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Thu, 22nd June 2017

Anirudh Sethi Report

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Archives of “April 3, 2017” Day

South Africa cut to junk at S&P

South Africa was on Monday cut to “junk” by analysts at S&P Global, sending the country’s currency tumbling anew, after last week’s abrupt cabinet shake-up by President Jacob Zuma.

S&P cut the country’s sovereign’s rating to “BB+” from “BBB-” and said the outlook remains “negative”. South Africa is rated just one notch above junk at Fitch and two notches above junk at Moody’s.

Should Fitch follow suit and strip South Africa of its investment grade rating, that could potentially have a greater market impact because many pension funds and other large investors are required to sell bonds once two separate agencies rate them as speculative grade.

New York-based S&P said that “the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes”.

Currencies traders reacted to the ratings cut, sending the rand tumbling 1.7 per cent to ZAR13.655. It was down by 7.4 per cent last week.

South Africa is the third of the big emerging market economies (BRICS) to be stripped of its investment grade rating over the past two years. Russia and Brazil were both junked in 2015.

Emerging Market :An Update

EM FX was mixed last week.  The rebound in oil helped some, such as COP, RUB, and MXN.  On the other hand, idiosyncratic political risks weighed on South Africa.   This week could pose a challenge to EM, with lots of Fed speakers, FOMC minutes, and US jobs data.

Thailand reports March CPI Monday, which is expected to rise 1.30% y/y vs. 1.44% in February.  If so, this would be moving closer to the bottom of the 1-4% target range.  BOT just left rates steady at 1.5% last week.  We expect inflation to pick up again, and so BOT should tilt more hawkish as the year progresses.  Next policy meeting is May 24, and we expect steady rates again.  

Indonesia reports March CPI Monday, which is expected to rise 3.80% y/y vs. 3.83% in February.   The target range is 3-5%, but Bank Indonesia has signaled that the easing cycle is over, and should lean more hawkish this year if inflation continues to rise.  Next policy meeting is April 20, we expect rates to be kept steady at 4.75%.
Turkey reports March CPI Monday, which is expected to rise 10.70% y/y vs. 10.13% in February.  Inflation is moving further above the 3-7% target range, and the central bank hiked the Late Liquidity Window lending rate 75 bp to 11.75% at its last policy meeting.  If price pressures continue to rise, the central bank may have to tighten again at its next policy meeting April 26.
Korea reports March CPI Tuesday, which is expected to rise 2.1% y/y vs. 1.9% in February.  The inflation target is 2%, and so BOK should tilt more hawkish if inflation continues to rise.  Next BOK meeting is April 13, and we expect rates to be kept steady at 1.25%.  Korea reports February current account data Wednesday.
Hungary reports February retail sales Tuesday, which are expected to rise 3.5% y/y vs. 3.8% in January.  It reports February IP Wednesday, which is expected to rise 3.0% y/y vs. 1.6% in January.  February trade will be reported Friday.  The economy remains robust, and yet the central bank just eased policy more than expected last week.  The cap on 3-month deposits was cut to HUF500 bln for end-Q2 from HUF750 bln for end-Q1.  

India Nikkei/Markit March manufacturing PMI 52.5 vs 50.7 prev

India Nikkei/Markit March manufacturing PMI 3 April

  • 5 month highs
  • output and new orders accelerating

Markit also note relatively muted inflationary pressures

Also out, Ireland:

  • 53.6 vs 53.8 prev
  • 3rd fall in a row
  • mftg output prices 56.2 vs 52.4 prev
  • highest since April 2011

The first of a few mftg PMIs out today.

Welcome To Londonistan: 423 New Mosques; 500 Closed Churches

  • British multiculturalists are feeding Islamic fundamentalism. Muslims do not need to become the majority in the UK; they just need gradually to Islamize the most important cities. The change is already taking place.
  • British personalities keep opening the door to introducing Islamic sharia law. One of the leading British judges, Sir James Munby, said that Christianity no longer influences the courts and these must be multicultural, which means more Islamic. Rowan Williams, the former Archbishop of Canterbury, and Chief Justice Lord Phillips, also suggested that the English law should “incorporate” elements of sharia law.
  • British universities are also advancing Islamic law. The academic guidelines, “External speakers in higher education institutions”, provide that “orthodox religious groups” may separate men and women during events. At the Queen Mary University of London, women have had to use a separate entrance and were forced to sit in a room without being able to ask questions or raise their hands, just as in Riyadh or Tehran.

“London is more Islamic than many Muslim countries put together”, according to Maulana Syed Raza Rizvi, one of the Islamic preachers who now lead “Londonistan“, as the journalist Melanie Phillips has called the English capital. No, Rizvi is not a right-wing extremist. Wole Soyinka, a Nobel Laureate for Literature, was less generous; he called the UK “a cesspit for Islamists”.

“Terrorists can not stand London multiculturalism”, London’s mayor Sadiq Khan said after the recent deadly terror attack at Westminster. The opposite is true: British multiculturalists are feeding Islamic fundamentalism. Above all, Londonistan, with its new 423 mosques, is built on the sad ruins of English Christianity.

Trump Says U.S. Would Act Alone on North Korean Nuclear Threat

President Donald Trump said the U.S. can “totally” address North Korea’s nuclear threat unilaterally if China doesn’t cooperate to put pressure on that nation, according to the Financial Times.

“If China is not going to solve North Korea, we will. That is all I am telling you,” Trump said in an interview published on Sunday. When pressed about whether he could do it one-on-one without China’s help, the president said, “I don’t have to say any more. Totally.”

The comments come ahead of Trump’s planned summit with Chinese President Xi Jinping at the president’s Mar-a-Lago resort in Palm Beach, Florida. The North Korean threat is expected to take center stage at the April 6-7 talks. Trump said he’ll discuss North Korea and the scope for cooperation when he hosts the Chinese leader.

“China has great influence over North Korea,” Trump said in the interview. “And China will either decide to help us with North Korea, or they won’t.” Cooperation with the U.S. “will be very good for China,” he said. If they don’t cooperate, “it won’t be good for anyone.”

 

North Korea has been developing and testing its ballistic missile technology, and South Korean intelligence has warned that North Korea could conduct its sixth nuclear bomb test in the first week of April to “overshadow” the summit.

Trump declined to reveal how he’d pursue the subject, or whether he would begin the talks with the Chinese president by bringing up North Korea and then pivoting to trade with China. He suggested a change in strategy from the past, saying his predecessors telegraphed their actions such as military strikes in the Middle East.