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Wed, 24th May 2017

Anirudh Sethi Report

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Archives of “Analysis” Category

Four Numbers to Watch in Forex

The US dollar’s downside momentum faded today.  While one should not read much into it, it could be an early sign that the market has discounted the recent news stream,  which includes the fear that the political turmoil in the Washington will adversely impact the President’s economic program, and the continued above trend growth in the eurozone.
The Fed funds futures continue to discount a strong change of a June Fed hike.  Bloomberg puts the odds at 95% of a hike, while the CME’s model says it is about 83% discounted.  Our calculation puts it at 81%.  A June hike would put the Fed funds target range at 1.00%-1.25%.  
Although the two-year note is trading a few basis points through the top of the presumed new range, the odds that the Fed funds target range will be 1.25%-1.50% by the end of the year is also rising slowly.  Bloomberg sees a 45% chance, up from about 28% a month ago.  The CME sees the odds at 39% compared with about 30% a month ago.  
European growth remains above trend and the flash May PMIs today suggest another strong quarter. However, price pressures remain elusive.  Prices in the PMI fell for the first time in 15 months.    To suggest the ECB could hike rates if it weren’t for the low inflation , is like asking, “Besides that Mrs Lincoln, how was the play?”

China says Moody’s downgrade over-estimates the difficulties facing economy

Chinese MOF official responds to Moody’s ratings downgrade 24 May

Over-estimates or just a reality check?

  • downgrade under-estimates China’s ability to deepen supply side reform

Ah yes, the stuff we hear trawled out every day almost.

  • MOF expects China’s economy to maintain stable and relatively fast growth
  • China’s govt debt will maintain reasonable pace of growth
  • China’s govt debt risks will not change dramatically in 2018-20

Right on cue. The same mantra. Say it enough times and it might come true seems the plan here.

  • Moody’s latest credit rating assessment based on inappropriate methodology

Unlike the Chinese data releases then. Not.

China not as impressive as they would like to think say Moody’s

Moody’s downgrades China’s rating to A1 from Aa3 and changes outlook to stable from negative -Full Text

Moody’s Investors Service has today downgraded China’s long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.

The stable outlook reflects our assessment that, at the A1 rating level, risks are balanced. The erosion in China’s credit profile will be gradual and, we expect, eventually contained as reforms deepen. The strengths of its credit profile will allow the sovereign to remain resilient to negative shocks, with GDP growth likely to stay strong compared to other sovereigns, still considerable scope for policy to adapt to support the economy, and a largely closed capital account.

China’s local currency and foreign currency senior unsecured debt ratings are downgraded to A1 from Aa3. The senior unsecured foreign currency shelf rating is also downgraded to (P)A1 from (P)Aa3.

China’s local currency bond and deposit ceilings remain at Aa3. The foreign currency bond ceiling remains at Aa3. The foreign currency deposit ceiling is lowered to A1 from Aa3. China’s short-term foreign currency bond and bank deposit ceilings remain Prime-1 (P-1).

RATINGS RATIONALE

OIL – private inventory data shows smaller than expected draw for US crude stocks

Official oil inventory data comes out from the US on Wednesday morning. This is a private survey.

The data is available only to subscribers to the private company but it does tend to leak out, with media outlets (MSM and social) picking it up a few minutes after it hits.
The Reuters survey showed an expected draw of 2.7mln barrles on the week.
There is a draw, its smaller than that.

S&P puts 38 Brazilian financial institutions’ ratings on negative watch

S&P Global Ratings has placed the ratings of 38 Brazilian financial institutions on negative watch amid a political scandal that rocked the country’s markets.

S&P said it was placing the watch on the firms — meaning that their ratings are at risk of being lowered — because “the greater likelihood of an economic recovery delay, stemming from recent political developments, increases the risk for the credit fundamentals of the financial institutions operating in Brazil.”

S&P said the following companies were included in the negative watch:

•Caixa Econômica Federal SA

•Banco Nacional de Desenvolvimento Economico e Social SA

•BNDESPar-BNDES Participacoes SA

•Banco do Brasil SA

•Ativos SA Securitizadora de Creditos Financeiros

•Banco Bradesco SA

•Bradesco Capitalizacao SA

•Itau Unibanco Holding SA

•Itau Unibanco SA

Overnight US Market :US stocks end the day with modest gains

The  US major indices are ending the day with modest gains and closing near mid range levels.
  • The S&P is ending up 4.48 points or 0.19%. The high extended to 2400.85. The low to 2393.88.
  • The Nasdaq is ending up 5.093 points or +0.08%. Its high reached 6150.91. The low reached 6121.789
  • The Dow ended up +43.76 points or +0.21. The high came in at 20961.14. The low 20896.22.