Thu, 23rd February 2017

Anirudh Sethi Report


Archives of “Analysis” Category

US Fed likely to hike rates twice in 2017 and 2018 – Barclays

Barclays out with a note on the US economy 23 Feb

  • mon pol will likely be reactive to fiscal pol
  • fiscal pol will likely provide short-term boost to economic activity and inflation but long-term effects limited
  • Trump admin may add tariffs on Mexico and China, offset drag with large tax cut, moderate spending package

So we’ll take that headline to mean 4 times in total over the next 2 years.

Moderate spending? That view may disappoint those a tad more hawkish.

Meanwhile USDJPY 113.17 still on the back foot and failing to get back above 113.50 in Asia

S&P upgrade leaves Alphabet one notch shy of AAA rating

Alphabet was upgraded one notch to double-A plus by credit rating agency S&P Global on Wednesday, putting the owner of the Google search engine and Android operating system a single notch below the highest triple-A opinion.

Analysts with S&P said the move reflected the company’s dominance in both desktop and mobile phone advertising markets and its conservative financial strategies. S&P maintained a stable outlook on the company.

“The ratings upgrade reflects Alphabet’s consistently strong operating performance, despite a challenging and evolving digital advertising market, while it continues to maintain a conservative financial policy and strong liquidity profile,” said David Tsui, an analyst with S&P.

The pristine triple-A rating has become something of an endangered species after the financial crisis, with only two publicly traded US companies holding the highest rating from S&P: Microsoft and Johnson & Johnson. US oil group ExxonMobil was stripped of its long-held triple-A rating last year.

10 banks weigh in ahead of today’s FOMC Minutes

10 quick previews of the FOMC Minutes

Morgan Stanley: Likelihood of Fed minutes providing USD support higher than the opposite outcome.

Today’s focus will be on the release of Fed minutes. Remember the statement from the 1 Feb meeting suggested inflation ‘will reach 2%’ but fell short of bringing rate expectations forward, thus pushing US real rates lower allowing the USD to fall towards its cyclical low points within the following week. Overnight, the Fed’s Mester (non-voter) suggested the Fed has no interest in ‘surprising’ markets. While this statement might be read by many to mean that Fed may not opt for higher rates in March, it could also be read as the Fed having the potential intention to reprice front end rate expectations to provide the Fed with full flexibility to decide on rates whenever it wants to. The likelihood of the Fed minutes providing USD support maybe higher than the opposite outcome.

SocGen: Minutes to help pricing in Fed rate hikes with more conviction.

the focus today will be on this evening’s FOMC Minutes. So far, this week has seen a small grind higher in US yields, but 41bp for 10year TIIPS doesn’t exactly set my world alight. That yield needs to get through 50bp, say, to get the dollar moving more decisively higher and the Minutes will help establish how much the FOMC wants markets to price in Fed rate hikes with more conviction.

TD: Minutes could offer some intraday USD support but not a sustainable bounce.

The Fed minutes, while dated, could offer some intraday support for the USD but unlikely to provide much of a sustainable bounce. This reflects the fact that they remain backward looking and recent data and policy speeches have shifted pricing for May.

Credit Agricole:  FOMC minutes unlikely to offer a sustained USD boost.


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China moving to renew coal mining curbs

The Chinese government may reinstate curbs on coal mining lifted last fall, with producers calling for new limits on output amid fears of a coming plunge in prices.

Executives from 19 leading coal companies, among them Shenhua Group, gathered Tuesday for talks at which they agreed to work to prevent a sharp price reversal in thermal coal, which could come in March or April, after the winter heating season ends.

 Behind the scenes, the coal industry is discussing with the government a proposal to reinstate the operating limit on mines, according to people familiar with the matter. That order, waived last autumn, drew the line at no more than 276 days a year.

Thermal coal prices turned upward after the Chinese government early last year set a goal of cutting 250 million tons of annual production capacity and imposed the operating limit. Bigger-than-expected capacity reductions of 290 million tons tightened supply more than the market had bargained for, sending the price to a peak of more than 600 yuan ($87) per ton, 60% higher than at the start of 2016.

In response, the Chinese government lifted the operating curbs and told coal producers to raise output. The tightness in supply has since eased, and coal has been fetching around 590 yuan per ton recently.