Valuable Insights from Around the Web – Mon 10 Jul, 2017

A Potential Significant Change in Money Flows

This post below come from Marc Chandler, Founder and Editor of Marc To Market. Marc will be on the show tomorrow but in the meantime his latest posting is very important.

I have been mentioning over the past few months the massive amounts of money that have been flowing into European ETFs. It was accepted that this was simply a value play as large money managers thought that European stocks were undervalued compared to the rest of the system. Now we might be seeing a change in terms of money flowing out of these ETFs. If this happens I argue that the money will land back in the US and could result in a major boost for US stocks. Let see if that plays out…

Click here to visit Marc’s website for other very informative posts summarizing data from around the world.

According to EPFR, investors were net sellers of European equity funds in the week ending July 5 for the first time since March.  This appears to have ended the longest buying streak in a couple of years.

Rising yields and valuations were thought to have injected a note of caution as well as some re-weighting at the start of Q2.   European equity funds, according to EPFR have taken in $22 bln this year after experiencing outflows of nearly $100 bln last year.

European bond funds, however, continued to draw savings.  The $2 mln inflows into European bonds funds pales in comparison to the $2.2 bln inflows recorded the previous week but does extend the buying spree into a 10th week.   US bond funds also continued to attract flows.  The $.24 bln inflow was the 16th consecutive week that AUM grew.

Japan reported its May portfolio flows alongside its balance of payments report earlier today.  Japanese investors bought JPY1.32 trillion of US Treasuries, the most in nine months.  They also bought JPY906.4 bln of German and French bonds as well.  It was the first time in three months that Japanese investors bought Bunds (JPY315 bln).   They bought JPY591 bln of French bonds, the most since 2015.  For the 13th consecutive month, Japanese investors bought Australian bonds (JPY94.4 bln).

After buying an average of nearly JPY925 bln a week in foreign bonds in May, Japanese investors, tempered their enthusiasm in June, according to weekly MOF data, and were net buyers of a weekly average of about JPY168 bln.  They were net sellers in two of the five reporting weeks in June.

Japanese investors were more consistent buyers of foreign equities.  They bought an average of JPY314 bln a week in May and JPY277 bln a week in June.   Through June 30, Japanese investors bought foreign equities for six consecutive weeks, which is the longest buying spree since late September last year.

For their part, foreign investors turned net sellers of Japanese bonds in June for the first time since March.  The MOF data shows foreigners sold a weekly average of JPY239 bln of Japanese bonds in June after being net buyers of JPY426 bln a week in May and JPY390 bln a week in April.

Foreigners were net buyers of Japanese equities in June, but that was due to the large purchases at the end of May and early June.  Through June 30, foreign investors were net sellers of Japanese equities for the fourth consecutive week.   It is the longest selling streak since March.

Separately, Japan reported an acceleration of direct investment outflows (JPY1.77 trillion).  Reports suggest the foreign direct investment strategies are being pursued by traditionally domestic-oriented sectors that are constrained by the slow growth and the shrinking and aging population.  Financial services and pharmaceuticals have reportedly joined information technology as key sectors.   Japan’s foreign direct investment outflows reached a record last year and appeared to be on pace this year to surpass it.

EPFR reported that inflows into emerging market equity funds slowed last week to their weakest since March.  Of note, Russia experienced outflows, perhaps linked to weaker oil prices and the threat of new US sanctions.  Foreign investors, according to EPFR sold Russian equities for 13 fo the past 15 weeks.  Foreign investors, though bought the most Saudi equities of the year, possibly encouraged by being added to MSCI’s watch list.  China experienced inflows into its equities for the seventh consecutive week.

Also, at the end of June, the IMF reported reserves as of the end of March.   One of the most significant changes in the IMF’s report is the gradual inclusion of Chinese reserves from unallocated to allocated.  From the end of Q1 16 through the end of Q1 17, the dollar value of unallocated reserves fell by nearly $1.1 trillion, while allocated reserves have risen by 1.07 trillion.

In the first quarter, overall reserves rose by $187.12 bln, while allocated reserves to $418.6 bln.  The dollar component rose $205 bln to $5.079 trillion or 64.5%.  It represents nearly a $613.5 bln increase over the past year when it accounted for 65.5% of allocated reserves.  The dollar-value of euro holdings in reserves increased by $92 bln in Q1 to $1.706.5 trillion.  This was 19.3% of allocated reserves compared with 19.5%  at the end of Q1 16.  The euro fell 6.4% against the dollar from the end of Q1 16 to the end of Q1 17.

Sterling’s share of reserves slipped from 4.6% to a little below 4.3% over the past year.  The dollar value of sterling reserves rose by nearly $17.5 bln, and almost $13.2 bln took place in Q1 17.  Sterling has lost 12.6% against the dollar during the same period.  The yen’s shares of reserves increased from 3.6% to 4.6% over the past year   The dollar value of yen reserves rose by nearly $120 bln over the past year, with about half taking place in Q1.  The yen rose 1% from the end of Q1 16 through the end of Q1 17.

The Australian and Canadian dollar’s share of allocated reserves edged higher, but both still account for less than 2% share.  Recall that starting at the end of last year, the IMF began breaking out the Chinese yuan from the catch-all “other category.  At the end of last year, IMF figures show, central banks had about $78.83 worth of yuan in reserves.  As of the end of Q1 17, the dollar value of the yuan holdings increased to $82.63 bln.  The yuan increased about 0.8% against the dollar in Q1.   The slight growth in yuan as a reserve asset underscores two points.  First central banks more at glacial speeds in adjusting reserves and two, formal inclusion in the SDR did not spur a strong demand for yuan as a reserve asset.

Lastly, we note China’s reserves edged higher in June and have now risen for five consecutive months.  Over this five-month span, the dollar value of China’s reserves have increased by nearly $58.6 bln.  US TIC data covers April with the May report due out next week.  In the February through April period,  China says its reserves increased by $31.3 bln , while the US TIC data shows China’s Treasury holdings rose by a little more than $41.1 bln


Comments:
  1. On July 10, 2017 at 1:01 pm,
    CFS says:

    OFF Topic, but still talking about money flows.

    The cost of a young black female slave in the arab markets in Libya is now about $200; that is less than the cost of an Iphone.

  2. On July 10, 2017 at 1:06 pm,
    b says:

    You point out the advantages of crushing the country.
    And we wonder why the U.S. is so loved.

  3. On July 10, 2017 at 1:18 pm,
    Robert Moriarty says:

    B:

    Someone send me something recently showing that in Jordan 83% of the people dislike Americans. Gee, I wonder why. That’s more than any other country including Israel. We provide 10% of their government’s budget.

    • On July 10, 2017 at 1:51 pm,
      Silverdollar says:

      Jordan is home to a huge Palestinian population. Likely has something to do with it.

  4. On July 10, 2017 at 1:19 pm,
    CFS says:

    b, you say I point out the advantages of crushing the country.

    I have, in fact, been universally opposed to the behavior of Obama and the U.S. in interfering in North Africa. I have, in fact, warned of the problems of what the US policy appeared to be; namely helping the formation an Islamic Caliphate of North Africa and the refugee problems that would cause. I have been often the sole voice in this forum in condemning the Islamic culture as an inferior culture; in that it does not permit apostasy or believe in the golden rule and is not a religion of tolerance.

    • On July 10, 2017 at 3:34 pm,
      Bonzo Barzini says:

      CFS, keep up the good work. You are not alone here. Islam delenda est!

    • On July 10, 2017 at 4:59 pm,
      b says:

      Just in case someone misunderstood me.
      I was being sarcastic.

      The americans following, the yinon plan, took a prosperous nation and which seemed to me a close to utopia and turned it into a place with open air slave markets.

      personally I would think progress might be another direction, obviously the american government views thing differently.

    • On July 11, 2017 at 5:17 am,
      Robert Moriarty says:

      CFS:

      You mean to say that Islam is not tolerant of other religions but somehow Israel and the Jews are?

      You are kidding, right?

      Actually you prove every day how common it is for people of every religion to hate other religions. To suggest Islam is one set of beliefs is absurd. There are as many flavors of Islam as there are of Christianity.

      Muslims are sick and tired of being attacked and I can actually quite understand that. The US is under attack by a Middle East nation based on religion and no one cares about that.

  5. On July 10, 2017 at 1:25 pm,
    CFS says:

    The grains are interesting today:
    Ira’s Ag(riculture) TA
    https://youtu.be/VCeWrkmJXNY?t=33

  6. On July 10, 2017 at 1:29 pm,
    CFS says:
  7. On July 10, 2017 at 1:41 pm,
    CFS says:

    Off Topic:
    Australia has just announced it will sign a free trade deal with the UK the very first day after Brexit occurs.

  8. On July 10, 2017 at 1:54 pm,
    CFS says:

    French Minister Says Up To 17 Nuclear Reactor Could Close
    Associated Press – Mon Jul 10, 1:18PM CDT
    PARIS (AP) — France’s environment minister says that as many as 17 nuclear reactors might be closed as part of efforts to move away from nuclear power dependency.

    Speaking on RTL radio Monday, Nicolas Hulot said there were no fixed plans yet but he would shut “a certain number” of France’s 58 working reactors.

    CFS: Je ne sait pas.

    • On July 10, 2017 at 2:16 pm,
      OOTB Jerry says:

      iNtersting

  9. On July 10, 2017 at 3:04 pm,
    Anders from Copenhagen says:

    Interesting coincidence. Many of the uranium stocks seem like turning upwards as the French talk about turning down reactors. Very strange. I will consider dipping my toe into the sector again 😎

    • On July 10, 2017 at 4:07 pm,
      Cory says:

      I too am getting very interested in Uranium again. I will try to set up some more coverage on the sector this month.

    • On July 10, 2017 at 5:42 pm,
      Matthew says:

      Sell the rumor, buy the fact?

    • On July 10, 2017 at 5:45 pm,
      Matthew says:

      Looking at the 30 minute chart of U.TO, uranium stocks could be at or very near a low.

      • On July 10, 2017 at 7:34 pm,
        CFS says:

        Uranium Energy Corp Exercises Option to Acquire the Alto Paraná Titanium Project in Paraguay

        Canada NewsWire

        CORPUS CHRISTI, TX, July 10, 2017

        NYSE MKT Symbol – UEC

  10. On July 10, 2017 at 7:38 pm,
    CFS says:

    SEATTLE (AP) — Seattle’s wealthiest would become the only Washington state residents to pay an income tax under legislation approved by the City Council, a measure designed as much to raise revenue as to open a broader discussion about whether the wealthy pay their fair share.

    The council voted unanimously Monday to impose a 2.25 percent tax on the city’s highest earners. Personal income in excess of $250,000 for individuals and in excess of $500,000 for married couples filing joint returns would be taxed.

  11. On July 10, 2017 at 7:42 pm,
    CFS says:

    Brown announces plan to extend cap and trade through 2030
    By KATHLEEN RONAYNE – Associated Press – 3 minutes ago
    SACRAMENTO, Calif. (AP) — Gov. Jerry Brown and legislative leaders have struck a deal to extend California’s cap-and-trade program through 2030.

    (Jerry Brown is, at least, consistent in his ignorance about “global warming”. Governor Moonbeam.)

  12. On July 10, 2017 at 7:43 pm,
    CFS says:

    WASHINGTON (AP) — Republican divisions over health care multiplied Monday as President Donald Trump pressured GOP senators to act quickly, and Vice President Mike Pence suggested they might have to revert to a straightforward “Obamacare” repeal if they can’t agree on an alternative.

  13. On July 10, 2017 at 7:47 pm,
    CFS says:

    CARSON CITY, Nev. (AP) — An electric car maker said Monday it is deserting its plan to construct a $1 billion manufacturing plant in southern Nevada eight months after suspending the project and sinking at least $120 million into it.

    Faraday Future halted work on the project outside Las Vegas last November, calling the stoppage then a “temporary adjustment” that wouldn’t affect plans to begin production in 2018.

    Faraday Future Chief Financial Officer Stefan Krause said Monday’s decision to scrap the plant was due to a shift in business strategy. The Gardena, California-based company said in a statement that it will now look for an existing facility to produce its electric vehicles in California or Nevada.

  14. On July 10, 2017 at 9:11 pm,
    CFS says:

    TOKYO (AP) — A Tokyo court began hearings Tuesday into charges that the head of the failed Japan-based bitcoin exchange Mt. Gox accessed its computer system and inflated his account by $1 million.

    French-born Mark Karpeles was whisked into the Tokyo District Court after arriving in a white car.

    Mt. Gox shut down in February 2014, saying it had gone bankrupt after losing about 850,000 bitcoins, possibly to hackers.

    Karpeles was arrested in August 2015 and released on bail last year. He has denied wrongdoing. If found guilty, he could face up to five years in prison, or a fine of up to 500,000 yen ($4,000).

  15. On July 11, 2017 at 7:29 am,
    spanky says:

    Monthly bolliger bands on the mining stocks are still generally very wide, but narrowing. Plenty of room and time for them to flush miners one last time.

    GDX stochastics are not even oversold yet on the monthly chart, although they are very close. Another big red monthly candle should take us to oversold. It’s possible the stochastics could turn back up before reaching oversold, but you would be a fool to bet on such an occurrence (even if it does happen). The fact that we are under the 20 month MMA adds to the risk.

  16. On July 11, 2017 at 7:51 am,
    spanky says:

    Assuming the miners are in a bull market, I think there is a good chance that they won’t do anything but stay in a trading range until late 2017 or even early 2018, sort of in line with Doc’s call. I base this mostly off of the 20,2 monthly bollinger bands. Of course, such a trading range could in theory be pretty big on the upside and downside, If you don’t have a position though, I think it is risky to buy them under the 20 MMA and before the stochastics reach oversold. There is absolutely nothing bullish on the monthly chart other than the 20 MMA having crossed above the declining 50 MMA recently. Price needs to get back over that 20 MMA.

  17. On July 11, 2017 at 7:55 am,
    spanky says:

    The Ichimoku cloud on the monthly GDX chart is also saying to be cautious. There is a giant red cloud fast approaching and unless GDX can pierce the lower boarder, it’s down we go. Risk realistically is down to the 17.50-18 region which represents the lowest point on that red cloud.

    • On July 11, 2017 at 8:26 am,
      Matthew says:

      Remember that monthly charts turn more slowly than daily or weekly charts. So they’re not very useful for timing.

      Looking at the weekly charts, it is bullish that GDXJ has held up better than GDX and that GOEX has held up better than GDXJ. GDX is currently below the 200 week MA while GDXJ hasn’t been below it since May and GOEX hasn’t been below it since April of last year. GOEX bullishly looks the best with respect to the I-cloud and its 200 wk MA has been climbing since February.

      It is also a good sign that the seniors have hardly held up better, based on percentage declines, than the juniors since the sector peaked last year.

      GOEX weekly:

      http://stockcharts.com/h-sc/ui?s=GOEX&p=W&yr=3&mn=0&dy=0&id=p37004349874

      • On July 11, 2017 at 8:37 am,
        spanky says:

        It’s nice that AXU is actually inside it’s cloud on the monthly chart. but it could still test the lower border over the next few months. I think we can agree that in the long term (1-2 years out) the action over the next few months will likely be little more than noise. The problem is in the short run, that noise can seem awfully loud.

  18. On July 11, 2017 at 8:09 am,
    spanky says:

    This is my opinion, and I am sure some on this board will be insulted by it, but I have to get it off my chest.

    Nuclear power is only possible under the power of the state. No free society would or could ever support such a destructive and dangerous source of energy. No insurance company would ever underwrite the risk associated with every facet of nuclear power generation. Let’s not even mention the risks nuclear plants pose during wartime. Nuclear power is just stupid. Let the French carpet their country with these abominations. Or if you support nuclear power, let them build a plant in your backyard.

    If you support nuclear power, you are a statist, pure and simple.

    • On July 11, 2017 at 8:29 am,
      Matthew says:

      All that is simply not true, Spanky, but I don’t have an interest in going into it to explain.

      • On July 11, 2017 at 8:42 am,
        spanky says:

        Sorry, no amount of liability insurance is going to cover a Fukushima or Chernobyl. Those disasters for all intents and purposes permanently wrecked private property and will have the knock on effect (increased cancer rates based on pure dose-response) for hundreds of years into the future thanks to the isotopes spreading to the far corners of the world by the wind and water.

        Without the state, nuclear power would never exist.

        • On July 11, 2017 at 10:20 am,
          Matthew says:

          That’s a propaganda site. For example, a July 4 piece begins with: “In the age of Donald Trump and Vladimir Putin, the possible use of nuclear weapons has, horrifyingly, crawled from the dustbin of history.”
          —————

          You’ve got to be kidding. Only complete fools would fall for the author’s implication that Trump is somehow a greater threat than Hillary/Obama/Bush.

          • On July 11, 2017 at 11:06 am,
            spanky says:

            Nice strawman.

          • On July 11, 2017 at 11:35 am,
            Matthew says:

            Credibility is everything and that site is not worth my time.

          • On July 11, 2017 at 11:42 am,
            Matthew says:

            I have to add that those who try to make a case for government force instead of the actions of free people, don’t know very much.

            The freer the markets, the greater the innovations and solutions.

          • On July 11, 2017 at 12:38 pm,
            spanky says:

            What does slant have to do with the facts presented in the article, which is that the state assumes pretty much 100% of the liability risk for nuclear plants???

          • On July 11, 2017 at 12:49 pm,
            Matthew says:

            No, the people assume responsibility. The state has no resources of its own.

          • On July 11, 2017 at 12:59 pm,
            spanky says:

            Huh? That is completely circular logic. Using that logic, there is no state since it is made up of individuals and only has the resources of those individuals at its disposal.

            My point is the free market would categorically reject nuclear power.

          • On July 11, 2017 at 1:06 pm,
            Matthew says:

            No, that’s not the logic. The state clearly exists as it operates by force (violence), not cooperation.

            I know what your point is and your assumption is misplaced.

  19. On July 11, 2017 at 1:03 pm,
    spanky says:

    By your lagic, the USDs is free market money.

    • On July 11, 2017 at 1:09 pm,
      Matthew says:

      No, it exists by force.