Press review - page 109
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The euro ended the week close to two-and-a-half year highs against the dollar on Friday, one day after European Central Bank President Mario Draghi said the strong euro was dragging down inflation in the euro area.
Monday, March 17
- The euro zone is to release data on consumer price inflation, which accounts for the majority of overall inflation.
- The
U.S. is to publish data on manufacturing activity in the Empire State,
as well as reports on industrial production and long term securities
transactions.
Tuesday, March 18- The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
- The U.S. is to produce data on consumer inflation, in addition to reports on building permits and housing starts.
Wednesday, March 19- The Federal Reserve is to announce its federal funds
rate and publish economic forecasts for inflation and growth. The Fed
statement is to be followed by a press conference with Chair Janet
Yellen.
Thursday, March 20- Germany is to release data on producer price inflation.
- Political leaders and finance ministers from the European Union are to hold the first day of an economic summit in Brussels.
- The
U.S. is to publish the weekly report on initial jobless claims, as well
as data on existing home sales and manufacturing activity in the
Philadelphia region.
Friday, March 21Time To Buy China? (based on asiaconf article)
After the recent correction, China stocks are worth accumulating. We like consumer-related plays, with internet stocks topping the list.
China banks are factoring in a credit crisis. This is important as these banks have the largest weighting in Chinese stock market indices. For instance, they comprise 33% of the H-share index. The prices of these banks imply a non-performing loan ratio (NPL) of 7%, versus the 1% reported and 3.2% provisioned in the third quarter of last year. The 7% implied NPL is at the upper end of historical crisis scenarios globally.
What to buy
The focus of any buying of China stocks should be on what I term “new China”. That is, stocks in sectors which should benefit from the country’s switch to a more consumption-driven economy.
Internet stocks should be the first port of call. They have many structural tailwinds. China’s internet penetration rate stands at just 40%, about the level of the US in 2000. Only 25% of households have a personal computer, indicating ample room for growth. Lastly, the smartphone installed base, currently at close to 300 million, is expected to hit 400 million in 2014.
Among the Chinese internet stocks, our current preferences are Sohu, Baidu and NetEase.
Sohu operates a search engine called Sogou, in which Tencent recently took a stake. Sogou will be merged with Tencent’s search engine SoSo. This should lead to a significant turnaround in Sohu earnings.
Baidu is China’s Google, operating the country’s largest search engine. It’s in prime position as advertising transitions more to mobile devices.
NetEase produces online games. These games have a huge following. The company has also developed its first mobile game and mobile news dictionary. NetEase is hugely cash generative and around 30% of its market capitalisation is now net-cash. That leaves room for share buybacks and/or increased dividends.
The consumer sector is also one to like. While consumer staples are expensive, retailers aren’t. While the latter faces considerable short-term headwinds, some are priced for it. I like Giordano, a pan-Asian discount retailer with significant exposure to China. It has a great track record and sports a single digit price-to-earnings ratio and sustainable dividend yield of +7%.
Finally, Chinese insurers operate in an under-penetrated industry which should benefit as incomes improve. PICC has a stronghold on property and casualty insurance and is reasonably priced.
2013-03-17 10:00 GMT (or 11:00 MQ MT5 time) | [EUR - CPI]
if actual > forecast = good for currency (for EUR in our case)
==========
Euro zone CPI unexpectedly slows to 0.7% in FebruaryConsumer price inflation in the euro zone rose less than initially estimated in February, underlining concerns over the threat of deflation in the region, official data showed on Monday.
In a report, Eurostat said consumer price inflation rose by a seasonally adjusted 0.7% last month, down from a preliminary estimate of 0.8%. Euro zone inflation rose by 0.8% in January.
The rate remains firmly below the European Central Bank's target of near but just below 2%.
Software will replace more people says Gates
Software King of the World Sir William Gates III said that software will start replacing more people and US secondary schools may not be able stay ahead of software automation.
Mincing his words, Gates dubbed the process "software substitution" or systems capable of doing jobs now done by people.
Gates, in an interview with the American Enterprise Institute reckons that 20 years from now labour demand for a lot of skill sets will be substantially lower, and he does not think people have that in their mental model.
The impact of automation on the labour market, whether it's for drivers, waiters or nurses, is progressing and low income jobs are being eliminated by globalisation.
Now the quality of automation, software artificial intelligence, is improving fast enough that you can start to worry about middle class jobs. The US has lost manufacturing and union wage scales. Those were middle class jobs. "Automation is doing that, the wage differential is tilted, the more education you get, and the higher you are going to be paid and the tilt of that is much higher. It's really that low end that's been impacted the most," said Gates.
The only way for a person to survive is through improving US education. The US has to do a better job educating its workforce.
EURUSD Technical Analysis March 17 2014 (based on forextv article)
EUR/USD maximum top for this week 1.3983, but the all important 1.3963 must also break higher. I see 1.3963 as a vital peak. Maximum low: 1.3803 but the all important 1.3836 and 1.3811 must also break lower. Price appears overbought, shorts are recommended.
USDCAD Technical Analysis March 17 2014 (based on investing article)
The U.S. dollar was lower against its Canadian counterpart on Monday, as disappointing U.S. manufacturing activity data weighed on the greenback, although a downbeat economic report from Canada limited the loonie's gains.
USD/CAD hit 1.1045 during European afternoon trade, the pair's lowest since March 13; the pair subsequently consolidated at 1.1070, shedding 0.32%.
The pair was likely to find support at 1.0980, the low of March 7 and resistance at 1.1153, the high of March 12.
USDJPY Technical Analysis March 17 2014 (based on fxstreet article)
The USD/JPY continues to trade near the top of today range, although it has pulled back slightly from highs after failing to break above the 101.85 area.
The USD/JPY came under strong pressure last week amid risk aversion and dropped more than 200 pips before finding support at the 101.20 zone on Friday. The pair recovered Monday but with the bounce capped by the 101.90 zone, it was confined to a phase of consolidation. At time of writing, the USD/JPY is trading at the 101.60 zone, recording a 0.3% gain on the day.
QE Continues To Be Misunderstood (based on Forbes article)
In the Wall Street Journal, David Malpass of Encima Global LLP says this:
“Rather than creating or printing money, as is often assumed, the Fed borrows heavily from banks to buy bonds, setting arbitrarily low interest rates and diverting credit away from job creators….“The Fed didn’t create any extra currency or private bank deposits. To make their loans to the Fed, banks had to reduce other assets. In 2013, the banking system’s total assets grew less than $900 billion, requiring roughly $100 billion in reductions in other types of bank assets to make room for loans to the Fed. Through February, the banking system had lent over 18% of its entire assets to the Fed, $2.6 trillion of the $14 trillion in total assets.”
It’s a plausible story, and if correct it would be a massive indictment of FOMC policy in recent years. No wonder Malpass claims that tapering is “….good news for small businesses, jobs and living standards.” But is it correct?
Here is the record of growth of base money, i.e. bank reserves and notes & coins in circulation.
2013-03-18 00:30 GMT (or 01:30 MQ MT5 time) | [AUD - Monetary Policy Meeting Minutes]
==========
RBA Minutes: May Keep Rates Steady For 'Some Time'
The members of the Reserve Bank of Australia's monetary policy board said that the RBA may well keep its benchmark interest rate steady indefinitely, minutes from the central bank's March 4 meeting revealed on Tuesday.
The members said that the benchmark could be maintained for "some time" as long as it was warranted by the economic conditions.
"At recent meetings, the board had judged that it was prudent to leave the cash rate unchanged, while noting that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected," the minutes said.
The board said that the lower exchange rate for the Australian dollar was helping the economy and likely would continue to do so.
At the meeting, the RBA maintained its main cash rate at a record low 2.50 percent for a seventh successive month, and indicated a period of stability in monetary policy, as inflation pressures remained high.
"The pace of growth of Australia's major trading partners appeared to have remained around average. Domestically, timely indicators were consistent with some improvement in economic conditions over recent months, and there were further signs that the expansionary setting of monetary policy was having the desired effects. Indicators had been generally positive for consumption, housing investment, business conditions and exports," the minutes said.