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Mon, 26th June 2017

Anirudh Sethi Report

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Archives of “May 18, 2017” Day

European Indices down (sans Italy) but off the lows

Down but not a disaster…

The European stocks are down on the day, BUT the major indices are ending off the lows.
  • German Dax is ending the day down -0.3%.
  • UK FTSE is down -0.9%
  • France’s CAC is down -0.6%
  • Spain’s Ibex is down -0.6%
  • Portugal’s PS120 is down -0.85%

The lone wolf in the bunch was the Italian FTSE MIB which eked out a gain of 0.07%.

Although down, a disaster was averted. The snapshot at the start of the NY session showed the following changes:
  • German Dax down -0.73%,
  • UK FTSE -1.03%,
  • France’s CAC down -1.01%,
  • Spain’s IBEX -1.64%, and
  • Italy’s FTSE MIB -1.60%
That is a pretty good comeback for the major European indices.
How has 10 year yields done today?
  • Germany 0.346%, -3.2 bp (was down -5.2 bp at the start of the NY day)
  • France 0.803%, -3.2 bp (was down -4.7 bp)
  • UK 1.063%, unchanged (was down -2.8 bp)
  • Spain 1.567%, unchnaged (was down -3.5 bp)
  • Italy 2.151%, unchanged (was down -4.3 bp).

US Student Debt Soars to $1.3 Trln, Hurting Household Purchasing Power

US student loans, having boomed in the past 8 years, surged to their all-time highest at an aggregated $1.3 trln, representing roughly 11 percent of total outstanding household debt in the US, with over 7 mln borrowers unable to serve their obligations.

The situation is significantly holding back the improvements in consumer sentiment, offsetting recent improvements in the labour market, and limiting the prospects of US economic growth.

With some 72 percent of the US GDP driven by consumer purchases, the mounting concerns over student loans, especially non-performing loans (NPLs), are becoming an increasingly prominent factor is assessing the prospects of any further economic acceleration. Particularly so, as the Federal Reserve is normalising the US monetary conditions with borrowing costs going up, the issuance of the debt and refinancing of existing loans is now more expensive, and the downside risks of the monetary policy are increasingly prominent in the projected dynamics of the broader GDP expansion.

According to the Federal Reserve Bank of New York, during the past 15 years, the burden of student loans in the US economy has increased from just 3.3 percent of overall household indebtedness in 2003 at $240.7 bln to the current $1.3 trln, or 10.6 percent of total household debt. About 44 mln Americans currently have a student loan to service, and about every sixth borrower has defaulted on their obligations.

Brazilian Bloodbath: Currency Halted, Futures Crash, Bonds Tumble Most On Record

As first reported last night, Brazil has plunged back into yet another political crisis less than a year after the impeachment of Dilma Rouseff, when a report in Brazil’s O Globo newspaper revealed that President Michel Temer was involved in an “hush money” cover-up scheme involving the jailed former speaker of the lower house of Congress, Eduardo Cunha, who was the mastermind behind the impeachment of Rouseff.

Already an impeachment request against Temer has been filed by the opposition, although it was unclear who would replace him or what the process would look like. If Temer resigns or is impeached, Congress would elect an interim president until the next scheduled vote in October of 2018. An early election could only be held with a constitutional amendment approved by lawmakers.

 

And while most Brazilian asset markets were closed at the time, a Brazilian stock ETF trading in Japan, gave an indication of what to expect: a drop of about -8%.

In retrospect it may have been optimistic, as moments ago the Brazilian real was halted for trading after crashing 6%…

World Money: Five Hidden Signals From The IMF

Less than a month ago a handful of the world’s policy makers gathered in Washington at the International Monetary Fund (IMF), no surprising headlines were run – but an obscure meeting and a discreet report launched exclusive signals for the next global economic crisis.

The panel, which included five of the most elite global bankers, was held during the IMF’s spring meetings to discuss the special drawing rights (SDR) 50th anniversary.  On the surface the panel was a snoozefest, but reading beyond the jargon offers critical takeaways.

The discussion revealed what global central banks are planning for a future crisis and how the IMF is orchestrating policy for financial bubbles, currency shocks and institutional failures.

Why the urgency from the financial elites?

In his opening remarks Obstfeld identified, “There has been increasing debate over the role of the SDR since the global financial crisis. We in the Fund have been looking more intensively at the issue over whether an enhanced role for the SDR could improve the functioning of the international monetary system.”

“The official SDR is something we are familiar with but is there a role for the SDR in the market or a market SDR? What is the SDR’s role for the unit of account?”

Here’s the five most important signals from the world money panel, what they could mean for the international monetary system and the future of the dollar.

1. China Spars for the SDR Market

Sweden Inches Closer To Cashless Society As Churches And Homeless Now Accept Plastic

The citizens of Sweden are perhaps closer to completely giving up a component of their individual sovereignty than any other country on earth.  In a world where government’s abuse of power and intrusion into the personal lives of its blissfully ignorant enablers grows more disturbing by the day, at least for now, cash offers the one opportunity to transact in a truly anonymous way.

That said, Swedes are ditching their physical currency at a breakneck pace with notes and coins in circulation dropping consistently for the past 6 years and down over 15% in 2016 alone. 

According to the following chart from Bloomberg, notes and coins in public circulation dropped to an average of 56.8 billion kronor, just $6.4 billion, in the first quarter of this year, the lowest level since 1990 and more than 40% below its 2007 peak with the pace of the decline accelerating to its fastest ever in 2016.

Nikkei 225 closes down -1.32% at 19,553.86

Soggy tones overall as USDJPY continues to flounder 18 May

  • high 19601.53
  • low 19449.73
  • Topix -1.32% at 1555.01
  • USDJPY 111.23 after the rally from 110.53 to 111.33

Expect offers/res between 111.35-50. Bids/demand into 111.00, 110.80 and 110.50 again.

In Australia the S&P/ASX200 closed down 0.94% at 5731.90