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Tue, 17th January 2017

Anirudh Sethi Report

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Archives of “Economy” Category

Global Debt Hits 325% Of World GDP, Rises To Record $217 Trillion

While we eagerly await the next installment of the McKinsey study on global releveraging, we noticed that in the latest report from the Institute for International Finance released on Wednesday, total debt as of Q3 2016 once again rose sharply, increasing by $11 trillion in the first 9 months of the year, hitting a new all time high of $217 trillion. As a result, late in 2016, global debt levels are now roughly 325% of the world’s gross domestic product.

In terms of composition, emerging market debt rose substantially, as government bond and syndicated loan issuance in 2016 grew to almost three times its 2015 level. And, as has traditionally been the case, China accounted for the lion’s share of the new debt, providing $710 million of the total $855 billion in new issuance during the year, the IIF reported.

Joining other prominent warnings, the IIF warned that higher borrowing costs in the wake of the U.S. presidential election and other stresses, including “an environment of subdued growth and still-weak corporate profitability, a stronger (U.S. dollar), rising sovereign bond yields, higher hedging costs, and deterioration in corporate creditworthiness” presented challenges for borrowers.

Additionally, “a shift toward more protectionist policies could also weigh on global financial flows, adding to these vulnerabilities,” the IIF warned.

“Moreover, given the importance of the City of London in debt issuance and derivatives (particularly for European and EM firms), ongoing uncertainties surrounding the timing and nature of the Brexit process could pose additional risks including a higher cost of borrowing and higher hedging costs.”

For now, however, record debt despite rising interest rates, remain staunchly bullish and the equity market’s only concern is just when will the Dow Jones finally crack 20,000. 

Sadly, since we don’t have access to the underlying data in the IIF report, we leave readers with a snapshot of just the global bond market courtesy of the latest JPM quarterly guide to markets. It provides a concise snapshot of the indebted state of the world.

UK mortgage approvals at 8-month high

UK mortgage approvals edged up to their highest level since last March in November, according to data from the Bank of England, but analysts warned the housing market is showing signs of a slowdown.

Around 67,500 mortgages were approved in the month, up from a downwardly revised 67,301 in October. The number marked a continued improvement after the summer’s slump, but was still lower than the same month last year, and below the 68,500 predicted by economists surveyed by Bloomberg.

Net mortgage lending, moreover, fell to its lowest level since August, to £3.16bn, according to the BoE.

The overall impression coming from the latest data and surveys is that while housing market activity has come off its August lows, it is still relatively limited and struggling to build momentum.

The fact that the housing market is seemingly struggling for momentum reinforces our suspicion that it is likely to find life increasingly difficult as 2017 progresses.

Statistics on broader credit availability were similarly mixed. Net consumer credit figures notched their largest monthly rise in more than eleven years, but net lending to non financial business declined by £0.8bn after climbing the previous month.

December 2016 UK Markit CIPS construction PMI 54.2 vs 52.8 exp

Details of the December 2016 UK Markit CIPS construction PMI data report 4 January 2016

  • Prior 52.8
  • Housing activity 54.9 vs 53.0
  • Input costs at the highest since Apr 2011 (Level of GBP blamed for that)
  • New orders strongest for 11 months
  • Employment rose at the fastest since May 

Another decent PMI to end the year with.

“December’s survey data confirmed a solid rebound in UK construction output during the final quarter of 2016. All three main areas of construction activity have started to recover from last summer’s soft patch, but in each case growth remains much weaker than the cyclical peaks seen in 2014.

Trade zones out, tough bargains in for 2017

A reversal in U.S. trade policy could make 2017 the year that efforts to build multinational trade zones crumble, returning the focus to tough, bilateral dealmaking.

In October 2015, officials from 12 nations including the U.S. and Japan gathered in the American city of Atlanta to ink the historic Trans-Pacific Partnership, confident of the dawning of a new age of trade governed by such high-level, multilateral agreements. Yet that dream lies all but dead just over a year later, not least due to Donald Trump’s presidential victory and his pledge to pull the U.S. from the agreement upon taking office Jan. 20.

 Many bilateral free trade agreements, which reduce or abolish tariffs and set rules for trade in goods and services between two nations, have been struck over the years. Multilateral agreements extend this notion to the regional level and improve security in the areas they cover, further greasing the wheels of commerce.

Yet Trump prefers his trade pacts one on one — the better to drive hard bargains, leveraging U.S. economic and diplomatic might to secure the most advantageous terms. Multilateral pacts involve far more careful compromise and require each nation to give and take small concessions rather than pushing for an unambiguous win.

Us first

India : November core sector output growth slows to 4.9%

The annual infrastructure output growth slowed to 4.9% in November compared with 6.6% in the previous month as crude oil and natural gas production declined, government data showed on Monday.

For the first eight months of the current fiscal year, which ends in March 2017, the output growth came in at 4.9%.

Electricity generation, however, grew 10.2% year-on-year in November, faster than a 2.8% rise in the previous month. It may be recalled that demonetisation was introduced during November

 

Demonetisation a big blow! GDP growth may dip below 6% in FY17

With consumption spends in rural and urban India stifled by the acute scarcity of cash, the economy is set to clock sharply lower levels of growth in the current and coming quarters. While the initial days of demonetisation saw economists merely pruning their growth estimates, the cuts could get bigger.

Nomura, for instance, believes there is a downside risk to its Q1 GDP growth projection of 6.9% y-o-y. “Near-term growth may fall much more than expected,” economists at the brokerage wrote. They alluded to proprietary indicators which had slumped to their lowest level since the series started in 1996 and were consistent with a below 6% GDP growth.

While sales have decelerated across markets, given the larger volume of cash transactions, the hinterland has been hurt far more than urban areas.

Q3 2016 UK GDP final 0.6% vs 0.5% exp q/q

Details from the Q3 2016 UK GDP final data report 23 December 2016

  • 2.2% vs 2.3% exp y/y. Prior rev 2.3%. Q2 2.1%
  • Exports -2.6% vs 0.7% prior rev. Q2 -1.0%
  • Imports 1.4% vs -1.5% prior rev. Q2 1.3%
  • Business investment 0.4% vs 0.9% prior rev q/q. Q2 1.0%
  • -2.2% vs -1.6% prior rev y/y. Q2 -0.8%
  • Index of services 0.3% vs 0.2% exp m/m. Prior 0.2%
  • 1.0% vs 0.8% exp yy/y. Prior 0.8%. Revised to 1.0%
  • Q3 current account -25.5bn vs -28.2bn exp. Prior -28.7bn. Revised to -22.1bn

Not as good a final read as the tick up in the headline suggests. Exports dive, imports jump, household income fell (-0.6%), and the biggest fall since Q4 2013.

Q1 and Q2 have also been revised lower by a pip each.

There’s not a lot here that gives reason for the pound to jump.