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Thu, 22nd June 2017

Anirudh Sethi Report

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Archives of “March 15, 2017” Day

FOMC Statement from the Federal Reserve Bank for March 2017 -Full Text

The Fed hikes rate by 0.25%

Release Date: March 15, 2017

For release at 2:00 p.m. EDT

Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

Fed hikes rates to range of 0.75%-1.00%, as expected

Highlights of the FOMC decision on March 15, 2017:

  • Prior was 0.50%-0.75%
  • Fed refers to target as ‘symmetric’
  • Kashkari dissented in favor of not hiking
  • Policy to support ‘sustained return to 2% inflation’
  • Inflation expected to stabilize around 2% in medium term
  • Repeats labor market strengthening, job gains solid
  • Business investment ‘appears to have firmed somewhat’
  • Rate hikes to be ‘gradual’, that’s a small change from ‘only gradual’ previously
  • Repeats that near-term risks to outlook ‘roughly balanced’

A bank’s eye view of the FOMC

Here’s what the banks have to say about tonight’s FOMC

SocGen

Anything other than a 25bp rate hike would be a huge surprise to the market, notes Societe Generale FX Strategy.

In that regard, SocGen’s US economists think that an upward adjustment in the Fed’s dots plot is possible to send a signal to the market that the FOMC is serious about normalizing policy.

“The happy medium, where dots rise but not too fast, is the world in which USD/JPY and AUD/JPY thrive,”

Nomura

The USD has gained back some momentum ahead of tomorrow’s FOMC meeting.

In that regard, Nomura Research notes that the market has already priced the likelihood of a March rate hike well, but an earlier hike may improve market confidence in the Fed and its dots.

“Into coming FOMC meetings, the risk of the dots being downgraded is clearly lower, which should be USD positive,”

Atlanta Fed Slashes Q1 GDP Forecast To Just 0.9% Hours Before Fed Rate Hike

While it may not be the very definition of irony, we do find the fact that the Atlanta Fed has just cut its Q1 GDP forecast from 1.2% to 0.9%, a number which if confirmed would be the lowest quarterly print in year, just two hours before the Fed’s rate hike quite humorous. As a reminder, the number was as high as 3.4% one and a half months ago.

From the Atlanta Fed

Latest forecast: 0.9 percent — March 15, 2017 

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 15, down from 1.2 percent on March 8. The GDP growth forecast declined 0.3 percentage points on Friday when the February estimate of the model’s latent dynamic factor used to forecast yet-to-be released GDP source data declined after the employment situation release from the U.S. Bureau of Labor Statistics (BLS). The forecast for first-quarter real consumer spending growth inched down from 1.6 percent to 1.5 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the BLS.

 

Trump and Saudi Prince discussed new investments worth more than $200B – White House

White House on yesterday’s meeting

Saudi Arabia hailed yesterday’s meeting as a “historical turning point” in relations with the United States. He met with Deputy Crown Prince Mohammed bin Salman who is the economic power broker in the kingdom.

The White House said they discussed development of a new US-Saudi program with initiatives including infrastructure and energy worth potentially more than $200 billion.

Here’s one chart that could see the Fed pause on a hike today

It’s all about the wages

The fed hike case is built on a strong consumer led recovery. That’s good when people have money to spend, and when wages give them that money to spend. The wages (average hourly earnings) in the jobs reports report showed pay running at a decent 2.8% y/y. Today we get the inflation adjusted wage numbers in the CPI report and they don’t look as hot.

Last month, year on year real average weekly wages dropped for the first time since the start of 2014.

US real average weekly wages y/y

That’s not good news for the supposedly strong consumer and rate hikes won’t make the situation any better.

I’m quite surprised that the Fed will be raising so quickly after the Dec hike instead of letting that hike filter through, and monitoring the effects. To me that suggests that behind the scenes there’s something they are worried about. If they’re willing to hike in a moment when their whole basis for hikes (the consumer) might start finding things tougher, there’s something amiss.

It’s a straw clutch to try and find anything that could derail the hike tonight but there’s plenty of evidence in why they might throw in some additional caution about future hikes, and the wages numbers today may aid that sentiment.

Marine Le Pen’s Perfect Storm

Polls missed the last two nationalist tremors; they may miss a third

Think of François Fillon as a more polished and experienced Ted Cruz. He might have been president of France until everything came crashing down.

Fillon is a former French prime minister and admirer of Margaret Thatcher whose libertarian-influenced agenda includes a pledge to ax half a million civil service jobs. He was initially dismissed as an also-ran in the center-right Les Républicains presidential primary, up against the seasoned Nicolas Sarkozy and the moderate Alain Juppé. Instead, Fillon thrashed them both, and polls showed him an early favorite for the French presidency, backed by energized conservatives and the Catholic Right. Eschewing first-past-the-post, France holds a runoff election between its top two finishing presidential candidates if neither secures a majority, and forecasts last year showed the finalists would be Fillon and the National Front’s Marine Le Pen. It was to be a rumble on the right, and Fillon was predicted to win in a rout as French leftists and centrists clothespinned their noses and voted to block the radioactive Le Pen.

Saudi King Arrives In Japan: 10 Aircraft, 500 Limos, 500 Tons Of Luggage, 12,000 Hotel Rooms, 2 Golden Escalators

When Saudi King Salman bin Abdulaziz of Saudi Arabia visited Georgetown in September 2015, the Four Seasons hotel did some serious redecorating.  As we reported at the time, eyewitnesses at the luxury hotel had seen crates of gilded furniture and accessories being wheeled into the posh hotel over the past several days, culminating in a home-away-from-home fit for the billionaire Saudi monarch, who was in Washington then for his first White House meeting with President Barack Obama.

Everything is gold,” said one Four Seasons regular. “Gold mirrors, gold end tables, gold lamps, even gold hat racks.” Red carpets were been laid down in hallways and even in the lower parking garage, so the king and his family never have to touch asphalt when departing their custom Mercedes caravan

 The guests staying at the 222-room hotel for the next couple of days are all part of the 79-year-old king’s entourage of Saudi diplomats, family members and assistants, one source said; a full buyout of the entire property was reserved for the visit. Guests who had booked to stay at the Four Seasons during the royal visit have apparently been moved to other luxury hotels in town. A call to the Four Seasons confirmed the hotel is sold out Thursday, Friday and Saturday nights.

Fast forward to this week, when the same King Salman bin Abdulaziz al-Saud landed in Japan, leading to largely to the same reaction, namely people stunned at the size of his delegation and his 500 tons of luggage. The king made quite an entrance, descending from his plane on one of his two golden escalators. The four-day visit, which began Sunday, is part of the Saudi royal’s month-long Asia trip, as the kingdom looks to diversify its economy from oil dependency. Saudi Arabia is Japan’s largest oil supplier.

Leaked Trump filings reported to show 25% tax rate in 2005

Donald Trump paid $38m in taxes on $150m in income in 2005, according to tax filings obtained by MSNBC and a statement from the White House.

MSNBC host Rachel Maddow said the documents had appeared in the post box of Pulitzer prize-winning journalist David Cay Johnston. The figures reported by Ms Maddow and Mr Johnston on his personal site would indicate a tax rate of just over 25 per cent – lower than the top US tax bracket of 40 per cent.

That rate is above the 15 per cent paid by previous Republican party presidential candidate Mitt Romney. When Democratic candidate Hillary Clinton asserted during a September debate that Mr Trump paid no taxes in some years, Mr Trump responded: “That makes me smart.”

Ahead of the scheduled broadcast, the White House on Tuesday evening released a statement revealing the same figures. The statement also criticised the Rachel Maddow Show calling it “desperate for ratings when you are willing to push a story about two pages of tax returns from over a decade ago”.

It added: