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Sat, 27th May 2017

Anirudh Sethi Report

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Archives of “March 1, 2017” Day

Weekly US DOE crude oil inventories +1501K vs +3000K expected

Weekly oil inventory data from the Department of Energy

  • Prior was +564K
  • Gasoline -546K vs -1500K exp
  • Distillates -925K vs -1000K exp
  • Cushing +495K vs -400K exp
  • Refinery utilization +1.7% vs +0.15% exp
  • Production up 0.3% to 9.032mbpd

API data released yesterday showed crude +2500K, gasoline up 1840K and distillates down 3730K, according to reports.

Oil ticked higher on the headlines, hitting a session high of $54.44.

30Y Yields Tops 3% As March Rate Hike Odds Spike Above 80%

An avalanche of hawkish Fed speakers appear to have got their way as March rate-hike odds have extended yesterday’s move to 82% this morning. As stocks soar after a more presidential Trump, bond yields are also rising, catching up to stocks after diverging for two weeks.

From 24% to 82% in 3 weeks… did the economic data shift that much?

Umm no…

Budapest scraps bid to host Olympics

Budapest has cancelled its bid to host the 2024 Olympic games, after Hungarian prime minister Viktor Orban accused opponents of “murdering” the country’s Olympic dreams.

City councillors voted to withdraw the bid on Wednesday, less than a fortnight after Momentum – a new political movement – presented a petition with more than 266,000 signatures calling for a vote on the multi-billion forint proposal.

Rather than fight a referendum on hosting the Summer games, Mr Orban’s government dropped support for the bid after the petition was handed in, criticising Momentum campaigners for dividing opinion.

Upcoming Crucial Events in MARCH

T.S. Eliot tells us that April is the cruelest month.  A great poet he was, but a trader he was not.  Caesar was warned about the Ides of March, and investors may find the caution to be particular apropos now.   Consider the congestion of events around March 15. 
A few days before, March 9 is ECB meeting.  Although no policy change is likely, the press conference often elicits a market response.  Headline inflation is moving toward the target, though core inflation remains stable and just a little above the 0.6% trough.  Still, the risks of deflation have all but disappeared, while growth looks solid and above trend.  
The following day the US reports February employment figures.  The early call is for a modest slowing of net new jobs from 237k in January to 178k.  Such a report would still be solid and above any month in Q4 16.  The three- and six-month averages have converged at 183k.  Investors will also focus average hourly earnings.  The median is a 0.2% increase, which given the base effect (flat report last February), is consistent with an increase in the year-over-year pace back toward 2.7% where it was in the September 2016-November 2016 period.  It then ticked up to 2.8% in December before falling back to 2.5% in January.  
On March 15 itself, the FOMC meets, and the Dutch hold the first European election of 2017.   The market perceives an increased risk of a rate hike at the March meeting.  However, in our ranking of Fed signals, we put more weight on the FOMC statement and the speeches by the Fed’s leadership than the regional presidents, many of whom seem more anxious to normalize monetary policy.  We do not see the FOMC statement or the minutes from the lastmeeting indicating a rate hike.  The word cues were different than before the December 2015 or December 2016 meetings.   

Dollar hits six-week high

The dollar hit its highest level in more than six weeks on Wednesday morning, amid a sharp increase in bets that the US Federal Reserve will raise interest rates this month.

The dollar index hit 101.78 on Wednesday morning, its strongest level since January 12th and a 0.3 per cent rise on the day, following hawkish comments from an influential member of the Federal Reserve’s policy-setting board.

The probability that rates will rise when the Federal Reserve meets this month shot up from 50 per cent to 80 per cent yesterday after William Dudley, head of the New York Federal Reserve, said that the prospects for adding to the December 2016 rate increase had become “a lot more compelling”.

The rise in the dollar sent the pound to its weakest level in more than three weeks at $1.2348. The US currency was up 0.7 per cent against the Japanese yen at Y113.5 while the euro fell 0.3 per cent to €1.0544.

The Fed meets on March 14-15.

February 2017 Eurozone Markit manufacturing PMI 55.4 vs 55.5 exp

February 2017 Eurozone Markit manufacturing PMI data report 1 March 2017

  • Flash 55.5. Jan 55.2
  • New orders 56.1 vs 56.0 prior

Another new high for the PMI. Up to its best since Apr 2011. Same for new orders.

The recovery in European manufacturing goes on. The euro is finally helping exporters as export orders jumps to the highest in nearly 6 years.

Prices rose once again but fortunately on both sides. Input prices rose the fastest since May 2011 and output prices followed them at the fastest rate in nearly 6 years. That’s good news on the margin front.

Eurozone manufacturing PMI

Moody’s: India’s economy picks up after demonetization; reform agenda on track

Moody’s Investors Service expects Indian economic growth to continue to pick up as liquidity conditions normalize, supporting expectations that the economic disruption caused by demonetization will be short term in nature.

Moody’s conclusions were contained in its just-released report on Indian credit, “Economic Slowdown from Demonetization Wanes; Credit Implications Unfolding”.

The Indian government (Baa3 positive) announced its demonetization measures on 8 November 2016 with the withdrawal of all INR500 and INR1,000 notes, or approximately 86% of the banknotes in circulation by value.

The Moody’s report provides an update on the implementation of demonetization and subsequent remonetization, the impact on the economy, and the credit implications for the government, companies, banks and the structured finance market.

The recovery in the total stock of currency in public circulation, which had declined from about INR17 trillion before demonetization to a low of INR7.8 trillion in early December, before rebounding to about INR9.8 trillion in early February 2017, illustrates this incremental improvement in liquidity. Looking ahead, we expect remonetization to continue at a similar pace.

Moody’s expects GDP growth to moderate to about 6.4% in the January to March 2017 quarter from 7.0% in the October to December 2016 quarter, before picking up above 7.0% thereafter, as the temporary drag from demonetization fades.

Moody’s further notes that sales in India’s real-estate and auto sectors are gradually recovering after falling sharply in the immediate aftermath of demonetization and expects the trend to continue over the second half of this year.

Steel production also took a substantial hit following demonetization, but has rebounded quickly and is currently performing better than anticipated. Meanwhile, demonetization has had little impact on India’s rated oil and gas refining and marketing companies, in line with Moody’s prior expectations.

On the other hand, the slowdown in economic activity has weighed on demand for credit among retail borrowers. We expect this trend to continue over the next few months and for asset quality to deteriorate in the current quarter, although Indian banks have sufficient buffers to withstand the impact.