Aussie Car Sales Up – Wages Not So Up

Australians could be forgiven if they missed a new record in their economy this week.

Motor vehicle sales, one of the nation’s least-watched economic data, reached an all-time monthly high in May as buyers splashed out on more than 100,000 new vehicles. The buoyant trend appears to defy central bank and economists’ warnings about weak consumer spending amid record-low wage growth and record-high household debt.

Or perhaps things aren’t so bad and Aussies are getting used to tight-fisted employers. While household consumption rose only 0.5 percent in the first quarter, the measure is still just under its 10-year average. At the same time, some things are getting cheaper: car prices have been flat or falling in recent years, and rising slower than workers’ wages, according to Craig James, an economist at Commonwealth Bank of Australia’s securities unit.

“While consumers at the moment aren’t overly chipper about life I think they’ll get used to the fact that wages are growing at a much slower pace than what they’ve done in the past,” said James. “Things have been getting more affordable and that just reflects the fact that our standard of living has been continuing to increase.”

Sales of new motor vehicles rose for the third straight month in May, with annual purchases of sports utility vehicles and other more commercial-type vehicles near record highs. Buyers still aren’t feeling too well-heeled though, with annual growth of luxury cars at five-year lows, according to the Commonwealth Bank.

The Reserve Bank of Australia is hoping Aussies don’t get too complacent about their miserly pay gains. Governor Philip Lowe said as much on Monday, when he encouraged workers to ask for larger wage rises. Company profits are soaring and fatter pay packets would of course help core inflation return to the bank’s 2 to 3 percent target.

But workers’ fears about job security are a big factor holding them back from making demands. And while cars may be an affordable luxury, houses aren’t.

One of the RBA’s biggest concerns is that a mortgage mountain that’s driven household debt to 189 percent of income becomes a long-term strain on spending. While consumption is yet to fall off a cliff, the savings rate dropped to the lowest in almost nine years in the first quarter.

“People are still spending,” said James.  “They’re just spending in different ways.”

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Foreigners Miss Out In Japan

As the Nikkei 225 Stock Average rises toward its highest level in more than two decades, one group of investors has surprisingly missed out.

Since the start of 2016, foreigners have offloaded some $27 billion in the Asian country’s equities. While they were initially right to sell as the Nikkei 225 fell to a 20-month low in June 2016, they’ve been slow to return, even as the measure trades within 4 percent short of its highest close since 1996. In fact, a Bank of America Merrill-Lynch survey published this month showed global fund managers cut their allocations to Tokyo shares.

Strategists say overseas investors, who made big profits plowing money into Japanese equities in Prime Minister Shinzo Abe’s early years, simply took their eye off the ball. They’ve been diverted by markets like Europe, where valuations are attractive and political risk has receded, as far-right candidates lost in French and Dutch elections. For once, Japanese investors are much more optimistic about Japan — pushing two measures of smaller shares to the highest on record.

“Japan doesn’t seem to be foreign investors’ predominant focus,” Shusuke Yamada, chief foreign-exchange and equity strategist at Bank of America Merrill Lynch in Japan, said in a phone interview. “We don’t have big events. It may not be easy for the Japanese market to attract attention.”

The Nikkei 225 has risen 35 percent from that low in June last year, while the Jasdaq Index and the Tokyo Stock Exchange Second Section gauge of smaller stocks, which are dominated by local investors, both advanced to records this week. The Nikkei 225 slipped 0.5 percent Wednesday.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Why People Avoid Nordic Banks

Nordic banks, long considered among the safest in the world, are losing their appeal as an investment target as lenders further south start to look more attractive, according to PineBridge Investments, a multi-asset manager that oversees about $85 billion.

Graeme Bencke, the portfolio manager who heads equity strategy at PineBridge in London, says the circumstances that made banks in Sweden, Denmark, Norway and Finland a “good investment in the post-crisis period” no longer exist.

“Now, we’re in more of an upswing and a lot of the European banks that had been in trouble, southern European in particular, are now starting to see an incremental improvement,” Bencke said in an interview in Stockholm. “So there’s a much bigger inflection point in valuation in those banks than there is in the Nordics. That’s kind of keeping us away from the Nordic banks.”

Investors have so far stayed loyal to banks in the Nordic region, where prosperous and stable economies have been relatively unscathed by the wave of financial shocks to have hit since 2008. Nordic lenders have also tended to take a more cautious approach on capital adequacy. But that investor loyalty has driven up valuations, potentially leaving less room for price gains.

Sweden’s four biggest banks are all in the top half of Bloomberg’s index of European financial stocks, based on price-earnings ratios for next year. Nordea Bank AB, the biggest Nordic lender, has seen its share price soar about 50 percent over the past 12 months, compared with a roughly 35 percent increase in the Bloomberg index.

Meanwhile, banks further south are starting to emerge from years of trouble. In Spain, Banco Santander SA’s recent takeover of Banco Popular Espanol SA (a key test of European resolution rules) shows southern Europe’s banks are successfully dealing with their weakest links. (Though Italy is still trying to figure out how to handle its struggling banks.)

“Southern European banks in particular have a lot of problem assets which had been aggressively marked on the books,” Bencke said. “These banks are now able to offload some of those problem assets at losses that are smaller than the losses they’ve already taken. So we’re starting to see again, assuming the recovery continues, it’s quite a good inflection point for those banks with more difficult assets. Which is something the market’s been waiting for for years.”

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

BRICS Back

Resurgent growth is reviving one of the past decade’s hottest trades.

Emerging-market investors are again piling into the so-called BRIC nations — Brazil, Russia, India and China — pushing monthly inflows and stock prices to nearly two-year highs. The bet is that a pickup in the global economy will fuel demand for the countries’ commodity exports, drive an expansion of middle-class consumption and help them shore up fiscal accounts.

Wooed by India’s efforts to streamline regulations, Brazil’s economic rebound, stabilizing prices for Russian oil exports and China’s stronger currency, traders are warming to the countries’ higher yields and better outlook for equities. It’s an abrupt reversal after they were scorched by a 40 percent drop in the biggest BRIC exchange-traded fund from the end of 2012 through early 2016 as Brazil lost its investment grade, Chinese growth slowed from a meteoric pace, Russia’s oil revenue plummeted and India’s current account deficit swelled.

“Improving fundamentals, attractive valuations, and high yields in a yield-starved world make emerging markets once again attractive, including some of the BRICs,” Jens Nystedt, a New York-based money manager at Morgan Stanley Investment Management overseeing $417 billion in assets, wrote in an email.

Non-resident portfolio flows into BRIC nations rose to $166.5 billion last month, up from $28.3 billion in outflows 12 months prior, according to data compiled by the Institute of International Finance and EPFR Global. Chinese equities saw their biggest quarterly inflows in two years, while traders piled into Indian bonds at the highest level in almost three years, Bloomberg data show.

Mark Mobius, executive chairman of Templeton Emerging Markets Group, favors Brazil, China and India, adding that Russia will also benefit from a growth rebound. Brazilian assets will benefit as Latin America’s largest economy bounces back from two years of contractions, while Chinese investment will pick up as its foreign reserves recover from a six-year low in January, according to Steve Hooker, who helps oversee $12 billion of assets as an emerging-market money manager at Newfleet Asset Management.

Fastest Growth

Coined in 2001 by former Goldman Sachs economist Jim O’Neill, “BRICs” became a ubiquitous shorthand for the fastest-growing emerging economies (other investors later capitalized the S and added South Africa to the mix).

In the decade ending Dec. 30, 2012, developing-nation equities had annual returns of 17 percent, twice those of developed nations. That changed in the taper tantrum years amid fears that the Fragile Five, which included Brazil and India, would struggle to meet high external funding needs. Responding to changing sentiment, Goldman Sachs Group Inc. shut its BRIC fund in October 2015 after losing 88 percent of its assets since a 2010 peak.

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Mt Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

 

South Africa’s Colour Divide Affecting Mining

South Africa’s latest mining overhaul could be mired in a long legal battle after producers vowed to stop the changes even as the government said it’s time the black majority benefits from the country’s mineral wealth.

Mineral Resources Minister Mosebenzi Zwane unveiled new rules for so-called black economic empowerment, including tougher ownership requirements, a community-development tax equal to 1 percent of revenue, and expanded quotas for buying goods and services from black-owned companies.

The Chamber of Mines, which represents South Africa’s biggest producers, plans to start fighting the plan in court as soon as next week.

“This charter’s not going to see the light of day anytime soon,” Peter Leon, the Africa co-chair at law firm Herbert Smith Freehills LLP, said by phone on Thursday. “We’re looking at years of protracted litigation.”

 

Producers are fuming after having been kept in the dark on the details of the updated Mining Charter and the chamber refused to attend a last-minute meeting with Zwane’s department earlier Thursday, saying it wouldn’t be coopted into lending support.

The new rules, which don’t give credit for deals already concluded and from which black shareholders have since divested, will deter investment and serve as a “nail in the coffin” for the industry, said Steve Phiri, the chief executive officer of platinum producer Royal Bafokeng Platinum Ltd.

Court Battle

“We’re confident of our prospects in court,” he told reporters in Johannesburg. “I would not rule out the possibility of this matter being decided by the highest court in the land.”

Miners would still prefer to reach a negotiated solution but are prepared to fight the changes if needed, Chamber of Mines President Mxolisi Mgojo told reporters.

Under the new rules, companies must ensure that their South African assets are 30 percent black-owned within 12 months, up from a previous level of 26 percent. If upheld, several of the country’s biggest mining companies would have to sell new stakes, raising the risk of dilution for existing investors.

“The value destruction is hard to quantify and the uncertainty will persist,” Liberum Capital Ltd. analysts including Ben Davis said in a note. “What is certain is that South Africa continues to be a terrible destination for mining investment and assets in South Africa will continue to trade at a discount.”

South Africa holds the biggest reserves of platinum, chrome and manganese and mining companies operating in the country include Anglo American Plc, Glencore Plc and AngloGold Ashanti Ltd.

White Male

The push for increased black ownership of the industry is part of an effort to address the legacy of apartheid and, with its highly paid, mainly white, male executives overseeing hundreds of thousands of workers laboring in some of the world’s deepest and most dangerous operations, the mining industry is starkly symbolic of the country’s persisting inequalities. Yet critics say many deals have mainly benefited the politically connected elite and deter foreign investors.

Mining companies may also be getting caught in the cross hairs of local politics and posturing ahead of the ruling African National Congress’s leadership conference in December, said Theo Venter, a political analyst at North West University’s business school in Potchefstroom, west of Johannesburg.

The party will seek an urgent meeting with Zwane on the charter and is concerned about potential job losses as a result of the new charter, it said on Thursday.

“Given the fact that the mining industry has shed about 60,000 jobs in the last five years, we don’t want legislation that will add to that bloodbath,” ANC spokesman Zizi Kodwa said by phone.

The ANC conference will pit rival factions, including one led by President Jacob Zuma, against each other.

“This is part of an effort by the Zuma faction to provide hard evidence that they are trying to put radical economic transformation into practice,” Venter said. “They are saying: ‘We are not only talking, we are doing something.’”

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Low Oil

Oil traded near the lowest closing level in seven months as U.S. gasoline supplies unexpectedly rose for a second week.

Futures were little changed in New York after slumping 3.7 percent Wednesday, the first drop in four sessions. Motor-fuel stockpiles expanded by 2.1 million barrels last week, the Energy Information Administration reported. Most analysts surveyed by Bloomberg had forecast a decline. Crude output climbed while nationwide inventories fell less than predicted.

Oil has declined almost 8 percent this month amid speculation that rising U.S. supplies will offset output curbs by the Organization of Petroleum Exporting Countries and its allies, including Russia. New production from OPEC rivals will be more than enough to meet demand growth next year, the International Energy Agency said Wednesday in its first forecast for 2018.

“Any build in U.S. commercial stocks gives us an indication of the uphill battle OPEC is facing,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. “Although last week the big bearish surprise came in the form of significant builds across the board, this time around gasoline was responsible for the consequences.”

West Texas Intermediate for July delivery was at $44.70 a barrel on the New York Mercantile Exchange, down 3 cents, at 10:01 a.m. London time. Total volume traded was about 46 percent above the 100-day average. Prices dropped $1.73 to $44.73 on Wednesday, the lowest close since Nov. 14.

Brent for August settlement was up 10 cents at $47.10 a barrel on the London-based ICE Futures Europe exchange. Prices slid $1.72, or 3.5 percent, to $47 on Wednesday. The global benchmark crude traded at a premium of $2.14 to August WTI.

U.S. crude stockpiles dropped by 1.66 million barrels last week, the EIA reported Wednesday. Inventories were forecast to decline by 2.45 million, according to the median estimate in a Bloomberg survey. Production rose by 12,000 barrels a day to 9.33 million barrels a day.

Oil-market news:

  • The Qatar crisis is reverberating in Libya, inflaming political divisions in the war-torn oil exporter and dragging commodity-trading giant Glencore Plc into a dispute over crude sales.
  • Iraq is driving up crude-oil exports to the U.S., the world’s second-biggest import market, just as there are signs Saudi Arabia is honoring a pledge to restrict such deliveries, according to tanker-tracking data.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

People Getting Serious About Marijuana

The taboo’s about even discussing the green weed have slowly relaxed over the last decade. It’s medical benefits have long been lauded despite the obvious stigma.

Imperial Brands Plc gained the services of a leader in the field of medicinal cannabis as the British tobacco manufacturer seeks to further its push beyond cigarettes.

Simon Langelier, a 30-year veteran of Philip Morris International Inc., joined the board as a non-executive director this week, the Bristol-based company said in a statement Tuesday.

Langelier is chairman of PharmaCielo Ltd., a supplier of medicinal-grade cannabis oil extracts. He joined the Canadian-based company in 2015 after a career at Philip Morris that included heading up the next-generation products unit from 2007 to 2010. Imperial stands to benefit from his experience in tobacco and “wider consumer adjacencies,” Chairman Mark Williamson said in the statement.

About 18 months after jettisoning the word “tobacco” from its name, the appointment advances Imperial Brands’s efforts to move beyond its main product, as smoking rates in developed nations dwindle. While focusing on e-cigarettes, Imperial previously resisted another alternative to cigarettes — heated tobacco devices, but that stance could be easing. Philip Morris’s main reduced-risk product is a heated tobacco device called iQOS.

In May, Imperial’s Chief Development Officer Matthew Phillips said the company was assessing whether demand for heated-tobacco devices would pick up outside of Japan, where iQOS has captured 7.1 percent of the country’s cigarette market since its launch in 2015. The company could have a product on the market within months, if needed, he said.

“Imperial’s one-pronged strategy in next-generation tobacco isn’t particularly wise,” Eamonn Ferry, an analyst at Exane BNP Paribas, said by phone. “It’s sensible that they appear to be now softening their stance on heat-not-burn, given the success of the format in Japan.”

At Philip Morris, Langelier established a joint venture for the worldwide commercialization of the company’s smoke-free products.

His experience at PharmaCielo will be beneficial in helping Imperial eke out opportunities should marijuana be legalized at the federal level in the U.S., Ferry said. The expertise tobacco firms have in crop farming and distribution has spurred speculation that they may eventually seek to enter the cannabis market. Cowen & Co. estimates the U.S. part of the industry will surpass $50 billion in sales this decade.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.