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Thu, 22nd June 2017

Anirudh Sethi Report

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Archives of “March 17, 2017” Day

Tax cooperation might be the real story at the G20

protectionism and currency manipulation are distractions

Protectionism and currency manipulation are the headlines everyone wants to write at the Baden-Baden G20 talks. That would highlight political change and conflict.

But Reuters is reporting that behind the scenes there is broad interest in cooperation on taxation.

Aggressive tax avoidance has finally reached the point where governments are feeling the pinch. They’re afraid of more populist or extreme politics as well and every revelation about a billionaire hiding money offshore and paying no taxes undermines the entire system.

In the long run, that could put a squeeze on tax havens and some financial services firms.

Kashkari: why I dissented to the Fed rate rise

Neel Kashkari, head of the Minneapolis Federal Reserve, chose to fly in the opposite direction of his colleagues on the central bank’s policy-setting board, dissenting to the rate rise early this week. On Friday, he issued an essay on why he made the decision.

Here are the highlights.

Inflation

Mr Kashkari acknowledged that the US economy has been generating higher levels of inflation recently, with the personal consumption expenditures price index ticking up to 1.7 per cent. Most policymakers have interpreted this to suggest that the Fed is not far from reaching its price stability made, but he sees it differently.

Importantly, we have said that 2 per cent is a target, not a ceiling, so if we are under or over 2 percent, it should be equally concerning.

Twelve-month core inflation is at 1.7 per cent, and while it seems to be moving up somewhat, it is doing so slowly, if at all. It is still below target, and, importantly, even if it met or exceeded our target, 2.3 per cent should not be any more concerning than the current reading of 1.7 per cent, because our target is symmetric.

OPEC will need to extend deal to sustain prices

Reuters poll on the OPEC deal

  • 6/10 analysts say that OPEC will extend the deal past June
  • 2 say they don’t need to extend, and 2 couldn’t make up their minds

Probably by the latter part of April we’ll start to hear the strongest comments from producers about whether they want to extend the deal or not.

WSJ: Investors in Asia turned cautious Friday ahead of a G20

Huh, the Wall Street Journal got that right …

A quiet one … I shoulda let them write the Wrap
Meeting of finance chiefs from the Group of 20
Traders are monitoring how China and Japan will react to pressure from Mr. Mnuchin to strengthen their currencies against the U.S. dollar, said Khoon Goh, head of research for Asia at ANZ. “There is a lot of interest if there will be any material changes out of the G-20,” he said.
US Treasury Sec. Mnuchin is expected to urge China, Japan, Germany and other G-20 members to keep their promise to not use their exchange rates for competitive gains
Link to the Journal, may be gated, but you get the gist.

Why China Unexpectedly Hiked Rates 10 Hours After The Fed

As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC’s liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.

The oddly matched rate hikes, prompted Bloomberg to think back to the mysterious “Shanghai Accord” of February 2016, which took place during the peak days of last year’s global capital markets crisis, and whose closed-door decisions – to this day kept away from the public – prompted the market rally that continues to this day. As Bloomberg wrote, the coordinated “response suggests that pledges by the Group of 20 economies a little over a year ago in Shanghai to “carefully calibrate and clearly communicate” policies may not have been hollow after all.”

That said, it was not the first time the People’s Bank of China has acted on the heels of a Fed move. At the peak of the financial crisis, the PBOC cut lending rates after six of its counterparts, including the Fed, had announced a simultaneous rate cut. That October 2008 move enhanced China’s emerging reputation as a global player on the international economic-policy circuit. “Growth divergence is morphing into growth synchronization,” said Chua Hak Bin, a Singapore-based senior economist with Maybank. “Policy divergence was also a narrative for those expecting a strong dollar, but that is moving now to policy synchronization.”

Coordinated or not, as of last night financial conditions in China, like in the US, have become incrementally tighter even if both the Chinese and US stock markets failed to respond accordingly.

Euro hits six-week high after Nowotny hints at rate hike

Nowotny tells Handesblatt rate increase may be on the way

I’m still a bit skeptical on this exact comment. He definitely said that the deposit rate may rise before the main rate and that hikes could come before the end of QE. That’s definitely hawkish.

But there’s also a report that he said a rate increase may be on the way but I want to see the context because others aren’t reporting it. I’m trying to track down exactly what he said but, either way, it’s a hawkish shift and the climb in the euro is the right move.

Technically, there isn’t anything standing in the way of a return to 1.08. What’s really on my mind is if this is the start of a return to 1.15 or 1.40 in the longer term.

This isn’t exactly a classic bottoming pattern but they come in all shapes.

 

Overnight US Market :Dow closed -16 points

S&P down -0.16%. Nasdaq unchanged.  Dow -0.08%

The major US stock indices are ending the trading day little changed in an up and down day.
  • The S&P is down -3.9 points or -0.16%
  • The Nasdaq is up +0.714 points or +0.01%
  • The Dow is down -16 points or -0.08%