear of increase interest rate in England. Russian parliament proposed a bill on foreign-asset freeze. The court would have the right to go after foreign states' asset in Russia, including property under diplomatic immunity.

Yet it is unlikely that the government of Russia will approve this bill since it will bring diplomatic chaos. It still effects on the market because Ukraine issue recently eased that neither Russia and E.U. proposed additional sanctions on each other. Today's bill suggests that both Russia and E.U. may implement additional sanction which will eventually hurt the economy.

As a result, DAX declined by 1.54% today. Russia is the largest export partner of Germany and manufacturing takes about 22% of its GDP. As geopolitical issues with Russia arises, DAX is easily fluctuated. Besides, German manufacturing PMI declined more than forecast. They signal red light on German economy in Q3.

BOE Governor Mark Caney states today that "with many of the conditions of the economy to normalize now met, the point at which interest rates also begin to normalize is getting closer." As a result, besides with issues from Russia, FTSE declined by 0.99%

Gov. Caney mainly concerns about inflation rate, housing and labor market to determine the "normal" interest rate.

   

Halifax house price index declined in August, suggesting that housing market is cooling down. However it is still at the record-high price that the price has to be adjusted before the market overwhelmed. CPI is stabilized yet underscores the target, 2%. Unemployment rate keeps decreasing that suggests labor market is getting stronger.

High housing price, below-target CPI and strengthening labor market combined to increase the interest rate sooner. Keep in mind that service industry takes about 79% of U.K. GDP. Sudden increase in interest rate would harm its economy.

 

Gold increased slightly (0.11%) and Euro still weakens as geopolitical issues arises and ECB would implement QE in a short term.

September 19, 2014

There were several outstanding issues last three days:
1) Rejection of Scotland independence
2) Relief from FOMC meeting
3) ECB's targeted long-term refinancing operations (TLTROs, $106.9 billion)
4) Alibaba IPO

I apologize for the late update.

DJI boosted with Alibaba's successful IPO. It gave a positive view on the market on Friday. Yellen 's speech after FOMC meeting also gave a positive look on the market that it is unlikely to increase interest rate anytime soon. She stated that housing market is improving but it is still a concern for economic recovery for low income families.

The market still needs to consider that interest rate will be increased. The reason why Fed. didn't increase the rate, or even consider to increase this time, is they are worried about overreaction in the market. As market accepts that the rate will be increased, sooner than they think, the Fed. will take action.

Yellen's statement today came out along with decrease in continuing jobless claim and building permits. Since the main cause of financial crisis came from the housing market, recession in housing market rises concern on economic expansion. Housing market is still the important asset channel for low income families. Jobless claim continuously decreases, but it doesn't always mean that job market is getting better these days. Yellen stated today that "There are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work, and too many who are not searching for a job but would be if the labor market were stronger." Her statement eased tensions and gave positive look on the market.

Alibaba had a successful debut in the market on Friday. It gave a positive view on the market even though there were some bad economic indicators and increase in geopolitical risks.

As Scotland's independence was rejected and ECB implemented $106.9 billion TLTRO program to enhance the functioning of the monetary policy by supporting bank lending to the economy, it seems like Europe is out from danger zone for now. TLTRO will provide higher liquidity on the market which will increase inflation rate and investment.

Even Scotland's independence was rejected, the U.K. promised to promise extra funding on Scotland. It can potentially harms the U.K. economy, which results as slight decrease in GDP/USD even retail sales increased in August.

Gold price keeps decreasing as global issues are solved and ECB implemented the TLTRO program.

September 16, 2014

With lack of significant economic indicator, PBOC released a statement that it will extend its stimulus to $81 billion affects the market. Yet risk from FOMC meeting and Scotland's independent voting on Wednesday still effect on the market that investors take a limited movement in the market.

While it is unlikely that Fed will increase the interest rate at this moment, whether it will keep the "considerable time" on the statement rises on the issues. Even though U.S. households income keeps recovering from 2007-09 recession, a report from the Census Bureau shows that overall income is stagnated last year. Yet it is highly unlike to impact on Yellen's decision since recent payroll and unemployment rate in 2014 shows improvement.

As concern of FOMC meeting rises, 10-year treasury yield increases.

What I concern is that market is very volatile on Fed's decision these days. The Fed needs to take more considerable approach to adjust QE and interest rate.

BOE succeeded to maintain its target inflation rate (2%) while it increased interest rate to cool down housing market. Yet house price increased 1% more than forecast, which alarmed BOE whether how its fiscal policy works in the market.

Investors in FTSE are more focused on Scotland's independent news that it did not show a significant movement.

There was significant GBP/USD change in last few days as the issue of independent came out. Even though many investment bailed out from U.K. market, it is interesting that FTSE is stagnated at the same period.

September 12, 2014

     DJI declined by 0.36% as investors worried about FOMC meeting on next Tuesday and Wednesday. Even though it is unlikely to increase interest rate at this point of time, the Fed. expects to increase the interest rate sooner rather than later as labor market keeps improving.

The Dow Jones declined 0.64% as the fear of higher interest rate rose. Yet strong economic indicator like high retail sales and industrial production released which bounce the DJI back at the end of the day.

     Increase in retail sales and consumer sentiment mean that consumers are feeling better about economic outlook; economy is more engaged in expansion now. It can be a good news, for now. However, it means that the Fed. is really going to increase the interest rate sooner as it is going to taper the economy.

Unlike U.S., China and EU are experiencing opposite situation.

      China's industrial production declined more than expected this month - the lowest since 2008 financial crisis. Yet the market has a positive responding; its trading volume is high while its price keeps increasing. Investors expect the government to put extra stimulus in the market as the manufacturing sector and housing market slow down.

     If the Fed. decreases the interest rate and U.S. consumer spending is stagnated, China's industrial production will be suffered even more.

     European market declined little bit, but it had a restricted movement. There are too many issues that the investors have to concern at this point. Scotland's independent movement, sanctions on Russia, FOMC meeting and implementation of ECB QE.

     As Russia will propose additional sanctions on EU, DAX declined by 0.41% but other EU companies had a restricted movement. Investors take a wait-and-see attitude rather than taking a movement. ECB changed its attitude on QE recently as Q3 GDP seems to turn positive and deflation risk eased. Yet implementation of QE is still possible as its economy, especially those in Southern Europe are struggling.

September 11, 2014

DJI decreased by 0.12% today. Notice trade volume was not high. The FOMC meeting will be held on Sep. 16-17. The Fed. will decide whether it will increase the interest sooner and ease the quantitative easing based on fast economy is recovering.

Notice that Initial Jobless Claim increased to 315K this week, but it is still on the 300K level, which indicates that labor market is in the good shape. It is unlike that the Fed. will increase the interest at this moment even though labor market is improving and consumer confidence records the highest in more than five years, which increase consumers pending that takes 70% of U.S. GDP.

What Fed. is worried is that increase in interest rate may have a huge impact on the market price. The Fed. actually said that it is worried about how investors are dependent on the Fed., and it will work to decrease their dependency by decreasing QE before adjusting interest rate.

So, it is likely that the Fed. will ease the QE in the upcoming meeting. For now, the market will stay stable until the Fed. will make a such movement.

Independent movement from Scotland is swinging U.K. market. Even though it is unlikely to be happened, its risk restricts the market movement. A news that there is a possibility to extend airstrike against IS to Syria, which opposed by Russia, affected the market.

Yet the Gold price continuously decreases as the tension in Ukraine eased. Even though Russia and EU are about to submit new sanctions against each other, the possibility of increasing interest rate affects the gold price and eventually decrease its price. Notice that price has decreased after end of August, where investors started to worry about increased interest rate sooner than they expected.

 Nikkei is still increasing despite Japan's poor performance in Q2 and bad economic indicators that suggest consumer spending is not rebounding. It is because the market expects BOJ to add more stimulus, about $47 billion, for next tax bump to get out of decade-long stagnation while growing economy.
Yet, like what I wrote in previous article, the problem of the consumer spending is low payroll, which came from holding high cash holdings in major companies. As long as its labor market doesn't improve, additional stimulus may not work as the BOJ expected.

September 9, 2014

Job Openings, Quits Register on Yellen’s Dashboard: Economy

• Job opening in July held close to a more than 13-year high
• Hiring rate held 3.5%, compared with average 3.8 during the previous expansion
• Companies added 142,000 workers to payrolls in August
• The upswing in openings and a six-year high in the number of people voluntarily leaving their jobs, a sign of Americans’ confidence in finding other work
• Underscore persistent progress in the labor market

Thought

Yellen closely looks at those labor market indicators. Pointing out that labor market is continuously outperforming, it is possible that the Fed. will increase an interest rate sooner. It will hugely impact on the market if you think about how much QE the Fed. has put into the market since the financial risk. In fact, Federal Reserve Bank of San Francisco released monetary policy report today that the financial market expects too much from the Fed., which increases volatile in the market.

E.U Considers Russian Penalties Amid Fragile Ukraine Truce

• The planned sanctions include barring some Russian state-owned defense and energy companies from raising capital in the E.U.
• Worried about the possibility of Russian counter-sanctions should the E.U enact the new package
• The agreement to halt fighting came in the midst of an E.U push to ratchet up penalties against Russia in coordination with the U.S. in a bid to force Putin to end support

Thought

More sanctions over Russia were expected from previous months. It means that this sanctions were already reflected in the market price. What I expect is that if Ukraine and Russia find a solution on eastern Ukraine, or at least something would ease the tension, it will tremendously boost EU's economyWhy You Should Care About Scotland’s Independence Vote

• An opinion poll showing Scottish independence campaigners have a  slim lead nine days before a crucial referendum has highlighted
• A lot of energy has been expended arguing whether an independent Scotland could join the European Union; Scotland would have to leave the EU and re-apply for membership
• What share of Britain’s debt would Scotland take? Would it retain the pound? How much would Scotland get of oil revenues from the North Sea? Would it follow a different fiscal policy?
• The U.K economy is Europe’s biggest destination for foreign direct investment. Without Scotland those flows would fall and the rest of the U.K’s current account deficit could rise to a level that discomfits investors