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Fri, 26th May 2017

Anirudh Sethi Report

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Moody’s downgrades China’s rating to A1 from Aa3 and changes outlook to stable from negative -Full Text

Moody’s Investors Service has today downgraded China’s long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.

The stable outlook reflects our assessment that, at the A1 rating level, risks are balanced. The erosion in China’s credit profile will be gradual and, we expect, eventually contained as reforms deepen. The strengths of its credit profile will allow the sovereign to remain resilient to negative shocks, with GDP growth likely to stay strong compared to other sovereigns, still considerable scope for policy to adapt to support the economy, and a largely closed capital account.

China’s local currency and foreign currency senior unsecured debt ratings are downgraded to A1 from Aa3. The senior unsecured foreign currency shelf rating is also downgraded to (P)A1 from (P)Aa3.

China’s local currency bond and deposit ceilings remain at Aa3. The foreign currency bond ceiling remains at Aa3. The foreign currency deposit ceiling is lowered to A1 from Aa3. China’s short-term foreign currency bond and bank deposit ceilings remain Prime-1 (P-1).

RATINGS RATIONALE

OIL – private inventory data shows smaller than expected draw for US crude stocks

Official oil inventory data comes out from the US on Wednesday morning. This is a private survey.

The data is available only to subscribers to the private company but it does tend to leak out, with media outlets (MSM and social) picking it up a few minutes after it hits.
The Reuters survey showed an expected draw of 2.7mln barrles on the week.
There is a draw, its smaller than that.

S&P puts 38 Brazilian financial institutions’ ratings on negative watch

S&P Global Ratings has placed the ratings of 38 Brazilian financial institutions on negative watch amid a political scandal that rocked the country’s markets.

S&P said it was placing the watch on the firms — meaning that their ratings are at risk of being lowered — because “the greater likelihood of an economic recovery delay, stemming from recent political developments, increases the risk for the credit fundamentals of the financial institutions operating in Brazil.”

S&P said the following companies were included in the negative watch:

•Caixa Econômica Federal SA

•Banco Nacional de Desenvolvimento Economico e Social SA

•BNDESPar-BNDES Participacoes SA

•Banco do Brasil SA

•Ativos SA Securitizadora de Creditos Financeiros

•Banco Bradesco SA

•Bradesco Capitalizacao SA

•Itau Unibanco Holding SA

•Itau Unibanco SA

Overnight US Market :US stocks end the day with modest gains

The  US major indices are ending the day with modest gains and closing near mid range levels.
  • The S&P is ending up 4.48 points or 0.19%. The high extended to 2400.85. The low to 2393.88.
  • The Nasdaq is ending up 5.093 points or +0.08%. Its high reached 6150.91. The low reached 6121.789
  • The Dow ended up +43.76 points or +0.21. The high came in at 20961.14. The low 20896.22.

OPEC Is Studying The Following Three Options Ahead Of Thursday’s Meeting

Last week, ahead of the OPEC meeting, BofA commodity analyst Francisco Blanch said the oil cartel faced three specific choices ahead of its May 25 meeting in Vienna, when it is widely expected to extend the November 2016 production cut:

  1. First, OPEC could cut production beyond the 1.2mn b/d agreed in December and encourage non-OPEC members to deepen the cuts.
  2. Second, OPEC could increase output aggressively and restart the oil price war.
  3. And third, OPEC could keep the cuts at the current levels for the next 6 to 9 months and hope for oil market demand conditions to improve.

BofA also presented the following table adding the proposed likelihoods of any given choice of action, of which a simple deal extension had the highest probability of taking place.