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Fri, 26th May 2017

Anirudh Sethi Report

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Archives of “May 20, 2017” Day

Emerging Markets :An Update

  • China’s government approved the creation of a bond link between Hong Kong and the mainland.
  • S&P upgraded Indonesia one notch to investment grade BBB- with stable.
  • Fitch revised the outlook on Vietnam’s BB- rating from stable to positive.
  • Egypt will announce a package of social spending soon.
  • Moody’s changed the outlook on Poland’s A2 rating from negative to stable.
  • Brazil press reported that meat-packing company JBS has submitted compromising tape recordings to the Supreme Court.
  • Chile central bank surprised markets with a 25 bp cut but signaled a move to a neutral bias.

In the EM equity space as measured by MSCI, Hungary (+2.6%), Indonesia (+2.0%), and Peru (+1.4%) have outperformed this week, while Brazil (-11.1%), Poland (-1.8%), and Egypt (-1.7%) have underperformed.  To put this in better context, MSCI EM fell -0.3% this week while MSCI DM was flat.

In the EM local currency bond space, India (10-year yield -11 bp), Korea (-7 bp), and Peru (-4 bp) have outperformed this week, while Brazil (10-year yield +155 bp), Argentina (+28 bp), and Turkey (+22 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 8 bp to 2.25%.

In the EM FX space, SGD (+1.3% vs. USD), ZAR (+1.0% vs. USD), and THB (+0.9% vs. USD) have outperformed this week, while BRL (-4.6% vs. USD), ARS (-3.1% vs. USD), and INR (-0.5% vs. USD) have underperformed.

Rouhani Re-elected Iran President In Landslide Victory

Iran’s moderate leader Rouhani secured a second term with a landslide victory in Friday’s presidential election, winning 57% of the vote and giving a decisive victory to pro-reform groups eager to open up the Islamic republic and re-engage with the outside world, Reuters reported. Rouhani’s hardline opponent, senior cleric Ebrahim Raisi who was running for office for the first time, a protege of Iran’s Supreme Leader and the custodian of a religious charity worth tens of billions, came in second with 38.5% said Abdolreza Rahmani Fazli, Iran’s interior minister.

Iran’s Supreme Leader Ayatollah Ali Khamenei praised Iranians for their big turnout, with some 73% said to have voted. The vast turnout prompted Iran to extend the voting deadline by two hours on Friday. Many voters said they came out to block the rise of Raisi, one of four judges who sentenced thousands of political prisoners to death in the 1980s, regarded by reformers as “a symbol of the security state at its most fearsome.”


Iranian President Hassan Rouhani casts his vote during the presidential election in Tehran

A Trillion Dollar Down Day

After reaching a record market cap of $74.1 trillion this week, global equities saw almost $1 trillion evaporate in a single day

As Bloomberg notes, concern over Donald Trump’s administration and a political crisis in Brazil pushed the MSCI All-Country World Index down 1.5 percent in the past two days, the most since September.  

Coming Week Eye on :Trump, Fed minutes, Opec

Investors will keep a close eye on US politics next week as US President Donald Trump’s first foreign trip coincides with a growing White House scandal at home.

Here’s what to watch in the coming days.

Trump

The nine-day tour will also see Mr Trump visit Israel and continue on to Rome before heading to a Nato summit in Brussels. The meeting comes as the president’s attempts to give Nato a more formal role in the anti-Isis coalition has faced resistance from France and Germany. Mr Trump will also attend a G-7 meeting in Sicily.

The overseas trip comes with Mr Trump under siege at home following revelations that he pressed James Comey, the FBI director who was abruptly dismissed last week, to drop a probe into the Trump administration’s ties with Russia. Mr Comey has been invited to testify before Congress on Wednesday.

Further complicating matters, new Russia claims were published just after Mr Trump departed Washington on Friday, casting more clouds over the trip even as it got underway.

Fed minutes

Overnight US Market :Dow closed +142 points.

The S&P 500 finished the day 0.7 per cent higher at 2,381.73 — despite the lat- week rally, it finished the week down 0.4 per cent. Meanwhile, the Dow Jones Industrial Average finished Friday 0.7 per cent higher at 20,804.84 but was off 0.4 per cent over the week.

The tech-heavy Nasdaq Composite climbed 0.5 per cent to 6,083.70 on Friday and clocked a 0.6 per cent loss over the week.

The jitters surrounding Mr Trump also took their toll on the dollar, which fell 2.1 per cent over the week for its biggest five-day drop since April 2016.

However, oil prices rallied ahead of next week’s Opec meeting, with markets expecting Opec and Saudi Arabia to agree to extend their output cut agreement by another six to nine months. West Texas Intermediate, the US crude marker, rose 5.3 per cent over the week to $50.37 a barrel, while Brent crude, the global oil benchmark, gained 5.6 per cent to $53.65 a barrel.