Thu, 22nd June 2017

Anirudh Sethi Report


Posts Authored by: “Nayal Khan”

China Crushes Yuan Shorts As HIBOR Explodes 190% To 7 Month High

One week ago, with the Yuan having traded within fractions of what many consider a key psychological level for the USDCNY at 6.70, we reported that as many traders expected that following the just concluded G-20 meeting in China, the PBOC would finally relent in its devaluation defense, and let the currency slide on through to the other side. Not only did that not happen, but last Thursday the Chinese Central bank unleashed an unexpected and aggressive attack on currency Yuan shorts, the biggest since the January devaluation scare when the cost of borrowing yuan in Hong Kong soared to a seven-month high amid. The overnight HIBOR, or Hong Kong Interbank Offered Rate, jumped – seemingly without reason – by 3.88% points to 5.45%, the most expensive since February, according to Treasury Markets Association data. Other tenors joined with the one-week rate rose 2.09% points to 4.06%.

Bayer, Monsanto near finish line in $66bn takeover

Bayer and Monsanto are on the verge of agreeing the largest takeover deal of 2016 to date, after the German company sweetened its offer for the US seed maker to just under $130 per share, people informed about the negotiations said.

The deal, valuing Monsanto’s equity at about $57bn and worth around $66bn including debt, is likely to be announced as early as Wednesday morning in New York soon after Bayer’s board meets to sign off on the deal, several people close to the aspirin-to-crop chemicals conglomerate said

Monsanto directors are expected to support a deal, which also includes a $3bn break-up fee payable by Bayer, at a board meeting Tuesday evening, people working with the US company said.

An announcement could be delayed by last minute technicalities, some of these people warned, but virtually all the remaining sticking points have been sorted out.

One person said the break-up fee had been increased to $3bn at the high end of the range these fees are usually priced, indicating that Monsanto pushed hard to have enough protection in the eventually competition watchdogs in the US, Europe or Asia try to thwart the deal.

The two companies do not have enormous overlap of products and customers, however, antitrust regulators in Washington and Brussels have been very aggressive in recent years at enforcing competition rules.

The deal, when completed, will be the largest foreign acquisition by a German group.

“It’s Never Different This Time” PIMCO Warns “The Tides Of Risk Will Flow Eventually”

The old Wall Street expression is “They don’t ring a bell at the top.” This snarky adage is usually employed by those saddened financial managers who ride a successful investment to a peak and then watch in horror as it reverses course to a level below their cost basis. They lay the blame at the feet of the amorphous market that failed to signal it was time to exit the ride.

A pity this notion is misguided, since the market frequently “rings the bell.” It is just that most market participants are not listening. Perhaps they should be listening now.

As I have detailed in the past, there are effectively only three risk vectors in the fixed income markets: duration, credit and convexity. I like to summarize these divining risk characteristics as “When investors receive their returns,” “If investors receive their returns” and “How investors receive their returns.”

Duration risk is usually measured as a function of the shape of the yield curve (as opposed to yield level): the greater the absolute shape (steep or inverted), the larger the embedded risk of an interest rate change. (See Viewpoint – October 2014, “Financial Market Cognitive Dissonance.”) An investment’s credit risk tends to be assessed via its spread to a benchmark Libor rate. Finally, an investment’s convexity risk, often associated with its exposure to path dependency (via embedded or explicit optionality), is usually summarized as a single measure of implied volatility.

And despite the seeming dissimilarities, these risk vectors have exhibited a relationship over the moderate horizon as active investment managers change their risk allocations to optimize along the efficient frontier.

Cross-Asset “Contagion” Risk Indicator Worse Than Lehman

Nowhere else is the impact of central banks more evident than the total decoupling of global stock markets from global economic developments.

However, Bloomberg reports that as money managers attempt to diversify away from what they all know will not end well, Credit Suisse warns the overwhelming flow from central bank interventions “are driving everything” pushing their so-called cross-market contagion indicator to levels more worrisome than anytime since 2008’s Lehman-inspired financial crisis.

Swiss National Bank forex reserves Aug CHF 626.62bln vs 615.55bln prev

SNB fx reserves rise in August according to IMF standards 7 Sept 2016

SNB intervention to weaken the franc reflected in its fx reserves increase.

  • SDRs 4.461bln vs 4.423bln prev
  • Gold holdings at market value 43.07bln vs 43.546bln prev

Some gold sales thrown in for good measure too.

Full SNB report here.

USDCHF on the rise at 0.9697 as general USD demand kicks back in.

Bayer in ‘advanced’ talks to buy Monsanto

Bayer said late on Monday that it was in “advanced” talks over an acquisition of Monsanto and that it was willing to again sweeten its offer for the seeds group.

Germany’s Bayer said in a press release that “while key terms and conditions have not yet been agreed”, it would be willing to pay up to $127.50 a share for Monsanto.

Monsanto in July rejected a $125 a share offer as “financially inadequate and insufficient to ensure deal certainty”, but noted at the time that it was open to continued negotiations.

The tie-up would create the world’s biggest agrochemicals company and would come at as the latest large deal in the chemicals sector. Dow Chemical and DuPont have been working to close a complex merger, while China’s ChemChina is in the process of completing its buyout of Swiss Syngenta.

Monsanto closed on Friday at $107.44 a share. US markets were closed on Monday for the Labor Day holiday.

Eurozone Markit services PMI Aug final 52.8 vs 53.1 exp

Eurozone Markit services PMI Aug final 5 Sept

  • 53.1 flash
  • composite 52.9 vs 53.3 exp/flash

Another softer final reading leaves EURUSD unfazed and EURGBP back below 0.8400 as we wait on UK services PMI at the bottom of the hour.

Says Markit:

  • The eurozone economy continued to expand at a broadly steady pace in August. The rate of increase edged down to a 19-month low, however, mainly due to a weaker rate of expansion in Germany.
  • The final Markit Eurozone PMI® Composite Output Index posted 52.9 in August, down from 53.2 in July and below the earlier flash estimate of 53.3. The rate of growth in new order inflows was also the weakest in just over one-and-half years. August data indicated that rates of output expansion ticked lower in both the manufacturing and service sectors.
  • Manufacturing production rose at the slowest pace since May, while the expansion in service sector business activity was the joint weakest since the start of 2015

Full Markit report here


The 26 Things Clinton “Could Not Recall” During Her FBI Interview

Yesterday we asked whether the FBI just threw Clinton under the bus with the following statement which links Hillary’s “inability” to “recall” her transition instructions with her 2012 concussion and blood clot

Clinton FBI - Concussin

But it turns out Hillary “could not recall” a lot of things about her tenure as Secretary of State.  In fact, during her 3.5 hour interview with the FBI, Hillary couldn’t recall at least 26 questions posed by the FBI, at least some of which were fairly material events during her service which probably should have stood out.  Below is a list of just a couple of the things Hillary “could not recall.”

Below is the exchange with FBI investigators where Clinton apparently doesn’t “recall” ever receiving any training from the State Department related to retention of federal records or handling of classified information…she doesn’t even recall when she received her security clearance.

Well, per the Nondisclosure Agreement below, signed by Hillary, we would guess she received her “briefing or training by State” on or around January 22, 2009.  So that leads us to derive only 3 logical conclusions, either (1) Hillary committed perjury by signing the NDA below without receiving the training indicated, (2) Hillary lied to the FBI during her interview or (3) Hillary simply has no long-term recollection of many of the key moments of her term as Secretary of State which brings into question her mental competency.

Pizza Proves to Be the Best Motivator

In the upcoming book “Payoff: the Hidden Logic that Shapes Our Motivations,” behavioral economist Dan Ariely detailed a study showing that pizza motivates workers to increase productivity more effectively than money.

Looking for a way to encourage your employees to show better results? The answer might be pizza.

In his book, Ariely recounts an experiment conducted at an Intel  semiconductor factory in Israel. For the experiment, factory employees were split into four groups, three of which were promised a reward if they managed to complete stated goals by the end of the day.

Members of the first group were offered about $30 cash apiece. The second group was told that they would receive a compliment from their boss, and members of the third group would get vouchers for pizzas.

Reuters poll sees ECB leaving monetary policy on hold at next week’s meeting

Reuters publishing their latest poll  ahead of the 8 Sept ECB meeting

  • no further ECB rate cuts or increases to size of monthly asset purchases likely
  • ECB likely to announce by year-end an extension of QE beyond March 2017
  • slim majority of economists say neg depo rate is good economic policy

Reuters polled c.70 bank economists this week.

As always take this info into your research but remember it’s purely someone else’s guesswork. No rocket science in any of this.