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Fri, 23rd June 2017

Anirudh Sethi Report

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Archives of “June 3, 2017” Day

Toyota-Tesla tie-up goes kaput

Toyota Motor has terminated its business and capital partnership with U.S. electric car maker Tesla, The Nikkei learned on Saturday.

Going forward, the leading Japanese automaker will try to speed up its development of electric cars by consolidating the technologies of affiliated parts makers at a unit launched late last year.

 Toyota is said to lag its rivals in electric vehicle development.

Toyota in 2010 paid $50 million for about a 3% stake in Tesla. Around the same time, it paid $42 million for part of the site of a joint venture it once had with General Motors, thinking the old plant could be updated and used for producing electric cars.

In 2012, Toyota released the RAV4 EV, an SUV, with Tesla-made batteries.

But the partnership was short-lived. Toyota stopped sourcing lithium-ion secondary batteries from Tesla in 2014. There has been virtually no collaboration between Toyota and Tesla since 2015, according to a Toyota representative.

As of March 2016, Toyota held about 2.34 million Tesla shares, which meant it owned more than 1% of the California company. By the end of last year, Toyota had sold all of its Tesla shares.

EU mulling secret plan B for Greece, sources say

In the wake of last week’s Eurogroup impasse, European officials are mulling a plan B for Greece that would sideline the International Monetary Fund, curb debt relief and reduce the need for austerity after 2019, Kathimerini understands.

According to sources, European officials have already started discussing an alternative plan that could be put into effect in the fall, after September elections in Germany, which have made Berlin cautious of any politically contentious moves.

The plan being considered would ensure that the IMF is no longer in the “driving seat of the Greek bailout program,” the sources said, adding that it would offer Greece less debt relief than it had hoped for but also less austerity in 2019 onward, after the current bailout has expired.

That would mean Athens could revoke some of the tough austerity measures it pushed through Parliament last month. The pension cuts and tax increases are due to come into effect in 2019 and 2020 respectively.

However, a worse deal for Greece as regards debt relief would be a hard sell for the government of Prime Minister Alexis Tsipras, who has basically reneged on all pre-election promises and is keen to deliver something concrete with respect to the country’s debt. His government has already started shifting its narrative away from an insistence on a “comprehensive solution on the debt” to a “solution that will pave the way for accessing the markets.”

Emerging Markets: An Update

  • The Indonesian cabinet is discussing revisions to the 2017 state budget.
  • The Thai central bank plans to reform some FX rules.
  • South African President Zuma survived the no confidence vote within his own ANC.
  • Brazil’s central bank signaled a slower pace of easing ahead after it cut 100 bp again.
  • Moody’s cut the outlook on Brazil’s Ba2 rating from stable to negative.

In the EM equity space as measured by MSCI, Egypt (+4.7%), Hong Kong (+2.2%), and Hungary (+1.9%) have outperformed this week, while Russia (-3.2%), South Africa (-3.2%), and Brazil (-2.5%) have underperformed.  To put this in better context, MSCI EM fell -0.3% this week while MSCI DM rose 0.9%.

In the EM local currency bond space, Argentina (10-year yield -43 bp), Turkey (-25 bp), and South Africa (-14 bp) have outperformed this week, while Indonesia (10-year yield +2 bp), Romania (+2 bp), and the Philippines (+1 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 8 bp to 2.16%.

In the EM FX space, TRY (+1.8% vs. USD), ILS (+0.9% vs. USD), and CNH (+0.7% vs. USD) have outperformed this week, while MXN (-0.3% vs. USD), MYR (-0.3% vs. USD), and RUB (-0.2% vs. USD) have underperformed.

The Indonesian cabinet is discussing revisions to the 2017 state budget.  President Jokowi reportedly asked government departments to review their spending plans.  Finance Minister Indrawati said revenues from higher oil prices will be eroded by a decline in tax revenue of about IDR15 trln ($1.1 bln).  Indrawati added that “We estimate about IDR16 trln can be saved from goods expenditure.”

The Thai central bank plans to reform some FX rules.  Details will be provided Monday at an official briefing.  There is speculation that the changes will involve regulations on fund inflows/outflows that are designed to prevent excessive currency gains.  Note USD/THB is making new cycle lows, whilst foreign investment inflows remain very strong.

Overnight US Market : Another record close for the major US indices

Nasdaq leads the charge

All  3  major US indices are closing at record levels for the 2nd day in a row.
  • The S&P is up 9.01 points or 0.37% on the day. For the week, the broad index is up 0.99%
  • The Nasdaq is up 58.97 points today as tech was on fire.  That is a gain of 0.94% for the day. For the week, the index is up 1.62%,
  • The Dow added 62.11 points or 0.29%. For the narrow 30 stock industrial index, the gain for the week was 0.59%..
For the year, each of the indices are not doing to shabby either.
  • The less volatile Dow is up 7.31%
  • The broader S&P is up 8.94%
  • The tech heavy Nasdaq is up a whooping 17.14%.
When you get these types of days, and see these kind of returns, I get the feeling there are a lot of money managers who are under performing and having to catch up.  It is a dangerous game.