Thu, 22nd June 2017

Anirudh Sethi Report


Archives of “April 19, 2017” Day

FTSE wipes out the year’s gains at the close

European stock market close 19 April 2017

  • FTSE-0.3 %
  • Cac +0.4%
  • Dax +0.2%
  • Ibex +1.2%
  • FTSE Mib +2.0%

European bonds

  • Italy 2.29% +3bp
  • Spain 1.68% +1bp
  • Portugal 3.82% +1bp
  • Germany 0.205% +5bp
  • Greece 6.70% -9bp

The damage was done yesterday to the FTSE but today it’s seen red YTD. The majority of that is due to the rise in the quid affecting it’s value.

April 25 Is “Highest Probability” Day For North Korean Nuclear Test China Warns

According to a report by Korea JoongAng Daily, China appears to be preparing measures in case North Korea tests a nuclear device or performs another provocation, including possibly suspending oil to the regime, and adds that relations between Beijing and Pyongyang appear frostier than ever before.

Additionally, the Korea publication references the Chinese-language Boxun News, which cites a Beijing source, according to whom Chinese President Xi Jinping attempted to send Wu Dawei, China’s special representative for Korean Peninsula affairs, to Pyongyang after his summit with U.S. President Donald Trump, but North Korean leader Kim Jong-un allegedly rejected Wu’s visit.

Boxun adds that it was unclear if North Korea did not conduct a sixth nuclear test last Saturday because of Beijing’s warning not to do so, however it adds that according to “analysts” there’s a high likelihood of a provocation on the 85th anniversary of the founding of the North Korean People’s Army next Tuesday and the days leading up to the South Korean presidential election on May 9.

Citing its Chinese source, Boxun said that “China believes there is the “highest possibility” of a nuclear test on April 25, but “does not leave out the possibility it might take action in early May.”

One assumes the Carl Vinson, wherever it may be in the world currently, will eventually make it to North Korea by then.

Meanwhile, South Korean officials cited by JoongAng Daily confirmed that Wu, China’s top nuclear envoy, during a visit to Seoul last week said he proposed to visit Pyongyang in person to persuade the North to refrain from further provocations but he was spurned.

China has yet to stop its runaway property bubble

Wu Jianying, a company employee in Beijing, visited her father’s hometown in Hebei Province, in mid-March. In Wen’an County, a one-and-a-half-hour drive south from the capital, she heard a strange rumor: The government might soon place restrictions on property purchases. In such a rural town, she wondered.

On April 1, China Central Television, the state TV broadcaster, reported in its evening news that the Communist Party and the State Council had decided to build a large city in Hebei Province. The new city, Xiongan New Area, would be created in an area adjacent to Wen’an.

 Real estate transactions have since been forbidden in Xiongan. It is rumored, however, that condominium prices rose from 6,000 yuan ($871) per sq. meter around noon on April 1 to 24,000 yuan later that evening after the news.

“A group of speculators from Beijing had collected cash and had been actively looking for and buying properties for half a year,” read an internet post. Although definite plans for the new city were unknown, just who had bought Xiongan real estate and how they did it became hot topics online.

Speculative money has also poured into real estate around Xiongan, prompting Wen’an County to restrict property purchases since April 5 in order to halt another asset bubble from forming like the ones in Beijing and Shanghai, where prices have continued to rise.

OPEC/non-OPEC to hold meeting on 25 May in Vienna

Confirmation of the planned meeting 19 April

  • OPEC to study decision on extension to output cuts prior

Another date for your diary if not already pencilled in

WTI currently $52.76 and Brent $54.84 both treading water still.

Japan’s 10Y Yield Drops Below Zero Again: All Eyes On The BOJ

With every other asset class roundtripping the November election outcome, it was only a matter of time before Japan’s 10Y JGB – which on February 2 briefly peaked above the BOJ’s “yield curve controlling” 0.10% yield ceiling, rising as high as 0.15% to the shock of a market ready to declare that Japan had finally lost control of its bond market – retraced the entire “reflationary” move from 0.0% to 0.1%. And, sure enough, following today’s violent deflationary capitulation moments ago Japan’s JGB 0.1% of 2027 once again dipped back under 0%, sliding as low as -0.003% on Wednesday morning in Japan.

What happens next?

According to traders, focus will turn to whether the BOJ, in pursuing “yield curve control”, will reduce the amount of JGBs it monetizes.  “Amid favorable environment for bonds, focus is on BOJ as whether there will be a reduction in purchase amounts will test the bank’s tolerance for 10-year yield falling into negative,” Katsutoshi Inadome, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, wrote in note according to Bloomberg.

As a reminder, in the BOJ’s latest “rinban” or open market operation, it bought around 280bn yen of 1-to-3, 350bn yen of 3-to-5 and 450bn yen of 5- to-10-year maturities at previous operation. And material declines from these amounts may lead result in the market roiling again, on fears the BOJ is being forced into an involuntary taper by external deflationary forces.

Meanwhile, the USDJPY continues to track treasury yields tick for tick, and as Yujiro Goto, senior FX strategist at Nomura in London said, the “dollar/yen remains top-heavy with yields falling and weak U.S. economic data. It’s hard to take risk aggressively ahead of the French election, keeping it in 108-109 range.”

Which means that while continued declines in Japanese yields are virtually assured all else equal, it will be up to the BOJ to telegraph to the market just how low it will let the 10Y drop. Should Kuroda unveil another “taper”, the result may be the uncoordinated move in global bond markets, leading to a negative feedback loop of JGB selling and TSY bond buying, which incidentally is the worst case scenario for global central bankers whose primary intention over the past year has been to achieve as much rate coordination as possible.

Nikkei 225 closes up +0.07% at 18,432.20

Japanese equities close mixed with yen jury still out 19 April

  • high 18467.73
  • low  18327.33
  • Topix -0.1% at 1471.42
  • USDJPY 108.65 running into a few sellers into 108.80

Expect more offers/res around 109.00 then 109.20-25 then 109.50. Demand/support at 108.50 then 108.30

Overnight US Market : Stocks end the session in the red but off low levels

S&P down -0.29%, Nasdaq down -0.12%

The US major stock indices are going in the red but well off the lows.
  • S&P index is closing down -0.29% at 2342.18. The low reached 2334.54. The high peaked at 2348.35
  • Nasdaq index is ending down -0.12% at 5849.47. The low for the day reached 5828.56 while the high peaked at 5860.04
  • The Dow fell -113.64 points to 20523.28. The high stalled at 20600.12. The low 20462.28. The Dow was hurt by Goldman Sachs which fell -4.72% and Johnson & Johnson, which was down over 3%. Both had disappointing earnings.