Thu, 22nd June 2017

Anirudh Sethi Report


Archives of “February 6, 2017” Day

Donald Trump’s Early Foreign Travel Schedule Unveiled

After two weeks of vigorously signing executive orders, 20 as of February 6, undoing Obama-era regulations, and engaging foreign leaders in often heated exchanges by phone, Trump is gearing up to make offshore visits to, as Axios puts it, “reedem himself as a diplomat” in coming months. According to the AP, his phone call readout reveal significant upcoming overseas travel, “and Europe is the destination.”

Some details: “Trump has been burning up White House telephone lines calling his world counterparts and, during those talks, has committed to several trans-Atlantic trips.”

 He spoke Sunday with NATO Secretary-General Jens Stoltenberg and agreed to attend a NATO leaders’ meeting in Brussels in late May. Trump once dismissed the trans-Atlantic military alliance as “obsolete.”

Trump spoke with Italian Prime Minister Paolo Gentiloni on Saturday and promised to attend a late May summit of the Group of Seven leading industrial nations in Taormina, Italy.

In talks last weekend with German Chancellor Angela Merkel, the White House says Trump accepted her invitation to the Group of 20 economic summit in Hamburg, Germany, in early July.

Here is a quick summary of his key upcoming trips courtesy of Axios:

European Indices closed in Red

European stock market close 6 February 2017

  • FTSE -0.2%
  • Cac -0.9%
  • Dax -1.1%
  • Ibex -0.2%
  • FTSE Mib -2.2%

European bonds

  • Italy 2.38% +11bp
  • Spain 1.78% +10bp
  • Portugal 4.24% +7bp
  • Germany 0.370% -4bp
  • Greece 7.65% +13bp

Mario Draghi: “Equity Prices Are In Line With Fundamentals”; SocGen Disagrees

Moments ago, during a hearing of Economic and Monetary Affairs of the European Parliament, in his prepared remarks Mario Draghi said that “support from our monetary policy measures is still needed if inflation rates are to converge toward our objective with sufficient confidence and in a sustained manner.” Confirming that no changes to the ECB’s monetary policy are due in the near future,  Draghi said that “underlying inflation pressures remain very subdued and are expected to pick up only gradually”, adding that “risks to the euro area outlook remain tilted to the downside” but “relate mainly to global factors”, because the “lack of momentum in underlying inflation reflects largely weak domestic cost pressures” and the “still significant degree of labor market slack and weak productivity developments are weighing down on wage growth.”

While he conceded that “acute deflation risks have disappeared and that inflation is set to pick up over the coming years” he remains “prepared to increase the ECB’s asset purchase programme in terms of size and/or duration.”

In short, his canned dovish statement meant to appease Garman hawks, well mostly Schauble, who over the weekend blamed Draghi himself for the weaker Euro.

What was most interesting however, was Draghi putting on his asset manager hat on – recall that the ECB is the biggest hedge fund in the world, actively managing assets amounting to 37% of the eurozone’s GDP – and opining on European asset values, and when discussing the “potential risk of credit or asset bubbles” he said that “currently, we do not see compelling evidence at the euro area level of stretched asset valuations. Both corporate bond spreads and equity prices appear to be broadly in line with fundamentals” (surprisingly, he did at least concede that “the longer the accommodative measures need to be kept in place, the greater the risks of unwarranted side effects on the financial system become”).

The Economist Warns “The World Must Prepare For Trouble” Under Trump

If the scenes of anarchy in Berkeley last week were not enough to strike fear into the hearts of free-speech-supporting average Americans, then The Economist just turned the fearmongery amplifier to ’11’ in its latest op-ed describing the ‘insurgency in The White House’.

Washington is in the grip of a revolution, The Economist begins…

 The bleak cadence of last month’s inauguration was still in the air when Donald Trump lobbed the first Molotov cocktail of policies and executive orders against the capital’s brilliant-white porticos. He has not stopped…

…In politics chaos normally leads to failure. With Mr Trump, chaos seems to be part of the plan. Promises that sounded like hyperbole in the campaign now amount to a deadly serious revolt aimed at shaking up Washington and the world.

To understand Mr Trump’s insurgency, start with the uses of outrage. In a divided America, where the other side is not just mistaken but malign, conflict is a political asset. The more Mr Trump used his stump speeches to offend polite opinion, the more his supporters were convinced that he really would evict the treacherous, greedy elite from their Washington salons.

His grenade-chuckers-in-chief, Stephen Bannon and Stephen Miller, have now carried that logic into government.

Americans who reject Mr Trump will, naturally, fear most for what he could do to their own country. They are right to worry, but they gain some protection from their institutions and the law. In the world at large, however, checks on Mr Trump are few. The consequences could be grave.


Without active American support and participation, the machinery of global co-operation could well fail…


If Mr Trump truly wants to put America First, his priority should be strengthening ties, not treating allies with contempt…


America’s allies must strive to preserve multilateral institutions for the day after Mr Trump, by bolstering their finances and limiting the strife within them. And they must plan for a world without American leadership.


A web of bilateralism and a jerry-rigged regionalism are palpably worse for America than the world Mr Trump inherited. It is not too late for him to conclude how much worse, to ditch his bomb-throwers and switch course. The world should hope for that outcome. But it must prepare for trouble.


Read more here (if you dare)…

Scared yet? You should be… except President Trump is seemingly enacting exactly what the American people want and voted for – which is an awkwardly democratic thorn stuck in the paw of the establishment lion, who is salivating stubbornly hoping his drool can eviscerate the painful insurgent. Three words are what they must truly come to comprehend – four more years.

German Default Risk Spikes To Highest Since Brexit As Merkel Lead Plunges To Multi-Year Low

Germany’s Social Democrats narrowed the gap with Chancellor Angela Merkel’s bloc to the closest in more than four years, reinforcing a poll bounce after they chose outsider Martin Schulz to challenge Europe’s longest-serving leader. As Bild reports, the 6-point surge in opposition support was the biggest ever recorded for the party… and may explain why German sovereign risk spiked to its highest since Brexit.

As Bloomberg reports, support for the SPD jumped 8 percentage points to 29% from a month earlier, the highest level since the last election in September 2013, according to the Infratest-Dimap for broadcaster ARD. Merkel’s Christian Democratic-led bloc, known informally as the Union, slid 3 points to 33%. Half of those surveyed would support Schulz if the chancellor were elected directly, compared with 34% for Merkel.

‘No case’ for relaxing Russia sanctions – Boris Johnson

The UK government is insistent that there is “no case” for relaxing sanctions against Russia following a resurgence of violence in eastern Ukraine, the foreign secretary has said.

Speaking before a meeting of EU foreign ministers in Brussels on Monday morning, Boris Johnson said “the UK will be insisting that there is no case for relaxation of sanctions, [there is] every case for keeping up the pressure on Russia”.

Mr Johnson said “everybody’s very concerned” about a recent upsurge in violence, though he added there was “a bit of murkiness about who initiated that”.

Eurozone IFO Q1 business climate sentiment 17.2 vs 8.2 prev

Eurozone IFO Q1 business climate sentiment report 6 Feb

Says IFO:

“Economic sentiment in the euro area continued to firm this quarter. The Ifo Economic Climate improved to 17.2 balance points in the first quarter from 8.2 balance points previously. Expectations are far more positive than last quarter. The experts surveyed also assessed their current economic situation more favourably. The economic recovery is gathering impetus.

The best economic climate currently prevails in Lithuania, Ireland, The Netherlands, Slovenia and Germany. In Austria, Finland and Spain climate balances improved markedly and turned positive; in France and Latvia improvements were also positive, but to a lesser extent. Greece, Italy and Portugal are the only euro area countries in which the economic climate remains unfavourable.”

It’s Time To Start Worrying About China Again

One year ago, S&P futures would tumble the second a flashing red headline noted that things involving China, the Yuan, or the PBOC were not playing out as expected. One year later, the market has forgotten it ever cared about the world’s biggest debt bubble.

However, the time may have come to once again start worrying about China.

With China coming back from its week-long holidays last Friday, a very important event took place under the radar, and was largely missed by the broader investing public masked by the relentless noise out of Washington and the January payrolls report: China has resumed tightening. For those who missed it

“this morning China announced an unexpected tightening of policy when it raised rates on 7, 14 and 28-day reverse repos by 10bps to 2.35%, 2.50% and 2.65% respectively. That’s the first increase in the 28-day contracts since 2015 and since 2013 for the other two tenors. Keep in mind that this is the first working day following the New Year holiday in China, so it seems to be a decent statement of intent by the PBoC.

Additionally, the SLF rate was increased to 3.1 percent from 2.75 percent. The implicit tightening sent Chinese stocks lower, with the Shanghai Composite closing down 0.6%, and accelerating the selloff in Chinese 10Y government futures.