Thu, 25th August 2016

Anirudh Sethi Report


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Overnight US Market -Dow closed down 66 points.S&P 500 – 11 Points

The stock market fell Wednesday as investors embraced a wait-and-see approach ahead of a key speech Friday from Federal Reserve Chair Janet Yellen.

The Dow Jones industrial average finished down 0.4%, to a two-week low. The Standard & Poor’s 500 stock index dropped 0.5% and the Nasdaq composite tumbled 0.8%.

At the moment, there are not a lot of market-moving data points to get investors actively involved in the market. Second-quarter earnings season — which wasn’t as bad as feared despite the S&P 500 suffering its fourth straight quarter of negative profit growth — is winding down. And there was only one key economic data point released today: Existing home sales came in disappointing, with sales down 3.2% in July to an annualized rate of 5.39 million. Economists were expecting sales at an annual rate of 5.5 million units, down from 5.57 million units in June.

RED ALERT : India Inc enduring deepest earnings decline in 20 years: Morgan Stanley

India Inc is enduring its worst earnings drawdown of the last 20 years, burdened by weak growth, high interest costs with excessive private sector debt and over-capitalised balance sheets, says a report.

According to global financial services major Morgan Stanley, the current drawdown in earnings has broken the 2001-02 and 2008-09 levels, and the recovery in earnings would be delayed by about four quarters.

The report also noted that global situation is an additional drag on Indian earnings.

“India has been in its worst earnings drawdown since we have the data (from 1996),” Morgan Stanley said.

“We thought the drawdown was over last year. Our basic premise was that the government and RBI had done enough work on the fiscal deficit and real rates to affect a positive change in saving,” it added.

However, it noted that corporate profits were held back by persistent and deep PPI (producer price index) deflation as well as a collapse in global trade.

Debt At The Big 4 Oil Companies Hits A Record $184 Billion

So what do you do when the commodity you harvest and sell suddenly collapses by 50-60% and slashes your operating profit?  If you said, raise a whole bunch of debt and continue spending on new capital projects to drill for even more supply in a collapsing market then you might be an oil CEO.  The Wall Street Journal this morning pointed out that raising debt to cover cash burn is exactly what the largest oil companies in the world are doing.  In fact, the 4 largest oil companies have doubled their net debt positions since 2014 when the oil selloff started. 

Oil Debt Rising

European Indices Closed Mixed

10 year bond yields mixed/little changed

Provisional closes for European stocks.
  • UK FTSE down -0.5%
  • German DAX up 0.3%
  • France’s CAC of 0.3%
  • Euro Stoxx 600 up 0.3%
  • Italy’s MIB up 0.7%
  • Spain’s Ibex up 0.8%
In the 10 year bond market today:
  • Germany -0.9%, unchanged
  • France 0.144%, +1 basis point 
  • Italy 1.127%, +1 basis point 
  • Spain 0.933%, unchanged
  • Greece 8.028%, -3 basis point
  • UK 0.553%,+1 basis point

EIA weekly US oil inventories +2501K

US energy inventories and production for the week ending Aug 19

  • Prior was -2508K
  • The ‘consensus’ was -850K but after the +4000K build in API data, the consensus was closer to +2000K
  • Gasoline inventories +36K vs -1700K exp
  • Distillates +122K vs +500K exp
  • Cushing +375K vs -300K exp

The gasoline print might be the most bearish part of a bearish inventory report.

Trump Slams Clinton Foundation As “Most Corrupt Enterprise In Political History” After Latest Donor Revelations

Yesterday’s report that more than half, or at least 85 of 154 people from private interests who met or spoke to Hillary Clinton while she led the State Department, donated at least $156 million to her family charity or pledged commitments with at least 16 foreign governments donating as much as $170 million, has become the latest goldmine for Donald Trump and Republicans who finally have a break in the anti-Trump news cycle to pounce on. 

“It is now clear that the Clinton Foundation is the most corrupt enterprise in political history,” Trump said in a statement, reiterating a claim he made earlier in the week. “We’ve now learned that a majority of the non-government people she met with as secretary of state gave money to the corrupt Clinton Foundation. … It was wrong then, and it is wrong now — and the foundation must be shut down immediately.”

out where the Clinton Foundation ends and the State Department begins,” he said, adding, “The specific crimes committed to carry out that enterprise are too numerous to cover in this speech.”

Trump’s running mate, Indiana Gov. Mike Pence, reiterated Trump’s call for a special prosecutor to investigate possible corruption. “The fact Hillary Clinton’s official schedule was full of meetings with Clinton Foundation donors is further evidence of the pay-to-play politics at her State Department. No one is above the law,” Indiana Gov. Mike Pence, Trump’s running mate, said in a statement.

The Republican National Committee also cited the report to hit Clinton. “This is among the strongest and most unmistakable pieces of evidence of what we’ve long suspected: at Hillary Clinton’s State Department, access to the most sensitive policy makers in U.S. diplomacy was for sale to the highest bidder,” RNC Chairman Reince Priebus said in a statement.

A Clinton spokesman, however, said the AP’s report relies on “utterly flawed data” and “cherry-picked a limited subset of Secretary’s Clinton’s schedule to give a distorted portrayal of how often she crossed paths with individuals connected to charitable donations to the Clinton Foundation.” The spokesman, Brian Fallon, also said the report does not account for more than half her tenure leading the State Department and “omits more than 1700 meetings she took with world leaders, let alone countless others she took with other US government officials, while serving as secretary of state.” To be sure, AP prefaced that saying it was only her private meetings that were in focus; as for her head of state, public meetings, AP also noted that those particular meeting were with at least 16 people who donated some $170 million.

Fallon added: “Just taking the subset of meetings arbitrarily selected by the AP, it is outrageous to misrepresent Secretary Clinton’s basis for meeting with these individuals.”

Kenya to cap interest rates on bank loans

The Kenyan president, Uhuru Kenyatta, has defied opposition from the central bank and industry and signed legislation that limits bank deposit and lending rates.

Analysts described it as a “populist” and “retrograde” step that would put at risk Kenya’s reputation as a regional free market financial centre. They also predicted it would adversely affect the country’s sovereign bond prices

Patrick Njoroge, the Central Bank of Kenya governor, had publicly opposed the bill saying it would discourage banks from lending.

Under the new law, lending rates will be capped at four percentage points above the central bank’s benchmark rate, while deposit rates must be at least 70 per cent of the benchmark rate. The benchmark rate is currently 10.5 per cent while some banks are charging above 18 per cent for loans. Deposit rates at some institutions are below 5 per cent.

Earlier this month, the Kenya Bankers Association, an industry umbrella body, said its members would cut their lending rates by 100 basis points in an attempt to discourage the president from signing the bill.

The dollar pairings most sensitive to Fed surprises – a chart

Should Federal Reserve chair Janet Yellen deliver a surprise in her keenly-awaited Jackson Hole speech on Friday, one of the first places investors will react will likely be the currency market.

Ahead of the speech, Goldman Sachs has crunched the numbers on which dollar pairs tend to have the most — and least — dramatic reactions to perceived changes in monetary policy: