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Published on: Thursday, July 06, 2017

The US Federal Reserve might start “normalising” – that is, unwinding – its US$4.5 trillion ($6 trillion) balance sheet in September, according to the minutes of the June 13-14 meeting of the Federal Open Reserve Committee (FOMC) released overnight. The central bank appears unsettled on the timing of its strategy to reduce the scope of its support for the US economy, by selling down its hoard of Treasury bonds and mortgage-backed securities (MBS). At the June meeting of senior bank officials, “several preferred to announce the start of the process within a couple of months,” according to the meeting minutes.

The “ETF-isation” of the stock market could be distorting it and making it less efficient, according to Bank of America Merrill Lynch. ETFs currently account for 24% of US stock market trading volume, and 37% of equity-fund assets – up from 19% in 2009. Bank of America Merrill Lynch says this may have unexpected consequences for investors, as the average price volatility of stocks with large ownership by passive players has tripled in the past 12 months. The firm says ETF-isation brings “crowding risk,” where crowded stocks underperform‎ neglected stocks, as mutual funds are net sellers and passive funds are net buyers. The higher the percentage of equity fund assets owned by ETFs, says Bank of America Merrill Lynch, the lower is the proportion of active funds outperforming the stock market benchmark.

Oil prices suffered their largest drop in a month overnight, snapping an eight-session winning streak – their longest run of gains since 2010 – after news that Russia ruled out any proposals to deepen global production cuts, and reports of higher monthly exports from OPEC. West Texas Intermediate (WTI) lost US$1.94, or 4.4%, to US$45.13 a barrel, while Brent crude slumped US$1.82, or 3.7%, to US$47.79 a barrel. According to the monthly US drilling productivity report, US crude oil production is at the highest level since early 2016 – and it’s expected to rise in the coming months. Also, the market expects high rigs in 2018, which suggests that crude oil prices could trade lower in 2018.

Australian new vehicle sales reached a record 134,171 in June, up 4.4% on a year ago, according to the Federal Chamber of Automotive Industries (FCAI). In the 2016/17 financial year a total of 1,179,545 new vehicles were sold, up 0.4% on the previous financial year. The rise is being powered by sales of sports utility vehicles (SUVs), which were up by 11.4% in June on a year ago: In the year to June, SUVs represented a record 49.1% of combined passenger car and SUV sales, and accounted for a record 38.3% of all vehicle sales. The fastest-growing vehicle market in the 2016-17 financial year was Victoria, with 8.7% sales growth.

British billionaire Sanjeev Gupta, and his London-based group GFG Alliance, has come to the rescue of thousands of Australian steel industry jobs, with a deal to buy the troubled Arrium operations in South Australia, including the Whyalla steelworks for an undisclosed sum, with the deal expected to be finalised by August. The deal will secure about 1500 Arrium jobs in Whyalla as well as thousands more in other states, and about 1500 in the wider Whyalla community. It ends 15 months of uncertainty, after Arrium was placed in administration with debt of almost $3 billion. The deal is still subject to approval next week by the Arrium Committee of Creditors and the Foreign Investment Review Board (FIRB).

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