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Sat, 23rd July 2016

Anirudh Sethi Report

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Archives of “Analysis” Category

Overnight US Market :Dow Closed up 54 points ,S&P 500 Up 10 points

U.S. stocks ended higher Friday and the S&P hit a fresh record high — its seventh this year — a day after a pause ended the Dow’s nine-day winning streak.

Investors continued to analyze incoming quarterly earnings reports and the release of the first post-‘Brexit’ economic data in Britain and Europe.

The broader Standard & Poor’s 500 climbed 0.4% to a new closing high of 2175.03, while the technology stock dominated Nasdaq composite gained 0.5%.

The Dow Jones industrial average, which saw its longest daily winning streak in more than three years snapped Thursday, ended up 0.3%.

The U.S. stock market has been on a bullish run since the initial two-day sell-off following the June 23 Britain vote to exit the eurozone. Prior to Thursday’s pullback, both the Dow and S&P 500 have been hitting records after taking out their prior peaks dating back to May 2015.

Iron ore hits 3-month high amid output slowdown

Iron ore prices are rebounding on speculation that mining companies are finally tapping the brakes on production increases.

Benchmark spot prices of Australian-produced iron ore shipped to China rose to around $59 a ton in mid-July, the highest in about three months and up 20% from a low in early June.

 BHP Billiton said Wednesday that iron ore output fell 2% on the year to 227 million tons in the first six months of 2016, falling short of the Anglo-Australian giant’s target. The decline, which came after a dam burst last November at a mine run by Samarco, a joint venture with Brazilian partner Vale, suggests that the pace of production increases is slowing.

Steel prices have rebounded in the past month or so in China, spurring speculation that the market had touched bottom. Investors anticipating a recovery in demand are buying iron ore futures, supporting cash prices.

 

BREAKING : Reports of a shooting in Munich shopping centre

Major police operation underway

BBC say German media is reporting that a shopping centre in the Moosach district has been sealed off.

Update: Multiple deaths now being reported by Sky

If traders were reducing risk into the weekend then this sort of news will have them running shutting up shops further. Bloomberg has carried some headlines but I can’t see anything on Reuters just now. If it hits there then we might see prices move.

  German shooting

‘Pokemon Go’ jumps over China’s Great Firewall

The Chinese government is notorious for blocking foreign internet services — Google and Facebook included — and so far “Pokemon Go” is no exception. But the megahit smartphone game is surging into the country anyway.

“I installed ‘Pokemon Go’ on my phone through a hacking app,” said Liu Will, a 28-year-old teacher at a prestigious university in Beijing. “Of course, I am using a virtual private network, too,” he added, referring to the tool that is popularly used in China for getting around internet censorship. The country’s internet restrictions, often dubbed the Great Firewall, have not prevented Liu from catching more than 80 Pokemon — as the game’s cartoon monsters are collectively called — in his first week of play. 

“This game is so cutting-edge,” he added. “It’s different from any other game I have played.”

Emerging Markets :An Update

  • The New York Times reported that the US is preparing to seize $1 bln in assets tied to 1MDB
  • S&P downgraded Turkey a notch to BB with a negative outlook, citing political uncertainty
  • Turkish President Erdogan declared a three-month state of emergency
  • The Nigerian Naira weakened above 300 per dollar for the first time
  • Brazil’s central bank signaled a longer wait until it cuts rates
In the EM equity space as measured by MSCI, Hungary (+4.2%), Czech Republic (+4.1%), and Hong Kong (+2.3%) have outperformed this week, while Turkey (-13.7%), Russia (-2.6%), and Colombia (-1.3%) have underperformed.  To put this in better context, MSCI EM rose 0.1% this week while MSCI DM rose 0.2%. 
In the EM local currency bond space, the Philippines (10-year yield -125 bp), Colombia (-11 bp), and Indonesia (-10 bp) have outperformed this week, while Turkey (10-year yield +88), Russia (+21 bp), and Hungary (+17 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 3 bp this week to 1.58%. 
In the EM FX space, ZAR (+2.0% vs. USD), PLN (+1.7% vs. EUR), and ILS (+0.8 vs. USD) have outperformed this week, while MYR (-2.8% vs. USD), RUB (-1.6% vs. USD), and PEN (-1.5% vs. USD) have underperformed. 
The New York Times reported that the US is preparing to seize $1 bln in assets tied to 1MDB.  Malaysian authorities have dropped their investigations of 1MDB, but other countries have not.  Elsewhere, Swiss authorities seized paintings by Monet and Van Gogh at the request of the US, and are said to be conducting their own probe.  The Monetary Authority of Singapore identified several banks for lapses related to 1MDB, and said its investigations are ongoing.

Flash PMIs Show Brexit Impact Localilzed

As the week draws to a close, there are three main developments in the capital markets. First, the profit-taking seen in US equities yesterday has continued in Asia and Europe today. The MSCI Asia Pacific Index and the Dow Jones Stoxx 600 in Europe are both off around 0.5%.
The second development is continued heaviness of the dollar-bloc currencies. They have underperformed this week. Expectations that both New Zealand and Australia may cut interest rates next month weighed on their respective currencies. The Kiwi is the weakest of the majors over the last five sessions, falling 1.7%. The Aussie is off 1.3%. It is holding a little above a two-month trendline, found near $0.7450.
The Canadian dollar has been dragged down in sympathy, as no Bank of Canada rate cut is anticipated.However, weaker commodity prices, including oil at two-month lows, have not done the Loonie any favors. It is the weakest of the dollar-bloc today, off about 0.3% to take its losses for the week to about 1.2%, matching the yen’s weakness.
The third development has been the flash PMIs. Japan was first. Its flash July manufacturing PMI firmed to 49.0 from 481. The improvement leaves it below the 50 boom/bust level for the fifth month. The yen is trading within yesterday’s ranges. The dollar did not recovery from the drop spurred by the month-old interview with the BOJ’s Kuroda in which he rejected the kind of helicopter money that has been bandied about.