Tue, 17th January 2017

Anirudh Sethi Report


Archives of “Economy” Category

Here are 5 things to watch in the US Q3 GDP Report

The third quarter advanced estimate for US GDP is due at 8.30am NY time

  • (1230GMT)
  • Bloomberg median consensus is at 2.6% (q/q annualised)
  • But Goldman Sachs is expecting much higher, at 2.9%
In brief (but go check out the link for more):
1 Long-Awaited Breakout? … (loooooong expected, hasn’t happened yet though)
2 Consumer Spending … expected to have slowed
3 Business spending … watch for capex from firms
4 Inventory Turn … has been a drag
5 Government Pullback … pullback in government spending was another drag on output gains in Q2

French economy returns to growth in Q3, but still disappoints

The French economy returned to growth in the third quarter but the latest GDP figures, which show growth of 0.2 per cent between July and September, will likely do little to reignite confidence in François Hollande ahead of presidential elections next year.

The latest quarterly growth figure compares to a 0.1 per cent contraction in the second quarter of the year. Economists had been expecting expansion of 0.3 per cent in the latest three months.

The deep unpopularity of Mr Hollande, amid weak growth and still high unemployment relative to many of France’s EU peers, has prompted a desperate search among the country’s socialists for an alternative candidate who could possibly be fielded at next year’s elections, with the idea of the incumbent president not seeking a second term becoming more palatable.

Year-on-year GDP rose 1.1 per cent in the third quarter, also below expectations of a 1.2 per cent rate and below the 1.3 per cent recorded in the three months to June.

BREAKING-UK Q3 GDP qq flash + +0.5% vs +0.3% exp

First reading of UK Q3 GDP 27 Oct 2016

  • +0.7% prev
  • yy + 2.3% vs +2.1% exp vs +2.1% prev
  • index of services Aug mm +0.2% vs +0.1% exp vs +0.4% prev
  • 3mth +0.8% vs +0.8% exo vs +0.6% prev

Stronger than expected sees GBP buyers making the most of it.

There was demand going into the data so a little leak not out of the question.

Strong offers gone at 1.2250. Next tranches between 1.2280-1.230

Currently 1.2267 after 1.2272 highs. Bids now should come in around 1.2250 then more into 1.2225-30 and 1.2200.

EURGBP down testing 0.8900

October 2016 Eurozone Markit manufacturing PMI flash 53.3 vs 52.6 exp

October 2016 Eurozone Markit manufacturing, services and composite PMI flash report 24 October 2016

  • Prior 52.6
  • New orders 53.6 vs 53.4 prior
  • Services 53.5 vs 52.4 exp. Prior 52.2
  • New orders 53.2 vs 52.5 prior
  • Composite 53.7 vs 52.8 exp. Prior 52.6
  • New orders 53.3 vs 52.8 prior

All’s well in the land of the Eurozone. What’s most notable from the report was that prices charged rose for the first time since Aug 2015 and prices paid saw the steepest gain for 15 months. That’s the sort of thing the ECB will be taking note of, although Markit note that most of the rises came on the back of commodity price rises led by oil. However, they noted that wages were on the up too.

Markit’s Chris Williamson was upbeat about the report;

Brexit May Threaten $590Bln US Investment in UK

Image result for brexit“We believe the UK must continue to allow the movement of labour without overly restrictive barriers… In addition to ensuring that businesses in the UK will be able to employ EU nationals without undue bureaucratic burdens in the future, reassurances should be extended to the approximately three million EU nationals today in the UK, representing about 6.6 per cent of the workforce,” the document reads.

According to the document, which is due to be submitted to the Britain’s Cabinet Office later this week, after leaving the European Union the United Kingdom will need “unfettered access” to the European market of goods and services to preserve and attract US investments. The chamber expressed in the document its concern over whether UK regulations on various spheres could stay in line with EU rules and not create any additional barriers to business operation, as reported by Financial Times. The US businesses are also worried about the consequences of Britain’s losing access to skilled workers from the other EU countries. On June 23, the nationwide referendum on EU membership was held in the United Kingdom, in which 51.9 percent of voters said the country should leave the bloc. UK Prime Minister Theresa May said she intends to trigger Article 50 of the Lisbon Treaty and, thus, begin the process of leaving the European Union by late March 2017.

China Q3 GDP: 6.7% y/y (expected 6.7%)

Third quarter China gross domestic product is the big data point for today

GDP for Q3, y/y  6.7%  … In line with expected and unchanged from Q2
  • expected 6.7%, prior 6.7%
  • The government’s target band is 6.5 to 7 percent, so pretty much close to the middle of the target range
GDP, q/q  1.8% … In line with expected and unchanged from Q2 … no, wait, Q2 revised to 1.9% from 1.8%
  • expected 1.8%, prior 1.9%, revised from 1.8%
GDP YTD y/y  6.7% … In line with expected and unchanged from Q2
  • expected 6.7%, prior 6.7%
Well … that lot is boring …. all as expected and matching the prior
And, other data from China today:

9 Regional Feds Ask For Rate-Hike – Same As Prior To Last December’s Hike

While the probability of a November rate-hike has collapsed to just 8.5% (as Dec holda round 65%) it appears regional Federal Reserves have a very different perspective of when Janet should hike. Nine of the Fed’s 12 regional banks sought a quarter-point increase in the discount rate in September, up from eight in August, based on minutes of their board meetings published by Fed. This is the same number as right before the December hike in 2015.

As Bloomberg reports, The Atlanta Fed joined the calls for an increase in the discount rate, pushing the number of regional banks asking for a hike to its highest since December 2015. That month was the last time the Fed raised the federal funds rate, a separate interest rate that is its primary policy tool. Discount rate votes can be viewed as a signal of whether a bank’s president favors a change in the main rate.

Atlanta joined banks seeking a 1.25% rate. Other banks supporting the hike were Boston, Cleveland, Dallas, Kansas City, Philadelphia, Richmond, St. Louis and San Francisco: minutes

  • Strengthening economy, labor markets seen as fostering gradual return to 2% inflation: minutes

Chicago, Minneapolis, New York wanted no change

  • Economic outlook, below-target inflation seen as supporting need to maintain accommodative policy: minutes

Directors generally said economic activity was expanding at a moderate pace, though reports varied “somewhat” across sectors and regions

September 2016 UK CPI 1.0% vs 0.9% exp y/y

Details of the September 2016 UK CPI RPI and HPI data report 18 October 2016

  • Prior 0.6%
  • 0.2% vs 0.1% exp m/m. Prior 0.3%
  • Core 1.5% vs 1.4% exp y/y. Prior 1.3%

  • RPI 0.2% vs 0.1% exp m/m. Prior 0.4%
  • 2.0% vs 2.0% exp y/y. Prior 1.8%
  • RPI ex-mortgages 0.2% vs 0.5% prior m/m
  • 2.2% vs 2.2% exp y/y. Prior 1.8%
  • HPI 8.4% vs 7.8% exp y/y. Prior 8.3%. Revised to 8.0%

Overall taking this report, it should be pound supportive but we’re not seeing anything after the initial spike to 1.2276. That might suggest that a lot of today’s rally was already expecting these higher numbers. House prices higher rules out the Brexit expectations of seeing the property market tumble, which again is another positive for the pound. The PPI numbers might be what’s holding things back as perhaps the market was expecting to see more of a pass through from the quid.

The ONS highlight clothing, Hotels, motor fuels and gas prices as the main drivers of inflation.

US : September 2016 US industrial production 0.1% vs 0.1% exp m/m

Details of the September 2016 US industrial production data report 17 October 2016

  • Prior -0.4%. Revised to -0.5%
  • Capacity utilisation 75.4% vs 75.6% exp. Prior 75.5%. Revised to 75.3%
  • Manufacturing production 0.2% vs 0.0% exp m/m. Prior -0.4%. Revised to -0.5%

A bounce back of sorts. it looks better if you take the lower revisions into account.

Utilities was a notable faller in the numbers, -1.0% vs -0.3% prior. Non-industrial and construction supplies helped make the report a positive one.


Global economy in precarious state, Xi tells BRICS summit

China’s President Xi Jinping warned Sunday that the global economy remained in a precarious condition as leaders of the BRICS group of nations tried to find ways to fire up growth in the troubled bloc.

Speaking at a summit in the Indian state of Goa, Xi told his host Narendra Modi and the leaders of Russia, Brazil and South Africa that the club of emerging powers had been undermined by both domestic and international woes.

But the leader of the world’s second largest economy said the long-term forecast for BRICS members was positive as he called for more confidence-building measures.

“The global economy is still going through a treacherous recovery,” Xi said in a statement at the summit on India’s west coast.

“Because of the impact of both internal and external factors, BRICS countries have somewhat slowed down in economic growth and have faced a number of new challenges in development.”