Thu, 30th March 2017

Anirudh Sethi Report


Archives of “Economy” Category

Emerging Markets :An Update

EM FX ended last week on a firm note.  Falling US rates allowed many foreign currencies to gain some traction.  This week, a heavy US data slate is likely to test the market’s convictions on the Fed, with January PPI, CPI, IP, and retail sales all being reported.  Yellen also testifies before Congress on Tuesday and Wednesday.    

India reports January CPI Monday, which is expected to rise 3.24% y/y vs. 3.41% in December.  It then reports January WPI Tuesday, which is expected to rise 4.35% y/y vs. 3.39% in December.  The RBI left rates steady last week and moved to a neutral stance.  Price pressures are likely to pick up this year, as the acceleration in WPI inflation suggests.

Poland reports January CPI Monday, which is expected to rise 1.7% y/y vs. 0.8% in December.  If so, this would be the highest since January 2013 and back within the 1.5-3.5% target range.  It then reports Q4 GDP Tuesday, with growth expected to remain steady at 2.5% y/y.  January industrial and construction output, retail sales, and PPI will be reported Friday.  The central bank will find it hard to wait until 2018 to start tightening.
Mexico reports January ANTAD retail sales Monday.  Despite tighter monetary policy and rising inflation, retail sales have remained fairly robust, rising 5.3% y/y in December.  With another 50 bp hike last week, we think it unlikely that consumption can remain firm in 2017.  The next policy meeting is March 30 and it’s too early to say what’s likely to happen then.  

Japan government debt hits record-high 1,066tn yen ($9.4 trillion) at end of December

Japan’s government debt stood at a record 1,066.42 trillion yen ($9.4 trillion) as of Dec. 31, highlighting the difficulty of restoring the country’s fiscal health, data by the Finance Ministry showed Friday.

Per capita debt, the amount owed per person, came to around 8.40 million yen, based on the country’s total population estimated at around 126.86 million as of Jan. 1.

 The central government’s debt marked an increase of 3.85 trillion yen compared with the end of September, due to the issuance of “zaito” debt to finance projects such as the construction of a magnetically levitated high-speed train line in central Japan as well as ballooning social security costs.

By the end of the current fiscal year through March, the government’s debt is projected to grow further to 1,116.4 trillion yen.

According to the ministry, the debt total as of December consisted of a record-high 928.91 trillion yen in government bonds, 54.26 trillion yen in borrowing mainly from financial institutions and 83.25 trillion yen in financing bills or short-term government notes of up to one year.

BlackRock CEO: US economy in slowdown, fin mkts could see a significant setback

Chief Executive of BlackRock Larry Fink spoke on Wednesday (US time):

  • “I see a lot of dark shadows”
  • “The markets are probably ahead of themselves”
  • U.S. economy is in the middle of a slowdown
  • Financial markets could see a significant setback
  • Cites uncertainty over global trade and the Trump administration’s plan to cut taxes
  • Trade disruptions a possibility
  • US 10-yr yield could fall below 2%
  • …  or rise above 4%
  • But says the greater possibility is of rates falling
  • Thinks the Fed hikes in June & possibly once more this year
BlackRock is a huge fund manager, the firm manages $5.1 trillion in assets

Japan resurfaces as No. 2 contributor to US trade deficit

Japan accounted for $68.9 billion of the U.S. trade deficit on goods in 2016, re-emerging as the second-largest contributor for the first time in three years for a potential flashpoint when the leaders of the two nations meet Friday.

The overall U.S. trade deficit on goods shrank by 1.5% to $734.3 billion last year on a Census basis, according to Department of Commerce data released Tuesday. Exports fell 3.2% to $1.45 trillion on a strong dollar, but imports decreased 2.6% to $2.18 trillion.

 The country logged a $247.8 billion surplus on services, bringing the overall U.S. trade deficit to $502.3 billion on a balance of payments basis.

The goods deficit with Japan remained roughly flat and accounted for 9% of the U.S. total. The deficit on motor vehicles and parts — an area in which President Donald Trump claims Japan engages in unfair practices — jumped to $52.6 billion from $48.9 billion in 2015, making up nearly 80% of the total American deficit with Japan.

Japanese automakers are increasing production in North America. But cars sold from Japan to the U.S. tend to be higher-end models, and the average price per unit is rising.

China was the top contributor to the U.S. trade deficit on goods, accounting for $347 billion, or 47%. Germany ranked third and Mexico fourth. Trump, seeking to curb the deficit, has accused Japan, China and Germany of manipulating their currencies. The president also demands a renegotiation of NAFTA with Mexico.

German industrial production unexpectedly falls the most in 8 years

German industrial production unexpectedly fell in December, led by a contraction in manufacturing and construction.

Output, adjusted for seasonal swings and inflation, declined 3 percent from November, when it advanced a revised 0.5 percent, the Economy Ministry in Berlin said on Tuesday. The volatile indicator’s worst reading since early 2009 compares with a median estimate for a 0.3 percent increase in a Bloomberg survey. Production was down 0.7 percent from a year earlier.

German business confidence slipped in January and momentum in manufacturing and services slowed as national elections in September and risks related to Brexit and protectionist trade policies in the U.S. weigh on the outlook. Companies assessment of current economic conditions remains favorable, with factory orders surging and unemployment dropping to a record low.

Demonetisation is for losers: Steve H Hanke

Criticising India’s decision to scrap high value currency notes, noted American economist Steve H Hanke has said demonetisation is for ‘losers’ and even Prime Minister Narendra Modi does not know where the country is heading now. “#Demonetisation is for losers and has been bungled from the start.

No one, not even Modi, knows where India is heading,” Hanke, an American applied economist at the Johns Hopkins University in Baltimore, Maryland, said in a tweet.

A Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, Hanke had earlier said that “India simply does not have the infrastructure to adapt to Modi’s demonetisation…he should have known.” Prime Minister Narendra Modi on November 8 had announced demonetisation of Rs 1,000 and Rs 500 notes in a major assault on black money, fake currency and corruption.

The Economic Survey for 2016-17 had said, “demonetisation will have significant implications for GDP, reducing 2016-17 growth by 0.25 to 0.50 percentage points compared to the baseline of 7 per cent.”

The Economist Warns “The World Must Prepare For Trouble” Under Trump

If the scenes of anarchy in Berkeley last week were not enough to strike fear into the hearts of free-speech-supporting average Americans, then The Economist just turned the fearmongery amplifier to ’11’ in its latest op-ed describing the ‘insurgency in The White House’.

Washington is in the grip of a revolution, The Economist begins…

 The bleak cadence of last month’s inauguration was still in the air when Donald Trump lobbed the first Molotov cocktail of policies and executive orders against the capital’s brilliant-white porticos. He has not stopped…

…In politics chaos normally leads to failure. With Mr Trump, chaos seems to be part of the plan. Promises that sounded like hyperbole in the campaign now amount to a deadly serious revolt aimed at shaking up Washington and the world.

To understand Mr Trump’s insurgency, start with the uses of outrage. In a divided America, where the other side is not just mistaken but malign, conflict is a political asset. The more Mr Trump used his stump speeches to offend polite opinion, the more his supporters were convinced that he really would evict the treacherous, greedy elite from their Washington salons.

His grenade-chuckers-in-chief, Stephen Bannon and Stephen Miller, have now carried that logic into government.

Americans who reject Mr Trump will, naturally, fear most for what he could do to their own country. They are right to worry, but they gain some protection from their institutions and the law. In the world at large, however, checks on Mr Trump are few. The consequences could be grave.


Without active American support and participation, the machinery of global co-operation could well fail…


If Mr Trump truly wants to put America First, his priority should be strengthening ties, not treating allies with contempt…


America’s allies must strive to preserve multilateral institutions for the day after Mr Trump, by bolstering their finances and limiting the strife within them. And they must plan for a world without American leadership.


A web of bilateralism and a jerry-rigged regionalism are palpably worse for America than the world Mr Trump inherited. It is not too late for him to conclude how much worse, to ditch his bomb-throwers and switch course. The world should hope for that outcome. But it must prepare for trouble.


Read more here (if you dare)…

Scared yet? You should be… except President Trump is seemingly enacting exactly what the American people want and voted for – which is an awkwardly democratic thorn stuck in the paw of the establishment lion, who is salivating stubbornly hoping his drool can eviscerate the painful insurgent. Three words are what they must truly come to comprehend – four more years.

Eurozone IFO Q1 business climate sentiment 17.2 vs 8.2 prev

Eurozone IFO Q1 business climate sentiment report 6 Feb

Says IFO:

“Economic sentiment in the euro area continued to firm this quarter. The Ifo Economic Climate improved to 17.2 balance points in the first quarter from 8.2 balance points previously. Expectations are far more positive than last quarter. The experts surveyed also assessed their current economic situation more favourably. The economic recovery is gathering impetus.

The best economic climate currently prevails in Lithuania, Ireland, The Netherlands, Slovenia and Germany. In Austria, Finland and Spain climate balances improved markedly and turned positive; in France and Latvia improvements were also positive, but to a lesser extent. Greece, Italy and Portugal are the only euro area countries in which the economic climate remains unfavourable.”

Global Inflation ‘Surprise’ Index Spikes To Highest Since 2011

The specter of global stagflation is looming ever larger as inflation across the world is beating analysts’ forecasts (even before the potential effect from Donald Trump’s economic policies) but economic growth expectations remain stagnant.

As Bloomberg notes, the global Citi Inflation Surprise Index, which measures price surprises relative to market expectations, is at the highest in more than five years.

The reading turned positive in December — meaning inflation data were higher than expected — for the first time since 2012.

However, in its Keynesian-Krushing way, economic growth expectations are not tracking higher – flashing red warnings signs for global stagflation.