Week 13 2018 In Review

 

US Overview

Stocks recovered a portion of the previous week’s steep losses and recorded solid gains. The week was notable for a sell-off in high valuation technology companies, however, which caused the Nasdaq Composite to lag the other benchmarks. A steep drop in Amazon caused the consumer discretionary sector to join technology and energy stocks among the week’s laggards in the Standard & Poor’s 500 Index. Defensive consumer staples stocks performed well, on the other hand, as did real estate and utilities shares, whose heavy dividends became more attractive as long-term bond yields decreased.

The week got off to a very strong start as the trade war fears that led to much of the previous week’s volatility appeared to fade somewhat. Investors were encouraged by China’s decision—for the time being, at least—not to establish retaliatory tariffs on its imports of U.S. soybeans and commercial aircraft. Reports of talks between Chinese and U.S. officials on opening the Chinese market to U.S. goods and protecting US firms’ intellectual property rights were also encouraging. Monday saw the S&P 500 Index notch its best daily gain since August 2015, but the firm’s traders noted that trading volumes were somewhat disappointing, perhaps indicating a lack of broad conviction in the rally.

Indeed, the market gave back a good portion of its gains on Tuesday with a late-day sell-off in the technology sector. The primary culprit appeared to be a report that the Trump administration was considering a crackdown on Chinese investments in US firms with technologies deemed necessary to national security. Speculation has grown that the administration is pushing back against the Chinese government’s plans to dominate emerging technologies and industries, such as artificial intelligence.

 

Europe

The leading European stock indexes regained some ground for the week but finished the month and the first quarter with losses. The UK blue chip FTSE 100 index led the way, picking up just over 2% heading into the four-day Easter weekend (European markets were closed on Good Friday and will be for Easter Monday), while the pan-European STOXX 600, German DAX, and French CAC 40 each added more than 1%.

 

Japan

Japanese stocks gained in the four days ended March 29, recovering some of their losses from the previous week. The Nikkei 225 Stock Average climbed 2.6% in the four trading days. However, all of the major Japanese market indexes remained substantially in the red for the year to date. The Nikkei was off 7.1%, the broad-based TOPIX Index was down 6.3%, and the TOPIX Small Index had declined 5.7%. The yen strengthened and closed Thursday’s trading at ¥106.44 per U.S. dollar, which is about 5.6% stronger than the ¥112.7 per dollar level at the end of 2017.

An opinion poll conducted by Nikkei/TV Tokyo showed that support for the cabinet of Prime Minister Shinzo Abe plunged by the largest monthly amount since Abe became prime minister in late 2012. The government has become entangled in a scandal related to the finance ministry altering documents related to the sale of public land to a nationalist school operator. Abe’s Liberal Democratic Party (LDP) will hold an election to select its next president by September, which will measure the prime minister’s power within the LDP.

 

China

Trade related concerns between the US and China persisted after the Trump administration announced plans to impose tariffs on $50 billion to $60 billion of Chinese imports and restrict Chinese investments in US technology companies earlier this month. The measures, which led China to promptly announce (but not yet implement) retaliatory tariffs of its own, have stoked fears of a spiraling trade war between the world’s two biggest economies.

The overall impact of the tariffs will likely fall well short of the headline $50 billion and depend on how consumers and producers respond to changing relative prices and to what extent substitutes are available. Much of the damage may result from the uncertainty resulting from possible tariffs and its impact on investment decision-making over time.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

US to Shut $11bn Offshore Voluntary Disclosure Programme

Courtesy of International Adviser

 

The disclosure scheme that allows US taxpayers hiding offshore accounts to come clean and face more lenient penalties will close in September 2018, the Internal Revenue Service (IRS) announced this week.

The IRS said it will start ramping down the offshore voluntary disclosure programme (OVDP) and end it on 28 September.

By alerting taxpayers now, the IRS hopes that those who have not taken advantage of the scheme will be motivated to act.

Acting IRS commissioner, David Kautter, said: “Taxpayers have had several years to come into compliance with US tax laws under this programme. All along, we have been clear that we would close [it] at the appropriate time, and we have reached that point.”

The planned end of the programme also reflects advances in the IRS’s oversight of taxpayers’ assets. This includes the foreign account tax compliance act (Fatca), advances in third-party reporting and increased awareness of US taxpayers of their offshore tax and reporting obligations.

“Those who still wish to come forward have time to do so,” Kautter added.

 

56,000 taxpayers

The OVDP has netted $11.1bn (£8bn, €9bn) for the IRS since it was launched in 2009.

More than 56,000 taxpayers have used one of the programmes to pay back-taxes, interest and penalties.

The number of voluntary disclosures peaked in 2011, when around 18,000 people came forward. That number has steadily declined over the years, with only 600 taxpayers coming forward in 2017.

 

Enforcement

The IRS was quick to add that it will continue to use other tools in its arsenal to combat offshore tax avoidance.

These include taxpayer education, whistleblower leads, civil examinations and criminal prosecution.

Since 2009, the IRS Criminal Investigation unit has indicted 1,545 taxpayers on criminal violations related to international activities – resulting in 671 taxpayers indicted on international criminal tax violations.

Don Fort, chief of the Criminal Investigation unit, said: “The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics.

“Stopping offshore tax noncompliance remains a top priority of the IRS.”

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

Week 11 2018 In Review

 

Stocks fell modestly for the week after a Friday rally broke a four-day losing streak for the Standard & Poor’s 500 Index and partially compensated for earlier losses. Small- and mid-caps outperformed larger shares. Within the S&P 500, utilities and real estate shares fared best, helped by a decline in longer-term Treasury yields, which make their healthy dividend payments more attractive in comparison. Conversely, the much larger financials sector, which sees lending margins squeezed by lower interest rates, was among the market’s weaker segments.

Major trading partners in Asia and Europe appeared to be taking a wait-and-see approach to Trump’s implementation of tariffs. Markets were also unsettled by the dismissal of Secretary of State Rex Tillerson, widely viewed as a free trade advocate within the administration. Also worrisome were what appeared to be reports that President Trump had requested the preparation of a package of tariffs targeting China.

The week’s economic data may have also dampened sentiment. The Commerce Department reported that retail sales declined 0.1% in February, well below the 0.3% rise many expected. February consumer prices rose modestly and in line with expectations, but the absence of an upside surprise seemed to add to worries of a potential slowdown in global growth.

 

Europe has Mixed Week

European equities ended the week mixed amid relatively low trading volumes, disappointing inflation numbers for the eurozone, and political uncertainty about the prospects of a trade war and other geopolitical tensions. At the start of the week, the pan-European benchmark STOXX 600 gained ground following the strong U.S. jobs report the week before. Germany’s DAX 30, Spain’s IBEX 35, and France’s CAC 40 all trended higher, oil prices were steady, and volatile bond yields and interest rate uncertainty were no longer forefront topics. But by midweek, investor sentiment turned more negative. Optimism began to flag following U.S. President Donald Trump’s staffing reshuffles, UK Prime Minister Theresa May’s assertion that Russia was connected to the chemical poisoning of a former spy on British soil, and news of softer-than-expected economic data.

Meanwhile, the European Central Bank (ECB) signaled that it would continue its monetary policy and that it would have to have more confidence that inflation was rising before ending net asset purchases. Eurozone industrial production fell 1.0% in January compared with the month before.

 

China Merges Banking and Insurance Watchdogs

China announced that it would merge its banking and insurance regulators, a long-awaited move that aims to tighten control of the country’s financial sector and curb the risks that have accompanied years of rapid credit growth.

Under a proposal released at the country’s annual legislative meeting, Beijing plans to merge the China Banking Regulatory Commission and the China Insurance Regulatory Commission. The People’s Bank of China (PBOC), the central bank, will gain new powers to draft financial sector regulations, in addition to determining monetary policy.

Combining the nation’s banking and insurance watchdogs marks China’s biggest financial industry overhaul in over a decade. The shake-up comes as Chinese officials are seeking to deleverage the corporate sector and clamp down on riskier lending practices. It also follows a Communist Party congress last October that cemented the authority of President Xi Jinping, who has made containing financial risks a priority as part of a goal to put China on a more sustainable growth path. Earlier in March, China’s party-controlled legislature voted to abolish term limits on the presidency, a move that effectively allows Xi to rule indefinitely.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

 

 

Week 8 2018 – In Review

 

Most of the major indexes ended the holiday-shortened week with modest gains. The technology-heavy Nasdaq Composite Index performed best, helped by strength in semiconductor stocks early in the week. Positive results from Hewlett-Packard gave a further boost to tech shares on Friday. Utilities and materials stocks also performed well, while real estate shares lagged. Consumer staples shares also under-performed, as WalMart sold off early in the week following an earnings’ miss and guidance that disappointed investors.

 

European stocks ended the week flat to mixed amid relatively low volume. Despite a heavy week of corporate earnings reports and positive economic indicators, major indexes in the region were subdued. The pan-European index STOXX 600 index was essentially flat as investors seemed to be on guard about the prospect of rising inflationary pressures. The German DAX 30 ended marginally higher following reports of solid demand for German exports. Britain’s FTSE 100 ended marginally lower, weighed down by some disappointing corporate earnings and a report that the unemployment rate rose slightly in the fourth quarter of 2017.

 

Data suggest that Japan’s manufacturing activity and exports remain positive. Purchasing managers’ index figures released on Tuesday fell slightly to 54.0 in February 2018 from 54.8 in January but remain solidly in expansive territory. Japan’s exports rose 12.2% in January versus the same month last year, exceeding the forecast gain of a 10.3% rise and marking the 14th straight month of gains. Combined with a slight decline in import growth, the rise in exports helped narrow the country’s trade gap to ¥943 billion versus ¥1,092 billion in January 2017. In addition, employment increased at a faster pace and saw its best growth in 11 years.

 

The Week Ahead

 

The second-largest economy in the world (China) will reveal their manufacturing and non-manufacturing numbers for February. Economists are expecting the manufacturing figure to rise from 51.3 to 51.4 in January, and the consensus is for a reading of 55.2 for non-manufacturing, down from 55.3 in January. The manufacturing sector has been growing at a slower rate recently, but keep in mind the September reading was the highest since 2012. Conversely the non-manufacturing industry has risen in the past four months and is near a multi-year high.

On Wednesday, Europe released its CPI figures -the lack of inflation in Europe has been one of the more puzzling aspects of the resurgence in economic activity across the region in recent months. Multi-year highs in PMIs have shown that growth is steady and unemployment is falling, yet inflation has remained stubbornly low. Last week’s final CPI rate for January showed prices at 1.3% and core prices at 1%. While GDP suggests the economy is doing well, consumer spending has remained subdued. With the European Central Bank (ECB) on course to exit its asset purchase program this year, a higher euro will continue to cause problems for the ECB in meeting its inflation target.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

 

Week 7 2018 – In Review

 

US Markets – Worst week in two years is followed by Best week since 2013

Stocks carried over the momentum they had recaptured the previous Friday and recorded their best weekly gain since early 2013. The Nasdaq Composite performed best, helped by solid gains in the stocks of Apple and networking equipment maker Cisco Systems. Along with information technology, the financials, health care, and industrials and business services sectors also outperformed within the S&P 500 Index, while energy shares lagged despite a sharp rally in oil prices on Wednesday. The US indexes ended Friday with gains for the year to date and only 4% to 5% off their January highs.

The market’s rebound appeared to be driven in large part by diminishing fears about higher inflation and interest rates. Wednesday morning’s consumer price inflation data came in a bit higher than expected.

 

European Markets Higher

European stocks ended the week higher, with most major indexes showing strength in a variety of sectors as concerns about rising interest rates and inflation apparently eased. The pan-European STOXX 600 index couldn’t recover the steep losses it logged from the week before, but investor appetite for European shares was nevertheless robust, as the STOXX 600 rose around 3% for the week. Blue chip indexes, including Germany’s DAX 30 and the UK’s FTSE 100, also strengthened. Technology, banking, and natural resources shares were some of the standout performers.

 

Positive European Corporate News

With corporate earnings reports in full swing, most companies were topping earnings estimates. As of the end of the week, 54% of companies listed on the STOXX 600 had beaten estimates, and earnings to date had grown about 17% compared with the first quarter of 2017. Stripping out energy shares, earnings growth was 10%. Similar to the U.S., the strength in earnings mainly came from cyclicals and financials.

 

Chinese New Year shortens their working week

Chinese stocks advanced in a holiday-shortened week, paring some of their big declines from the previous week’s global sell-off, as the country prepared for the Lunar New Year holiday. Each year, China’s economy grinds to a halt during the week-long holiday, the country’s most important annual ritual. Chinese mainland markets are closed from February 15 to February 21 this year, though trading was muted in the days before the holiday’s official start.

Departing from its usual practice, the People’s Bank of China (PBOC) reportedly drained $216 billion from the country’s financial system in the weeks preceding the holiday. The PBOC’s recent austerity—following years in which the central bank routinely pumped money into markets to ensure ample liquidity for banks and investors—was seen as part of Beijing’s ongoing crackdown against excessive risk-taking fueled by readily available money.

For over a year, Chinese officials have acknowledged the dangers imposed by the country’s credit-fueled economic growth and pledged to de-risk its financial system. Many analysts regard China’s deleveraging campaign as long overdue and necessary to forestall a severe credit crisis, which they believe poses a key risk for the global economy. “History suggests that China’s debt overhang, if left unaddressed, could post risks to its financial stability and growth,” the International Monetary Fund warned in a recent working paper on China. “With China’s rising economic footprint and its growing influence on global financial markets, its ability to deflate the credit boom safely matters not only for China, but for the global economy.

 

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286

 

 

 

 

 

 

 

 

 

Week 6 2018 – In Review

 

Stocks Endure Worst Week in Two Years

Stocks suffered their worst weekly decline in two years as investors appeared to worry about rising interest rates and elevated valuations. The major benchmarks fell largely in tandem, and all entered correction territory, declining 10% from their recent highs (the S&P 500 was still up over 13% from a year earlier however).

A sharp rise in average hourly earnings appeared to have set off the market’s slump the previous Friday and worries about rising wage pressures seemed to play a continuing role in the week’s declines. Thursday brought further evidence of a tightening labour market, with weekly jobless claims falling to their lowest level since January 1973, when the U.S. labor market was a little over half its current size. The prospect of increased Treasury borrowing may have also fueled fears of higher bond yields and interest rates.

Legislation sharply increasing both defense and other forms of discretionary spending was signed into law by President Donald Trump on Friday morning. Many expect that the extra spending, combined with recent tax cuts, will force the government to borrow over $1 trillion in the coming fiscal year, the most since the stimulus measures following the global Financial Crisis in 2008–2009.

 

European Stocks Fall in Line

European stocks also fell during a week of volatility and fears about the global ramifications of a broad stock sell-off in the U.S. Earlier in the week, the European benchmark Stoxx 600 posted its biggest one-day percentage drop since June 2016. Despite a brief respite midweek, European stocks continued to slide as the week continued. The UK FTSE 100 Index, whose companies earn much of their revenue from outside the UK, dropped to a one-year low, hobbled both by the global rout in equities and a weakened pound. Germany’s DAX 30 and France’s CAC 40 were also weak. Banks, utilities, and energy stocks were notable fallers.

The week was not devoid of good economic news; quarterly corporate earnings reported during the week were largely positive. China’s demand for European imports remained strong, and French industrial production rose more than expected in its latest reading. In Germany, Chancellor Angela Merkel finally hammered out a new government coalition between her conservative alliance and the left leaning Social Democrats. Despite this, the DAX still remained in negative territory.

 

Europe’s Green Shoots are Sprouting

The European Union is on track to continue its fastest expansion since the global economic crisis, according to economic officials for the 19-member eurozone. Gross domestic product could reach 2.3% in 2018, an increase from the 2.1% that EU officials forecast in November. The global increase in trade, relatively low inflation, and beneficial monetary policy from the European Central Bank are accentuating solid growth in the eurozone. But EU officials noted that slow wage growth and higher borrowing costs could act as weights. Uncertainty surrounding Brexit and other geopolitical tensions were also counterpoints that could dim the growth forecast.

 

UK Inflation Threat?

At its meeting during the week, the Bank of England MPC voted unanimously in favour of keeping the bank rate at 0.5%. However, in its inflation report accompanying the decision, the BoE warned that to bring inflation down toward its 2% target, it may need to accelerate interest rate hikes: “The Committee judges that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target.” UK inflation hit a five year high of 3.1% in November but has since dropped to 3% in the latest reading. Following the BoE’s somewhat hawkish announcement, UK government bonds sold off, as some investors now expect that rate hikes could come sooner than previously anticipated.

 

Japanese Stocks Bear the Brunt of Asian Fallers

The Japanese stock indexes resumed their declines, following the U.S. market’s lead. The widely watched Nikkei 225 Stock Average declined 8.1% (1,891 points) for the week and closed on Friday at 21,382.62. Year to date, all the major Japanese market indexes are lower: The Nikkei is down 6.1%, the broader TOPIX Index is off 4.7%, and the TOPIX Small Index has declined 6.4%. The yen strengthened and closed Friday’s trading at ¥108.8 per U.S. dollar, which is about 3.3% stronger than ¥112.7/dollar at the end of 2017.

 

Sorry its a little late

All the best

Stuart

CEO

Farringdon Group

+60 3 2026 0286