Thu, 22nd June 2017

Anirudh Sethi Report


Archives of “February 13, 2017” Day

Greece facing fresh junking without bailout cash, warns Fitch

Greece is at risk of being downgraded further into junk territory should its creditors fail to resolve their latest set of differences over the country’s bailout this month, one of the world’s leading rating agencies has warned.

Ahead of its next decision on Greece in less than two weeks, Fitch Ratings said its current “CCC” junk rating on Greece was contingent on the country securing a successful injection of its latest tranche of bailout cash “well ahead of July” when it faces a major a €7bn repayments crunch.

The warning comes as finance ministers are due to thrash out their differences at a meeting in Brussels on February 20 – their last major discussion before a raft of eurozone elections beginning with the Netherlands in March and ending with Germany in September.

Fitch is due to make its next rating decision days after this month’s meeting of the Eurogroup on February 24. Greece has been unable to raise fresh funding on international markets since 2014, undergoing a fresh €86bn bailout in the summer of 2015 having been bought to the brink of default and introducing capital controls on its banking system.

A rating downgrade would also scupper the Syriza government’s ambitious plans to return to the bond markets before the end of its bailout in the summer of 2018.

Iran official touts oil discoveries

Head of NIOC exploration reports 30 billion barrel find

Press TV reports comments from the head of exploration at the National Iranian Oil Company who says the national oil company has found 30 billion barrels of oil, about 4.7 billion of it discoverable.

What’s unclear based on the initial report is if this is a new announcement or repeating past announcements. The official said the discoveries took place over the past four years, so this is most likely a rehash.

Seyyed Saleh Hendi, the head of exploration, also reported on 128 trillion cubic feet of newly discovered natural gas.

Read the story at PressTV.

Mukesh Ambani’s gas pipeline company’s net worth erodes by Rs 7,966 crore

Even as Reliance Industries is creating ripples in the telecom industry, the net worth of  Mukesh Ambani owned, Reliance Gas and Transportation Infrastructure Ltd (RGTIL) has eroded by a massive Rs 7,966 crore as on September 2016 as low gas supply from RIL’s Krishna Godavari basin hit the pipeline company’s financials. The company owns and operates a 1400 kilometers gas pipeline connecting Krishna Godavari basin to Gujarat and depends on gas production from RIL’s KG basin to earn revenues.

According to Reliance Gas filings, for the financial year 2016 its net worth was negative Rs 2,641 crore (see chart). Reliance Gas said the net worth erosion statement is prepared in compliance with Indian accounting standards and is subject to further transition adjustment as may be required under the Ministry of Corporate Affairs’ guidelines and interpretations.

Reliance Gas, which made profit only once since 2010, said it plans to Rs 4,000 crore by issuing Cumulative Optionally Convertible Preference Shares, the company said on October 25th filings with the stock exchanges. 

India’s GDP growth to slow to 5.7% in Q4: Nomura

India’s economic growth is likely to remain muted in the first quarter of this calender year with the GDP likely to grow at 5.7% in the January-March period amid subdued activity, says a report.

According to the global financial services major Nomura, following subdued growth in the first quarter, a V-shaped recovery is on the cards due to remonetisation, wealth redistribution and the lagged effects of lower lending rates.

“We expect growth to remain subdued in the first quarter of 2017 as the activity level remains below its recent peak,” Sonal Varma chief India economist at Nomura said in a research note. Nomura expects economic growth to remain in a downtrend.

As per the report, from 7.3% GDP growth in the July-September 2016, the October-December 2016 quarter GDP growth is likely to slow to 6% and further to 5.7% in the first quarter of 2017 (January-March).

“We expect GDP growth to slow from 7.3% in Q3 2016 to 6.0 % in Q4 and 5.7% in Q1 2017,” it said.

Rouble hits 58 per dollar for first time since July 2015.Last Hope at 55.68

58-RUBThe rouble climbed to its strongest level since July 2015 on Monday morning, as the Russian Central Bank’s pledge to weaken the currency struggles to convince markets.

The rouble had already been appreciating as oil prices have recovered over the last twelve months, and growing optimism since Donald Trump’s victory in the US election has helped it become the best-performing emerging market currency since the vote, up just shy of 10 per cent.

President Trump’s calls for a normalisation of relations with Russia raised hopes of a relaxation of economic sanctions and encouraged international investors to return to the country.

However, economists have been sceptical the bank would be able to have a big impact on the currency, and it has continued to rise a further 1.6 per cent since the announcement, including a 0.5 per cent rise this morning to take it to 57.99 per dollar.

S.Korea Expects Further North’s Provocations After Missile Test

A man watches a TV news program showing photos published in North Korea's Rodong Sinmun newspaper of North Korea's Pukguksong-2 missile launch and North Korean leader Kim Jong Un at Seoul Railway Station in Seoul, South Korea, Monday, Feb. 13, 2017Seoul expects further “provocations” from Pyongyang following North Korea’s recent ballistic missile test, the South Korean Unification Ministry spokesman said on Monday.

“Given the country’s mentions of a high-angle launch and test of a new type of engine, the country is sending the message that it will not give up its nuclear ambitions, but will continue to engage in provocations down the road,” Jeong Joon-hee said, as cited by the Yonhap news agency.

The spokesman stressed that North Korea’s ballistic missile test posed a “serious military and security threat.”

On Sunday, the medium-range ballistic missile Pukguksong-2 was launched from an airbase in the western province of North Pyongan and traveled around 300 miles before plunging into the Sea of Japan. The test has been declared successful by Pyongyang.

In January, the North Korean Foreign Ministry announced that the country was ready to launch an intercontinental ballistic missile (ICBM) “anytime and anywhere.”

How’s that oil demand picture looking OPEC? – India’s demand at the lowest for 13 years

One part of the OPEC production deal isn’t going according to plan

The main reason for the OPEC deal was to freeze production so that demand eats into the glut of supplies. That’s all well and good until the glaring floor in the plan comes home to roost, i.e demand doesn’t grow or worse, it drops.

So when one of the fastest growing countries sees oil demand fall the most in 13 years, there should be alarm bells ringing at OPEC.

Bloomberg has noted the drop which has seen India’s use of diesel drop 7.8% in Jan. Diesel accounts for around 40% of total fuel use. India also imports around 80% of it’s oil and the IEA said it will be the fastest user of oil through to 2040.

The drop is being tied in with the recent policy crackdown on high value bank notes, which is expected to shrink economic growth. One analyst expects that this is a one off and demand will pick back up in Feb. We’ll see whether he’s right no doubt. If he’s not then this could be a bigger issue for OPEC who will start to think about what to do with the current deal in a couple of months or so.

For me, the demand part of the OPEC puzzle was always the weak link and if demand doesn’t match expectations in relation to this deal, there’s going to be strong calls to expend it.

Who wants to know the latest European Commission economic forecasts?

what, you all do? Your luck is in boys and girls.

  • Eurozone 2017 GDP 1.6% vs 1.5% prior. 2018 1.8% vs 1.7% prior
  • Eurozone inflation 2017 1.7% vs 1.4% prior. 2018 1.4% unch
  • Eurozone unemployment 2017 9.6% vs 10.0% in 2016. 2018 9.1%
  • Eurozone aggregate budget deficit 2017 1.4% vs 1.7% in 2016. 2018 1.4%
  • Eurozone government debt 2017 90.4% vs 91.5% in 2016. 2018 89.2%

They see every EU member state growing in 2016/17 & 18.

For some reason Reuters has specifically noted that the EC see UK growth this year at 1.5% vs 2.0% last year, and at 1.2% in 2018. Official UK forecasts are 2.0% & 1.6% for those periods. Is the EC trying to say something? 😉

Other highlights;

  • German investment to slow to 2.1% in 2017 vs 2.5% in 2016. 2018 2.5%
  • France budget def 2.9% of GDP 2017 vs 3.3% 2016. To rise above EC target again in 2018
  • Spain budget def 3.5% 2017 vs 4.7% 2016. 2018 2.9%

Here’s the full report if you want to see the rest.


Emerging Markets :An Update

EM FX ended last week on a firm note.  Falling US rates allowed many foreign currencies to gain some traction.  This week, a heavy US data slate is likely to test the market’s convictions on the Fed, with January PPI, CPI, IP, and retail sales all being reported.  Yellen also testifies before Congress on Tuesday and Wednesday.    

India reports January CPI Monday, which is expected to rise 3.24% y/y vs. 3.41% in December.  It then reports January WPI Tuesday, which is expected to rise 4.35% y/y vs. 3.39% in December.  The RBI left rates steady last week and moved to a neutral stance.  Price pressures are likely to pick up this year, as the acceleration in WPI inflation suggests.

Poland reports January CPI Monday, which is expected to rise 1.7% y/y vs. 0.8% in December.  If so, this would be the highest since January 2013 and back within the 1.5-3.5% target range.  It then reports Q4 GDP Tuesday, with growth expected to remain steady at 2.5% y/y.  January industrial and construction output, retail sales, and PPI will be reported Friday.  The central bank will find it hard to wait until 2018 to start tightening.
Mexico reports January ANTAD retail sales Monday.  Despite tighter monetary policy and rising inflation, retail sales have remained fairly robust, rising 5.3% y/y in December.  With another 50 bp hike last week, we think it unlikely that consumption can remain firm in 2017.  The next policy meeting is March 30 and it’s too early to say what’s likely to happen then.