Random Market News, 23 June
"London could lose out as ECB seeks control of euro clearing after Brexit.
London is facing renewed pressure over its dominance of the €1tn (£880bn)-a-day euro clearing market after the European Central Bank set out proposals aimed at giving it more oversight of the lucrative business.
The move by the Frankfurt-based ECB – the central bank for the 19 countries using the euro – follows a report by the European commission that called for the EU to have more powers over clearing of financial products denominated in euros after Brexit."
"Federal Reserve governor Jerome Powell and Keith Noreika, the acting comptroller of the currency, said at a Senate Banking Committee hearing they are studying how regulators could simplify the Volcker rule, which aims to prevent banks from making overly risky bets with their own money. They also are reviewing certain bank capital requirements, they said, to streamline oversight."
"Analysts Most Optimistic on Health Care, Tech Buys."
"Norway's wealth fund should be split from central bank – panel.
Norway's $960 billion wealth fund, the world's largest, should be split from the country's central bank, which has managed the fund since its launch in 1996, a government-appointed commission said on Friday.
In the future, the fund should be managed by a new state investment company with a government-appointed board and an investment mandate set by the finance ministry, the commission said."
"Report: Pensions Use Accounting Tricks to Keep Up Appearances.
The report compared plan administrators to someone who had a 30-year mortgage on a house, and instead of making mortgage payments each year, they simply re-amortize the remaining liability over a new 30-year period, every year.
According to the report, state officials can adopt open-ended amortization to reduce the amount the state must contribute to the pension system each year, or to improve the appearance of the state’s current funding effort."
"The Cambodian government has released its strategic plan to develop the country’s financial sector over the next 10 years, which includes creating a national pension fund.
In recent years, Cambodia has moved closer to lower-middle-income status through strong economic growth, according to the Asian Development Bank (ADB). The poverty rate plunged from approximately 50% in 2007 to below 20% in 2012, reports the ADB. "
"IPE 360: A 'pending disaster' in low volatility strategies.
The rush for low volatility assets is one of the most worrying areas of investment markets, according to panellists at IPE’s 360 conference."
"Investors with a long-term investment horizon could reap a premium of between 0.5% and 1.5% a year, according to new research – but a major shift in mindset and expanded skillsets are needed to do so.
The size of the net long-term investment premium depends on investors’ governance, asset size, mindset and investment processes, according to the Thinking Ahead Institute."
"Global Asset Allocation Views 3Q17.
Broad-based, trend-like growth and favorable financial conditions combine to create a supportive backdrop for risky assets. With the U.S. economy progressing into late cycle, recent divergence between bond yields and equity markets raised some concerns, but we expect rates to resume their upward path in the second half of 2017.
A diversified regional equity exposure is best suited to benefit from the pickup in global growth. At the margin we favor Japanese, European and emerging market equities and keep a modest exposure to the U.S., with the UK our least preferred region. We downgrade credit to neutral as it is unlikely to outperform stocks, while it should still beat government bonds.
Core European bonds look set to lead global yields higher over the latter part of the year, so we remain modestly underweight global duration, while the improving growth trends outside the U.S. markedly reduce the risk of a renewed, damaging surge in the U.S. dollar."
"How Asia shapes up 20 years after 1997 financial crisis."
Gains in home sales and home prices point to badly needed strength for household wealth, perhaps in time to save second-quarter consumer spending. There are still plenty of questions over economic growth but high demand for labor and rising demand for housing are two central supports of the American consumer."
With little new economic data, markets focused on the beginning of Brexit talks in Europe. In Asia, the question was whether China would finally be included in the MSCI Emerging Index after three years — it is.
What was lacking in new data this week will be more than made up for in the traditionally heavy last week of the month, and in this case of the second quarter. Japan as usual releases its key monthly data, this time for May. Key inflation data for the euro area will be reported. Undoubtedly it will get heightened attention given the weakness of recent inflation reports elsewhere. The ECB pays close attention to surveys and this time the June EC consumer and business sentiment surveys will be released. And in Germany, the Ifo survey is always monitored closely for German sentiment. Canada posts its monthly GDP for April. With the economy picking up and talk of a possible rate increase by the Bank of Canada, investors will be looking to see if the good news extends to the start of the second quarter."
Implied rate hike probability on July 26th ~2.5%, September 20th ~18.0%; 0% probability of rate cut through June 13th, 2018.
VIX ~10.02. 10-yr treasury vol (TYVIX) ~4.05.
"US Stocks End Mixed To Book Weekly Gains
Wall Street closed mostly in the green on Friday, as oil stabilized but still decline around 4 percent over the last 5 days and booked its fifth weekly retreat. Technology and health-care shares offset sluggish energy equities. The Dow Jones closed flattish at 21396. Contrastingly, the S&P 500 gained 4 points or 0.2 percent to 2438. The Nasdaq advanced 29 points or 0.5 percent to 6265, closing with a strong weekly gain of 1.8 percent. Meanwhile, the Dow Jones and S&P 500 advanced 0.1 percent and 0.2 percent, respectively.
Mexican Peso Appreciates Further After Rate Hike
The USDMXN decreased by 0.8 percent to 17.97 around 1:30 PM NY time on June 23rd of 2017, a day after Mexico's central bank increased the benchmark interest rate by 25 bps to 7.0 percent, in line with expectations and at its highest level in 8 years, as policymakers keep struggling with mounting inflation (of 6.2 percent year-on-year in May of 2017).
Russia Business Confidence Steady In June
Business confidence in Russia was unchanged at -1 in June of 2017 compared to the previous two months. Fewer manufacturers expected production to increase in the next three months (24 percent vs 26 percent in May) while less estimated the demand to remain in the negative territory (-33 percent from -34 percent). Still, the economic situation is considered favorable by only 10 percent of the respondents (the same as in May) and satisfactory by 74 percent (the same as in May). Meanwhile, the number of respondents which expected an improvement in an economic situation in the next 6 months rose to 30 percent (26 percent in May), with economic uncertainty, lack of demand and high taxes seen as the main challenges.
US Private Sector Output Growth Slows In June: Markit
The IHS Markit Flash US Composite PMI Output Index went down to 53 in June 2017 from 53.6 in May. The reading pointed to the slowest pace of expansion in business activity for three months, as output growth slowed for both service sector (PMI at 53 from 53.6 in May) and manufacturing (PMI at 52.1 from 52.7 in May). Still, new work rose the most since January, business optimism rebounded to to its strongest level since the start of the year, and the pace of job creation hit a four-month in June. On the price front, input cost inflation remained softer than April's 22-month high, while average prices charged by private sector firms increased at the fastest pace so far this year.
US Service Sector Expands The Least In 3 Months: Markit
The IHS Markit Flash US Services PMI Business Activity Index fell to 53 in June 2017 from 53.6 in the previous month, missing market expectations of 53.7. The figure pointed to the slowest upturn in service sector output since March while new work increased at the fastest pace since January and employment grew further. Also, sentiment regarding output growth for the next 12 months was the highest since January. On the price front, the rate of input cost inflation was the strongest for two years, boosted by higher staff salaries and rising raw material prices. Also, output prices rose the most since April 2015.
US Factory Growth At 9-Month Low: PMI
The IHS Markit US Manufacturing PMI fell to 52.1 in June of 2017 from 52.7 in May and well below market expectations of 53, flash estimates showed. It is the lowest reading since September of 2016 as output and new business growth slowed, offsetting stronger contributions from job creation and inventory building.
Chile Producer Inflation Highest In 3 Months
Chile producer prices jumped 7.8 percent year-on-year in May of 2017, accelerating from a 7.5 percent rise in the previous month. It is the highest producer inflation since February, as cost went up faster for mining (15.8 percent vs 14.9 percent in April), manufacturing (2.8 percent vs 2.7 percent) and agriculture (0.8 percent vs 0.7 percent). In contrast, prices fell further for electricity, water and gas supply (-2 percent vs -1.6 percent).On a monthly basis, prices increased 0.7 percent, compared to a 1.1 percent decline in April.
Canada Inflation Rate At 6-Month Low Of 1.3%
Consumer prices in Canada increased 1.3 percent year-on-year in May of 2017, easing from a 1.6 percent rise in each of the previous two months and below market expectations of 1.5 percent. It is the lowest inflation rate since November as gasoline prices increased only half of what they rose last month and cost of clothing and footwear fell.
Belgium Industrial Output Falls The Most In Nearly 2 Years
Industrial production in Belgium shrank 4.5 percent year-on-year in April of 2017, following a 5.8 percent jump in March. It is the biggest decline in industrial output since May of 2015 as all sectors contracted: manufacturing (-3.8 percent vs +8 percent in March); mining (-5.8 percent vs +5.2 percent); electricity, gas, steam and air conditioning supply (-10.5 percent vs -6.6 percent) and water collection, treatment and supply (-0.5 percent vs -3.4 percent). On a seasonally adjusted monthly basis, industrial production rose 0.3 percent.
Eurozone Factory Activity Grows The Most In Over 6 Years
The IHS Markit Flash Eurozone Manufacturing PMI rose to 57.3 in June 2017 from 57 in May and beating market expectations of 56.8. The reading pointed to the strongest rate of expansion in the manufacturing sector since April 2011, as new orders increased the most since February 2011, employment growth was almost unchanged from the two-decade high seen in May and manufacturing optimism about the year ahead hit a new record high.
Eurozone Service Sector Expands The Least In 5 Months
The IHS Markit Flash Eurozone Services PMI Activity Index dropped to 54.7 in June 2017 from 56.3 in the previous month and missing market consensus of 56.2. The reading pointed to the slowest pace of expansion in the service sector since January, as output and new business increased at a slower pace and service sector confidence about the year ahead eased. Meanwhile, employment growth remained at the strongest level since early-2008.
German Manufacturing Growth Remains Strong In June
The IHS Markit Flash Germany Manufacturing PMI declined slightly to 59.3 in June 2017 from 59.5 in the previous month, but above market forecast of 59. Still, the reading pointed to the second-strongest overall performance of the manufacturing sector since April 2011. Output expanded at a slower pace while new order growth accelerated to the fastest since March 2011, with demand reported from Europe, America and Asia. Also, jobs rose at the second-fastest rate in over six years.
German Service Sector Expands At Slower Pace In June
The IHS Markit Flash Germany Services PMI Activity Index went down to a five-month low of 53.7 in June 2017 from 55.4 in May and way below market expectations of 55.5. Output increased at the slowest pace since January and new work rose the least in nine months. Also, employment increased at the weakest rate in 14 months.
French Manufacturing Activity Growth Picks Up In June
The IHS Markit Flash France Manufacturing PMI rose to 55 in June 2017 from 53.8 in May and above market expectations of 54. The reading pointed to a faster pace of expansion in the manufacturing sector, mainly boosted by stronger new orders. Also, capacity pressures rose further and employment continued to grow. On the price front, input cost inflation weakened to an eight-month low and output prices rose at the slowest pace since December last year.
French Service Sector Expands At Slower Pace In June
The IHS Markit Flash France Services Activity Index fell to 55.3 in June 2017 from 57.2 in May and way below market expectations of 57. The reading pointed to the slowest pace of expansion in the service sector since January, as output growth slowed. On the price front, input cost rose at a faster pace while average selling prices continued to drop.
Soybeans Hit 14-month Low
Soybeans prices decreased to the lowest level since
April 5th, 2016 on Friday, as wetter conditions in the US boosted prospects for
this year crops. Prices declined around 0.2% to $9 per bushel around 10:00 AM
New York time."
"Former Kellogg distributors accuse the company of 'unjust enrichment,' demanding compensation.
Since Kellogg began moving its U.S. Snacks segment away from the direct store delivery (DSD) model to the warehouse model (also known as “Project K”), the company has been terminating distributor contracts left and right, putting thousands of workers out of a job.
Abe George, the attorney representing the sub-distributors, said his clients borrowed “significant sums of money to acquire the exclusive property rights to distribute these same Kellogg snack products.”"
"Most shippers associate Averitt Express Inc. with its less-than-truckload (LTL) business that serves customers in 13 states in the Sunbelt, the Carolinas, and the Mid-Atlantic. Or with its role in "The Reliance Network," a group of seven regional LTL carriers that pool their resources to provide single-line deliveries across the U.S. and Canada.
At the heart of Averitt's value proposition is a service that few truckers offer: warehouse space embedded in its terminals."
"FTR report makes the case for Twin 33-foot trailers in the LTL sector.
If you ask anyone heavily involved in the less-than-truckload (LTL) sector, what their most pressing need or concern is, there is a good chance that you will be told that five more feet of trailer space, from 28 to 33, is at the top of the wish list for a whole host of reasons."
"Hamburg Süd is meeting transportation requirements for pharmaceutical products specified by the World Health Organization and European Commission by installing software developed by the container manufacturer Carrier.
Reefer equipment is subject to the particularly strict guidelines of the Good Distribution Practice (GDP) scheme."
"Saudi Firms Use Turkey for Qatar-Bound Shipments."
"Alphabet Inc's Google said on Friday it would stop scanning Gmail content for creating personalized ads from later this year, bringing the widely-used email service in line with its enterprise offering, G Suite."
"Beyond Gaming: 13 Industries AR/VR Is Poised To Transform.
From real estate to the military to healthcare, startups are developing AR/VR applications across industries."
"Commercial Building Energy Use Could be Cut by 29%.
A new report finds that if commercial buildings fully used controls nationwide, the U.S. could slash its energy consumption by the equivalent of what is currently used by 12 to 15 million Americans."
"Uber has seen a sharp drop in retention rates for new drivers in the U.S., according to analysis of the Uber driver app provided to TechCrunch by app analytics firm Apptopia.
In an analysis of app downloads and usage, Apptopia estimates that 30-day user retention for the Uber driver app in the U.S. has dropped 47 percent from January through May."
"SpaceX has successfully launched a Falcon 9 to orbit during its BulgariaSat-1 mission Friday. The launch reused a first stage booster first employed during an Iridium Communications mission in January of this year, after that Falcon 9 first stage was recovered and refurbished.
The mission on Friday was to delivery Bulgaria’s first ever geostationary communications satellite into orbit, so that it could begin operations broadcast communication networks and HDTV signals for clients on Earth in parts of Europe. The satellite was built by SSL out of Palo Alto, California."
As an aside, here's the type of Convex Optimization problem used for take-off and landing control. It was a homework in Prof. Boyd's class.
"Video Friday: Self-Driving Potato, NASA at Mars, and Autonomous Sumo Robots."
"Forts and Castles, Volta, Greater Accra, Central and Western Regions.
The remains of fortified trading-posts, erected between 1482 and 1786, can still be seen along the coast of Ghana between Keta and Beyin. They were links in the trade routes established by the Portuguese in many areas of the world during their era of great maritime exploration."
Germany DE: Ifo Survey, 4:00 AM ET
USA US: Durable Goods Orders, 8:30 AM ET
USA US: Chicago Fed National Activity Index, 8:30 AM ET
USA US: Dallas Fed Mfg Survey, 10:30 AM ET
New Zealand NZ: Merchandise trade, 6:45 PM ET