Friday, 30 October 2015

Stocks little changed, China ends one-child policy

Stock markets were mostly little changed on Thursday.

Asia was an exception, with the MSCI Asia Pacific Index falling 1.1 percent. The Shanghai Composite Index, though, rose 0.4 percent.

For the longer term, however, the more significant event coming out of Asia on Thursday was the announcement that China will end its one-child policy and allow all couples to have two children.

The announcement was made at the close of a key Communist Party meeting that was focused on financial reforms and maintaining growth between 2016 and 2020.

The move by China has the potential to raise its birth rate, which will increase demand in the short term and supply in the long term, both of which are important for China to stabilise its economic growth.

It should be noted, though, that after a 2013 population reform that allowed couples to have a second child if one parent is an only child, just 6.7 percent of those eligible in Beijing applied to have a second child.

Thursday, 29 October 2015

Stocks rise after Fed meeting, China's stock market returning to "normalcy"

Stocks were mostly up on Wednesday after the Federal Reserve monetary policy meeting.

In a statement following its policy meeting, Fed officials suggested they had become less concerned about financial-market volatility and international economic growth.

While stocks initially dipped after the meeting, they recovered subsequently to leave the S&P 500 up 1.2 percent at the end of the day.

In Europe, the STOXX Europe 600 closed 1.1 prcent higher.

However, earlier in Asia, markets were mixed. The Hang Seng Index fell 0.8 percent and the Shanghai Composite Index lost 1.7 percent but Japan’s Nikkei 225 rose 0.7 percent.

Wednesday's decline notwithstanding, China's stock market has been looking positive lately. From Bloomberg:

Less than five months after China’s equity bubble burst, the Shanghai Composite Index is surging once again.

This month’s 11 percent rebound is one of the biggest surprises in global markets after international money managers all but gave up on Chinese stocks in the wake of a $5 trillion crash, according to JPMorgan Chase & Co. What’s even more remarkable is that the gains look like the result of buying from ordinary investors, rather than the government-run funds who sought to prop up prices during the rout.

Some analysts think that the rally in China's stock market will be sustained.

“We do expect the market to post better gains for the rest of the year amid policy initiatives, including rate cuts,” said Audrey Goh, a strategist at Standard Chartered Plc. “There are some signs of normalcy coming back.”

Wednesday, 28 October 2015

Stocks fall, may pose threat to global economy

Markets fell on Tuesday.

Stocks fell, with the S&P 500 losing 0.3 percent. West Texas Intermediate oil fell 1.8 percent to the lowest in two months. US 10-year note yields fell three basis points to 2.03 percent.

The MSCI Emerging Markets Index fell 0.7 percent, with Bhanu Baweja, the UBS Group AG strategist who correctly called this year’s rout, saying in a note on Tuesday that emerging-market currencies will decline again “before long” while emerging-market stocks will start underperforming their peers in advanced economies again.

That could be bad news for the global economy. A recent report from Oxford Economics said: “A sharp correction in global equity prices would pose a significant threat to the global economy.”

Monday, 26 October 2015

Stocks rally on central bank boosts

The rally in global stocks continued last week.

The S&P 500 rose 2.1 percent last week, its fourth consecutive weekly gain. The gain brought it within 2.6 percent of its all-time high reached on 21 May.

The STOXX Europe 600 surged 3.9 percent last week, rising for a third consecutive week.

In Asia, the Shanghai Composite Index rose 0.6 percent last week for its third consecutive weekly gain.

The rally in stocks was boosted by central banks last week. On Friday, the People’s Bank of China cut interest rates and banks’ reserve requirements, just a day after the European Central Bank indicated that it would bolster monetary stimulus if needed.

The continuing rally and central back actions have brought optimism back to some analysts.

“Stocks are back,” said Robert Pavlik, chief market strategist at Boston Private Wealth. “We’re back on track as far as a cheap money, quantitative easing, risk-on trade is concerned.”

“There’s likely to be continued policy support from central banks around the world and the headwinds, particularly the slowdown in China’s growth, may be behind us,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds.

Still, some skepticism remains.

Leo Grohowski of BNY Mellon Wealth Management thinks this may just be a relief rally. “My growing concern is the equity market participants here in the U.S. are still too complacent around December and there being a less than a 50-50 chance of a rate liftoff,” he said.

And while China's central bank may have taken action last week to boost monetary stimulus, the action may actually underscore how precarious China's economic situation is.

“If the economy was growing so close to the target, there would be no need for stimulus,” Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, told Bloomberg. “The Chinese government is obviously really worried by what they see and they feel compelled to act.”

“I don’t think this is the start of a new move in Chinese equities higher,” said Ajay Rajadhyaksha, head of macro research at Barclays. The country needs economic “growth numbers to improve sharply, and that does not seem to be happening.”

Friday, 23 October 2015

Japan not lacking in money

The Japanese government has acknowledged that there is a limit to what monetary policy can do to boost inflation in Japan. From Bloomberg:

“Prices aren’t rising in Japan not because of a lack of money, but because of a lack of demand,” Japanese Finance Minister Taro Aso told reporters in Tokyo on Friday. “The economy is fine, but looking at inflation, the effect of a halving of oil prices has been pretty huge.”

Thursday, 22 October 2015

US stocks fall but short interest shows near term positive

US stocks fell for a second day on Wednesday, with the S&P 500 falling 0.6 percent.

The US stock market was dragged down by a 0.9 percent drop in the S&P 500 Health Care Sector Index after Valeant Pharmaceuticals International tumbled following a report by Citron Research examining a specialty pharmacy the company uses to facilitate drug sales to patients.

Yields on US 10-year Treasuries fell four basis points to 2.03 percent.

Oil in New York also fell to a three-week low and gold slid the most this month.

Encouragingly for equities, however, Bloomberg reported that JPMorgan Chase has calculated that the US stock market still has $90 billion in short sales left to cover, “a clear near term positive for stocks”.

Gene Peroni of Advisors Asset Management said: “Given there’s a little clarity to the Fed not raising rates until next year, oil stabilizing, banking stocks coming up even though earnings are mixed, the indications are there is real buying going on.”

Tuesday, 20 October 2015

China's small-cap stocks rebound

Despite the pummelling that Chinese stocks have received in general, at least some parts of the stock market are still showing signs of froth. From Bloomberg:

Investors traded 5 billion shares on the ChiNext Composite Index on Oct. 16, more than at any point during this year’s rally. The Shenzhen gauge, dominated by small technology companies, is up 34 percent from its Sept. 15 low. Traders have borrowed extra debt to buy the city’s stocks for seven days straight...

The ChiNext Composite trades at 90 times profit, more than five times the valuation multiple for the Shanghai Composite Index, data compiled by Bloomberg show. The large-cap index has rebounded 16 percent since its August low.

For Rabobank Group’s Michael Every, the divergence is a reminder of the power of China’s 90 million individual investors, who favor momentum over fundamentals.

“It’s greed and short-term memory loss," said Every... “Equities are still over-priced everywhere.”

Friday, 16 October 2015

Markets jump as Fed rate hike expectations tumble

Markets rallied strongly on Thursday as expectations for a rate hike in 2015 by the Federal Reserve receded.

The MSCI All-Country World Index rose 1.4 percent, the S&P 500 jumped 1.5 percent, as did the STOXX Europe 600, and the MSCI Asia Pacific Index surged 1.9 percent.

The probability of a Fed interest rate increase by its December policy meeting has dropped to 30 percent from 70 percent at the start of August, according to futures data compiled by Bloomberg.

Despite that, yields on US 10-year notes rose five basis points to 2.02 percent on Thursday.

Thursday, 15 October 2015

US stocks fall but now may be "perfect time to buy"

US stocks fell on Wednesday. The S&P 500 fell 0.5 percent, its second consecutive decline.

However, some analysts remain undaunted.

LMM Investments chairman and chief investment officer Bill Miller told CNBC that now is a perfect time to buy US stocks.

According to Miller, positives for equities included moderate economic growth, low interest rates and low inflation. By not raising interest rates, the Federal Reserve has essentially given investors a "free lunch".

Also positive about US stocks is Brian Rogers, chairman and CIO of T. Rowe Price.

"There are really a lot of high quality companies selling at good valuations, good dividend yields, [and] not particularly expensive in today's world," he said.

Tuesday, 13 October 2015

Markts mixed, Chinese imports plunge again

Markets were mixed on Monday.

The S&P 500 eked out a 0.1 percent gain while the MSCI Asia Pacific Index rose 0.6 percent.

However, the STOXX Europe 600 fell 0.3 percent.

Commodities fell, with oil plunging 5 percent.

The latest data showed that the lingering caution in markets may be warranted.

China reported on Tuesday that its imports plunged 17.7 percent in yuan terms in September, worse than the 14.3 percent decrease in August and an 11th consecutive decline.

However, exports fell 1.1 percent in September in yuan terms, better than the 6.1 percent drop in August.

Monday, 12 October 2015

Markets rally but may not last

Markets rallied strongly last week.

The MSCI All-Country World Index rose 4.4 percent. The S&P 500 rose 3.3 percent. The STOXX Europe 600 jumped 4.3 percent. The MSCI Emerging Markets Index surged 7 percent.

The Bloomberg Dollar Spot Index, which measures the US dollar's performance against a basket of 10 major counterparts, fell 1.4 percent last week, with the US currency slumping to a three-week low against the euro.

Conversely, emerging-market currencies performed well last week. The rupiah completed its best week since 2001 and the ringgit appreciated the most since 1998.

The rebound in emerging markets could hold, according to Geoffrey Barker, manager of the Counterpoint Asian Macro Fund.

“Much depends on China,” Barker said in an an e-mail to Bloomberg. “I doubt that another plunge in emerging-market currencies is imminent because it is too soon to argue for a hard landing in China.”

Indeed, Thomas Schroeder, founder and managing director of Chart Partners Group Ltd, thinks that Chinese stocks will climb in the next few months. “As oil starts to move and materials follow, investors will by default feel more positive about China,” he said.

However, he also thinks the rebound will not last, citing technical patterns. “This is a bear market rally.”

Friday, 9 October 2015

World stocks rise amid calls to maintain monetary stimulus

World stocks rose on Thursday after the release of the minutes of the last Federal Reserve monetary policy meeting showed that it wanted to wait for evidence that a global economic slowdown was not seriously affecting the US economy before raising interest rates.

The cautious stance of central banks appears to be pervasive. From Reuters:

Central banks have little room for error in a low-growth world in which over-leveraged and commodity-dependent emerging economies and a slowing China are major risks, top international financiers told the International Monetary Fund's meeting.

Despite $7 trillion in quantitative easing from banks in industrial nations since the global financial crisis, the world is stuck in a "new mediocre" growth pattern, IMF chief Christine Lagarde said on Thursday.

Maintaining loose monetary seems to be the preferred stance.

The IMF has urged the Fed and the Japanese and European central banks to wait for more signs of recovery before tightening. Lagarde on Thursday repeated her plea to Yellen to stay her hand.

This is despite the seemingly never-ending series of bubbles pervading the global financial landscape. Bloomberg reports possibly the latest one in China:

As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.

So says Commerzbank AG, which puts the chance of a crash by year-end at 20 percent, up from almost zero in June. Industrial Securities Co. and Huachuang Securities Co. are warning of an unsustainable rally after bond prices climbed to six-year highs and issuance jumped to a record.

Thursday, 8 October 2015

Global markets rally on US rebound

Global markets rallied on Wednesday as US stocks rebounded from the previous day's fall.

The MSCI All-Country World Index jumped 1 percent for a sixth day of gains, the S&P 500 rose 0.8 percent, the STOXX Europe 600 edged up 0.1 percent and the MSCI Asia Pacific Index jumped 2.1 percent.

The Bloomberg Commodity Index fell 0.2 percent though as oil fell.

Yields on US 10-year Treasuries increased four basis points to 2.07 percent.

Wednesday, 7 October 2015

US stocks end rally, IMF cuts global growth outlook

The US stock market ended its 5-day rally on Wednesday. The S&P 500 fell 0.4 percent with biotechnology stocks in particular being hit hard over concerns with drug pricing and company earnings.

Commodities escaped the falls though. Indeed, the Bloomberg Commodity Index rose 1.7 percent to its highest level since 31 August. West Texas Intermediate crude oil jumped 4.9 percent.

Still, the fall in commodity prices earlier on may already be hurting emerging economies, according to the International Monetary Fund. From Bloomberg:

A slowdown in emerging markets driven by weak commodity prices forced the International Monetary Fund to cut its outlook for global growth this year to 3.1 percent from a July forecast of 3.3 percent. Next year the world economy will expand 3.6 percent, less than the 3.8 percent projected in July.

Tuesday, 6 October 2015

Markets rise, Fed rate hike delay seen critical

Global markets rose again on Monday.

The S&P 500 climbed 1.8 percent, the STOXX Europe 600 rose 3.0 percent and the MSCI Emerging Markets Index jumped 2.1 percent.

Commodities also rose, with copper rising 1.5 percent and oil gaining 1.6 percent.

The gains in markets were mostly attributed to the view that the Federal Reserve will keep interest rates lower for longer.

“The Fed pushing out interest-rate hike expectations to next year has been critical,” Michael Purves, chief global strategist at Weeden & Co.

That view did not help US Treasuries on Monday though. Ten-year Treasuries ended five days of gains as yields rose six basis points to 2.06 percent.

Monday, 5 October 2015

Growing risk of recession as central banks lose credibility

John Hussman wrote in his latest article that the US economy is close to a recession.

"On Friday, the Bureau of Labor Statistics reported that non-farm payrolls for September grew by 142,000, versus a consensus that expected over 200,000 new jobs," he wrote. "At the same time, August job growth was revised lower from 173,000 to 136,000 jobs. All of this is very much in line with the deterioration that we’ve observed for months in leading measures of economic activity."

"With a clear breakdown in market internals, and leading economic measures deteriorating, we should be aware of the growing potential for a recession," he opined.

Hussman also said that while investors might view weaker economic prospects as a good thing because of the likelihood that the Federal Reserve will refrain from raising interest rates or even initiate another round of quantitative easing, he warned: "An about-face by the Fed driven by economic weakness would more likely – after a brief celebration – contribute to panic that the Fed had lost credibility and control. We believe the Fed already has neither."

Indeed, a Bloomberg article suggested that not just the Fed but the world's central banks are losing credibility.

"Even after hundreds of interest-rate cuts and trillions of dollars in quantitative easing, the bond market’s outlook for inflation worldwide is approaching lows last seen during the financial crisis," the article said.

“There’s a lack of faith in monetary policy -- you’ve thrown the kitchen sink at it, you’ve cut rates to zero, you’re printing money -- and still inflation is lower,” Lee Ferridge, the head of macro strategy for North America at State Street Corp, was quoted as saying. “It leads to a risk-off environment.”

Saturday, 3 October 2015

Investors lose faith in oil but Jim Rogers sees sign of rebound

Bloomberg reports that oil bulls are losing faith in its recovery.

Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.

While US crude output is down 514,000 barrels a day from a four-decade high reached in June, Russia’s production of crude and condensate rose to 10.74 million barrels a day last month, 1 percent more than a year earlier and breaking a record set in June.

"The US producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, said.

Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management, told Bloomberg by phone: "The managed money has been positive about the market but things look grim. We’re at a tough time for oil on a seasonal basis as well."

Amid the widespread pessimism, though, West Texas Intermediate crude futures have, after plunging to $37.75 a barrel on 24 August 24, averaged $44.99 after that, staying above $44 since the start of September. Jim Rogers sees this as a sign of a possible rebound.

“When there’s bad news and something doesn’t decline, it usually means it’s at a bottom and will be turning,” Rogers said in an interview on Thursday. “Whether we’re at a turning point or not, I don’t know yet, and I’m watching this very closely.”

Rogers also sees opportunities for investors in other raw materials, particularly agriculture.

Friday, 2 October 2015

Markets mixed but US gains raise hopes for rally

Markets were mixed on Thursday, the first day of October and the fourth quarter.

The MSCI All-Country World Index rose 0.4 percent, the S&P 500 added 0.2 percent, the STOXX Europe 600 fell 0.4 percent and the MSCI Asia Pacific Index rose 1.6 percent.

While US stocks rose for the third consecutive day on Thursday, some analysts are not convinced that a bottom has been made.

“We need to see fewer companies hit new lows, and more companies hit new highs,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co. “Without it, it looks suspect.”

However, others are more hopeful.

“The extremely oversold global equity index sentiment readings that have been realized over the past week tend to occur near medium-term trend reversals,” J.P. Morgan analyst Jason Hunter wrote.

“The consensus is that equities are going through a 1998-like fall correction followed by a rally in the fourth quarter,” said Martin Roberge, an analyst at Canaccord Genuity. “We agree.”

Thursday, 1 October 2015

Markets suffer steep falls, Fed to rescue?

Markets have not performed well in 2015, according to a Bloomberg report.

Rounding out its steepest quarterly descent in four years, the MSCI All Country World Index of shares is down 6.6 percent in 2015 including dividends. The Bloomberg Commodity Index has slumped 16 percent, while a Parker Global Strategies LLC index of currency funds dropped 1.8 percent. Fixed income has failed to offer much of a haven: Bank of America Corp.’s global debt index gained just 1 percent, less than the 2.5 percent increase in world consumer prices shown in an International Monetary Fund index.

US stocks have not been spared from losses. The S&P 500 finished the quarter with a 6.9 percent decline despite jumping 1.9 percent on Wednesday.

However, the Federal Reserve "put" may help mitigate further losses. From another Bloomberg report:

Federal Reserve officials often behave as if they have a mandate to take financial stability into account when they make interest-rate decisions, according to a research paper co-authored by Boston Fed President Eric Rosengren.

“Frequent mentions of financial instability terms at the FOMC, particularly during bust periods, result in a statistically significant reduction in the funds rate,” the paper said.