Sat, 28th May 2016

Anirudh Sethi Report


Archives of “Analysis” Category

The “Soros Put” Story

More on this later today:

During the last four years there have been many articles in the financial media about Soros buying puts. All you have to do to confirm that is a Google search. The timing of some of these articles is marked on the SPY chart below:

The “Soros Put” Story

ALERT- Oil Prices Likely in Mid-$30s-$40s Per Barrel After OPEC Meet

The press conference room of the OPEC (Organization of the Petroleum Exporting Countries) is seen at the organization's headquarter on the eve of the 164th OPEC meeting in Vienna, Austria on December 3, 2013Energy ministers of the once powerful oil cartel are set to meet in Vienna on June 2, less than two months after a failure of the April meeting with non-OPEC countries in Doha that sought to freeze oil output at January levels in a bid to shore up prices.

“We forecast oil prices to fluctuate in the mid-$30 to mid-$40 per barrel range for the rest of the year,” Celente said on Friday. “However, should major geopolitical conflicts and civil disorder erupt among and/or within oil-rich nations, oil prices will of course spike higher.”

With many oil rich nations getting poorer such as Nigeria, Venezuela, Libya, Iraq, Angola and Azerbaijan, the OPEC meeting in Vienna would be unable to shore up plunging global prices, Celente warned.

“We forecast that despite any possible pledges in Vienna to cut production, many will flood the market with whatever they can get away with considering the dire economic pressures and escalating domestic unrest confronting them.”

Regardless of what will be agreed upon at the Vienna meeting, the fundamentals of the global economy, not OPEC, will ultimately determine the price of crude oil, Celente insisted.

However, “the recent spike in oil prices is a temporary production issue and not one of supply and demand,” Celente cautioned.

ALERT : Putin issues ‘crosshairs’ warning to Romania and Poland

Vladimir Putin, the Russian president, used a visit to Nato country Greece to warn its fellow members Romania and Poland that they could find themselves “in the crosshairs” over the siting of elements of a US missile programme.

In his strongest reaction to date on a missile programme the US maintains is protection against Iran, Mr Putin said Washington and its allies had ignored warnings of potential countersteps against a weapons system in eastern Europe that Moscow sees as a threat to itself.

“If yesterday in those areas of Romania people simply did not know what it means to be in the crosshairs, then today we will be forced to carry out certain measures to ensure our security,” Mr Putin told a news conference in Athens with Greek Prime Minister Alexis Tsipras.

“It will be the same case with Poland,” he said, though did not specify what actions Russia would take.

Mr Putin was in Greece to hold talks on energy and transport investments ahead of a celebratory visit to a 1,000-year-old Russian Orthodox monastery on the isolated peninsula of Mount Athos.

Greece’s leftwing Syriza government is keen to build stronger ties with Moscow, despite being snubbed last year when Mr Tsipras, then a newly elected prime minister, flew to Moscow seeking an emergency loan to stave off making further concessions to the EU and International Monetary Fund.

Abe seeks fresh stimulus on heels of G-7 summit

Having urged fellow Group of Seven leaders to stave off a looming global economic crisis with fiscal spending, Japanese Prime Minister Shinzo Abe has decided to seek a second round of additional funding just two months into the 2016 budget year.

Abe intends to propose a stimulus package in a special legislative session after the July upper house election. In the meantime, the government and the ruling coalition will discuss postponing a consumption tax increase set for April 2017.

 Japan “will mobilize all policy options, including action on the fiscal front,” against the threat of a global recession, Abe told reporters Friday following the conclusion of the G-7 summit in Ise-Shima.

The government will seek a supplementary budget worth 5 trillion yen to 10 trillion yen ($45.3 billion to $90.6 billion) — including fiscal investment and loan program, or FILP, spending, which is separate from the general account — that allocates money for public works and measures in a new plan to promote labor force participation.

The key quote: Exactly what Yellen said on Friday

The wording wasn’t the most elegant but the meaning was clear

“It’s appropriate, and I’ve said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate,” Yellen said on Friday.

Other key quotes:

“The economy is continuing to improve.”

“We saw weak growth in the first quarter of the year, and relatively weak growth at the end of last year,” she said. “The growth looks to be picking up from the various data that we monitor.”

“If we were to raise interest rates too steeply and we were to trigger a downturn or contribute to a downturn, we have limited scope for responding, and it is an important reason for caution.”

Week ahead -US data deluge, ECB, Opec

Investors: Start your engines.

Next week is going to be jam-packed with key economic reports and closely-watched meetings that may send ripples through global financial markets.

Data dump

US Federal Reserve policymakers have made it clear that a summer rate rise is a definite possibility, something that was confirmed by commentary on Friday from Janet Yellen, who said a rate rise would likely be sensible within “coming months”. However, central bankers have also cautioned that the decision would depend on incoming economic data.

The flood of economic reports due next week should provide plenty of fodder. Chief among the releases will be the monthly jobs report from the Labor Department on Friday that is forecast to show the economy added 160,000 jobs in May, the same pace as the month prior. However, several Wall Street economists cautioned that a strike by Verizon Communications workers may have muddied the numbers.

The US economic calendar also includes:

  • Consumer spending and income (Tuesday)
  • The personal consumption expenditures price index, the Fed’s preferred inflation gauge (Tuesday)
  • S&P/Case-Shiller home-price report (Tuesday)
  • Institute for Supply Management manufacturing purchasing managers index (Wednesday)
  • Auto sales (Wednesday)
  • Trade balance (Friday)

Overnight US Market :Dow closed up 45 points

Stocks posted moderate gains Friday and a winning week as Federal Reserve chair Janet Yellen said that it is “appropriate” for the Fed to “gradually and cautiously” increase interest rates “in the coming months” if the economy and labor market continue to improve.

The Dow Jones industrial average, which kicked off the trading session up 55 points in May, ended up 45 points on the day, a 0.3% bump. The Standard & Poor’s 500 stock index rose 0.4% and the Nasdaq composite gained 0.7%.

Yellen’s comments reiterated what the Fed minutes on May 18 and commentary from other Fed members since then have been stressing: a rate hike is coming, perhaps as early as June, if the early rebound early in the second quarter continues.

The Fed had already set the stage for a rate increase last week in the minutes of its April meeting.

Wall Street was also digesting the revision in first-quarter GDP, with U.S. economic growth raised to 0.8%, better than the initial read of 0.5%, but below the market’s expectations for 1% growth. Still, despite the disappointing growth in the first three months of the year, the “most recent data indicate that activity is bouncing back solidly in the second quarter,” Jesse Hurwitz, an economist at Barclays, said in a research note. Barclays estimate for second quarter GDP growth is 2.5%.

U.S.-produced crude, which on Thursday briefly topped $50 per barrel for the first time since October, was in retreat Friday, falling 22 cents to $49.26. A nearly 0.3% rise in the value of the U.S. dollar versus foreign currencies is weighing on commodities.

Barring any major policy surprises from Yellen on rates, trading is expected to be quiet ahead of the three-day weekend, as it was on Thursday.

Colombia lifts rates to 7.25%

Colombia has raised interest rates for the ninth time in a row as the Andean country continues to do battle with high inflation and a weak currency.

The Banco de la República lifted its benchmark rate by another 25 basis points to 7.25 per cent on Friday.

The increase is aimed at reining in inflation, which is currently running at almost twice the upper level of the bank’s 2-4 per cent target range as a severe drought drives up food prices and a weak peso lifts import costs.

Since September last year, the bank has raised its main interest rate by 275 basis points in one of the world’s most aggressive tightening cycles.

The increases have come despite the slowdown in the economy, which has been hard hit by the collapse in global oil prices.

While Colombia does not even figure among the world’s top 10 oil producers, crude plays an outsize role in the economy.

It accounts for more than a half of the country’s exports and generates more than a quarter of total government revenues, according to Bank of America Merrill Lynch estimates.

The Colombia peso was one of the worst performing emerging currencies in 2015, shedding more than a quarter of its value against the US dollar. It has rebounded slightly this year, rising 3 per cent since the start of January.

Fed’s Yellen: Hike probably appropriate “in the coming months”

Federal Reserve Chair Janet Yellen on May 27, 2016 at Harvard

She’s talking about her academic past and broad themes in economics, not the outlook.

I’ll update live here.

  • Fed’s handling of crisis was ‘nothing short of magnificent’
  • QE and forward guidance have helped economy recover
  • I saw the housing price bubble
  • I didn’t see the financial crisis coming
  • We’re trying to do a better job of seeing systemic and financial risks
  • We’re better at seeing financial risks and conditions now

Baker Hughes US rig oil count 316 vs 318 prior

Weekly oil drilling rigs from Baker Hughes

  • Fresh low since Oct 2009
  • Prior was 318 for oil rigs (no change from the week before)
  • Natural gas rigs +2
  • Prior was 85 for natural gas rigs
  • Total 404 rigs (unchanged)

The pace of the decline in oil rigs has slowed. That’s understandable given the rebound in oil prices. The market expects US production to fall to around 8 million barrels per day from 8.9 mbpd currently but with oil near $50, there are risks they could put drilling rigs back to work.