Fri, 23rd June 2017

Anirudh Sethi Report


Archives of “June 8, 2017” Day

What we learned from Draghi and the ECB

Lower inflation, higher growth and a bunch of caveats

The market was expecting a shift from the ECB but it was much more subtle than hoped.

Here’s a recap on the GDP and HICP numbers:


  • 2017 +1.9% vs +1.8% prior
  • 2018 +1.8% vs +1.7% prior
  • 2019 +1.7% vs +1.6% prior

The prior forecasts were made in March


  • 2017 1.5% vs +1.7% prior
  • 2018 1.3% vs +1.6% prior
  • 2019 1.6% vs 1.7% prior

Draghi tried to brush aside those forecasts by emphasizing that the tail risks had dissipated and that the ECB was more confident in the inflation that’s forecast.

To some extent the market bought his thinking and that helped the euro from the session low of 1.1195 up to 1.1220.

The takeaway is that it will be a very slow process to a hawkish stance. With inflation at 1.6% in 2019, there’s no impetus to hike at all. In addition, Draghi touched on the changes in the world that are keeping wages low. Things like globalization, automation, de-unionization and changes in regulation that are keeping wages down throughout the developed world.

At the same time, I don’t think the euro trade is a trade on rate differentials. It’s about value. The euro is depressed and eurozone assets are depressed.

Finally, we saw yet-another dip on the back of the press conference and yet again there were aggressive buyers. I’m convinced that everyone is trying to get long euros on a dip and they’re hitting increasingly shallow dips because the big retracement to 1.10 isn’t coming.

ECB drops the reference to lower rates in its forward guidance -Full Text

ECB statement now published too 8 June

  • keeps asset purchase programme at €60bln pm
  • will run QE until inflation path has sustainably adjusted
  • stands ready to increase size duration of QE if needed
  • net purchases will be made alongside reinvestments

EURUSD dipped to 1.1221 on the rate hold news but found some support on the headline here as it omits guidance on rate cut.

Full statement:

At today’s meeting, which was held in Tallinn, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

Watch the presser live here.

Moody’s expresses concerns over economic growth of sovereigns

US credit ratings agency Moody’s out with a note 8 June

The report “Sovereigns – Global Statistical Trends; Ten Years After the Global Financial Crisis: Subdued Growth and Higher Government Debt,” is based on the sovereign data presented in the May 2017 issue of Moody’s Country Credit Statistical Handbook. It draws conclusions across regions and globally and compares today’s global growth prospects, government debt indicators, and monetary gauges to those from a decade ago and before the financial crisis.

  • Notwithstanding an on-going cyclical growth recovery, the growth outlook for Moody’s rated sovereigns remains subdued when compared with the growth achieved in the decade before the financial crisis
  • Between 2008 and 2017 (F), real growth for Moody’s rated sovereigns averaged 2.9% for Moody’s, compared to 4.3% from 1998 to 2007. Looking ahead, Moody’s expects global growth of 2.8% for 2017 to 2018

Michael Brown, an Associate Analyst at Moody’s says:

This slowdown in growth compared to the period prior to the global financial crisis has affected the fiscal profiles of our rated sovereigns,” Governments have been unable to rely on growth to reduce debt as a share of GDP.”

Full report here

China now 2nd largest investor country after US, says UN

China Inc.’s global acquisition spree propelled the country into the second spot in outbound investment in 2016, the U.N. said Thursday.

Foreign direct investment by China soared 44% in 2016 to a record $183 billion, the second largest after the U.S.’s $299 billion, according to data released Thursday by the U.N. Conference on Trade and Development.

 China was in the fifth place in 2015 and its rise to the second spot was for the first time ever.

“In recent years, developing economies are increasingly becoming investor economies despite their level of development,” said Astrit Sulstarova, UNCTAD’s data analysis section chief.

The upsurge reflects China Inc.’s voracious appetite for global mergers and acquisitions, the Geneva-based body said in its annual World Investment Report 2017. Anbang Insurance Group alone reportedly purchased $6 billion in assets abroad in 2016.

Last year also saw China National Chemical take over Syngenta, a Swiss chemical giant.

China’s spending spree also reflected individuals’ purchases of real estate properties in developed countries such as Australia, the U.K. and the U.S., the UNCTAD noted.

ALERT : Qatar military placed on highest state of alert

  • Qatar military placed on highest state of alert
  • KSA, UAE & Bahrain warned not to enter maritime borders

Trying to confirm this now … apparently via CNN

I suppose it would be logical for a high state of alert given the tensions.

US officials say:
  • Have observed increased Qatari military activity
  • Qatar military now “on the highest state of alert”, fearing military incursion
  • Has observed 16 Leopard tanks taken from storage
  • Qatari Ministry of Defense has sent letters to Saudi, UAE and Bahrain governments – warning that they would fire on any naval ships from those countries that enter into its waters


BREAKING : North Korea Fires Multiple Ballistic Missiles

The day before “Berserker Thursday” with its UK elections, Comey testimony and the ECB decision, was supposed to be quiet. Instead we had the first domestic Iran terrorism in decades, Iran vowing revenge on Saudi Arabia, rising Qatar crisis tensions, South Korea telling the US it can go to hell, Syria threatening to strike US forces, the biggest crude crash in months, Germany pulling out of Turkey, Turkey approving the deployment of troops to Qatar, and stocks of course finishing the day higher.

And now, to top it all off, moments ago North Korea fired not one but multiple ballistic missiles, confirming the earlier story from Japan’s Asahi.



From Yonhap:

North Korea launched a salvo of apparent ballistic missiles from its east coast Thursday, South Korea’s military said.

 “North Korea fired multiple unidentified projectiles, assumed to be surface-to-ship missiles, this morning from the vicinity of Wonsan, Gangwon Province,” the Joint Chiefs of Staff (JCS).

 It was immediately reported to President Moon Jae-in, it added.

Expect futures to melt up on this latest development in a world whose news cycle no longer takes even one minute off.

Overnight US Market :Indices recover early losses. End the day higher despite sharply lower oil.

S&P up 0.16%.  Nasdaq up 0.36%

Oil prices and energy stocks were hit after the weekly inventory data showed an unexpected rise in supply.  Crude oil prices fell over 5% on the news, and currently trades with a $45 handle.   The fall also hurt energy stocks. 
Despite the fall, the major indices recovered and each are ending the session higher.
  • The S&P index is up 3.81 points or 0.16%. to 2433.14. The high reached 2435.28. The low 2424.75
  • The Nasdaq is closing up 22.32 points or 0.36% to 6297.37. The high reached 6302.78. The low 6267.17
  • The Dow is closing at 21173, up 37.46 points or 0.18%. The high reached 21189.84. The low 21113.31.  
Today is another day of course. The Comey testimony  in front of the Senate Intelligence committee, and ECB interest rate statement and press conference will be the early influences. China will also release trade data overnight, which may have an impact on equities. As the day progresses, the UK election results will become the focus.  Remember after round 1 of the French elections, the markets got a big boost on relief that there were no upsets. We will see how the cards fall in the UK.