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Wed, 26th April 2017

Anirudh Sethi Report

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Archives of “April 13, 2017” Day

Bill Gross: “All Asset Prices Are Elevated To Artificial Levels”

 

Bill Gross’ latest monthly outlook is divided into two sections: in the first, the world’s former bond king provides a revealing glimpse into his mind courtesy of six brainteasers (with answers to questions such as “If forced to choose between killing your favorite pet or an anonymous human being, what would you do?”); in the second he goes back to his favorite topic: slamming the Trump growth narrative Can the Trump Agenda recreate 3% growth?

The answer: he cites an IMF study which suggests that “unless there is an unforeseen technological breakthrough, productivity growth is unlikely to return to the higher rates of the 1990’s for advanced economics or the early 2000’s for emerging economics. In other words, their warning speaks to a global productivity slowdown, not just a U.S. based phenomena. They warn that increasing tariffs and developing restrictions on immigration will only exacerbate the slowdown. Global growth, and of course U.S. growth, will be lower than average, they forecast.”

Which then leads to the following, not unexpected conclusion about assets prices:

 Equity markets are priced for too much hope, high yield bond markets for too much growth, and all asset prices elevated to artificial levels that only a model driven, historically biased investor would believe could lead to returns resembling the past six years, or the decades predating Lehman. High rates of growth, and the productivity that drives it, are likely distant memories from a bygone era.

Trump puzzles traders, but sends European bonds to highest point of the year

“I like a low interest rate policy, I must be honest with you,” Donald Trump told the Wall St Journal yesterday. His comments have further fired up already strong US government bonds, with the effects spilling over into European debt this morning. Like their US counterparts, German 10-year bond prices are now around their strongest point of the year.

Mr Trump’s new comments are not the only weight on global bond yields. Among other things, geopolitical nerves and the failure of his healthcare plans have also imposed a longer-term weight.

Still, 10-year Bund yields have sunk by 0.02 percentage points so far today to 0.175 per cent. (Yields fall when prices rise.) That’s the strongest level for Bunds since late December.

US yields, which exert a strong gravitational pull on other core markets, now stand at 2.32 per cent, the lowest since mid-November.

Some have doubts this will last.

IEA cuts 2017 global oil demand growth by 40k bpd to 1.32mln bpd

International Energy Agency out with their monthly bulletin 13 April

  • global demand estimate for 2017 could prove optimistic as slowdown in OECD nations deepens
  • raises f/cast for non-OPEC supply growth to 485k bpd in 2017 vs 400k prev
  • can be argued confidently that oil market is already close to balance

Sound like suitably dovish tones to me but oil unfazed albeit already its session highs.

Full IEA report here at some point.

China steel company fails to make interest payment on bond

via Reuters:

China’s Dongbei Special Steel fails to make interest payment on 5-year bond due April 12 – FX trading platform operator

No further details at this stage
earlier in April was this:
  • State-owned Dongbei Special Steel Group Co Ltd said it faces “uncertainties” about paying interest on medium-term notes
  • Owned by the Liaoning provincial government in the country’s “rustbelt” northeast, Dongbei formally entered into a bankruptcy restructuring process in October aimed at recovering a reported $10 billion in debt
  • The company has been at the heart of troubles in China’s debt market, defaulting on nine separate bonds last year, and the province is home to other struggling state steel mills such the Anshan Group and the Benxi Iron and Steel Group.

North Korea Tells Foreign Journalists To Prepare For “Big” Event On Thursday

In a potentially concerning geopolitical development, Reuters reports that foreign journalists visiting North Korea have been told to prepare for a “big and important event” on Thursday, although the wire service says there were “no indications it was directly linked to tensions in the region over the isolated state’s nuclear weapons program.”

According to Channel News Asia reported Jeremy Koh, “we’ve been told to be ready to move out at 620am, but no idea why. Also, no cell phones allowed.”

As a reminder, April 15 marks the nation’s 105th birthday of founding president Kim Il Sung, North Korea’s biggest national day called “Day of the Sun”, and around 200 foreign journalists are in Pyongyang to cover it, however why North korea would urge particular attention to a day that falls two days earlier was unclear, although there is precedent: In April, 2012, North Korea attempted to launch a long-range rocket ahead of the 100th Day of the Sun. State media later confirmed the launch had failed.

The mystery grew when officials gave no details as to the nature of the event or where it would take place. That said, similar announcements in the past have been linked to relatively low-key set pieces. In 2016, Reuters adds, foreign journalists underwent hours of investigation by North Korean officials ahead of what turned out to be a pop concert to mark the finale of a ruling Workers’ Party congress.

Meanwhile, tensions are running high, with a U.S. Navy strike group steaming toward the western Pacific in a show of force and North Korea warning of a nuclear attack on the United States at any sign of American aggression.

Visits by foreign journalists to North Korea are rare and tightly coordinated, Reuters adds, and security checks at events attended by leader Kim Jong Un are especially rigorous. North Korea often uses such visits to showcase new construction projects. In recent weeks workers have been putting the finishing touches to the skyscraper-lined “Ryomyong” street in central Pyongyang.