Thu, 22nd June 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.