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Wed, 22nd February 2017

Anirudh Sethi Report

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Archives of “currency” Tag

Dollar Extends Longest Winning Streak Since 2012 As March Rate Hike Odds Surge

Following this morning’s soaring inflationary and retail sales data, and following Yellen’s hawkish tone yesterday, March rate-hike odds have soared from below 25% to over 40%. The Dollar Index is extending its recent winning streak on this move – now up 11 days in a row, the longest streak since May 2012.

Rate hike odds are ripping higher as The Fed gets its way of pricing in a March rate hike…

And The Dollar Index continues to rise…

This is the longest USD win streak since May 2012.

  • July 1975 – 11 days in a row
  • Sept 1975 – 11 days in a row
  • May 2012 – 14 days in a row
  • Feb 2017 – 11 days in a row

And notably, if extends to 12 days tomorrow, will be the second longest winning streak in dollar history.

Rouble hits 58 per dollar for first time since July 2015.Last Hope at 55.68

58-RUBThe rouble climbed to its strongest level since July 2015 on Monday morning, as the Russian Central Bank’s pledge to weaken the currency struggles to convince markets.

The rouble had already been appreciating as oil prices have recovered over the last twelve months, and growing optimism since Donald Trump’s victory in the US election has helped it become the best-performing emerging market currency since the vote, up just shy of 10 per cent.

President Trump’s calls for a normalisation of relations with Russia raised hopes of a relaxation of economic sanctions and encouraged international investors to return to the country.

However, economists have been sceptical the bank would be able to have a big impact on the currency, and it has continued to rise a further 1.6 per cent since the announcement, including a 0.5 per cent rise this morning to take it to 57.99 per dollar.

France’s Le Pen says many countries are bound to leave the Euro zone

Marine Le Pen doesn’t like the euro (doesn’t like a lot of stuff)

  • Many countries bound to leave the euro zone
  • Makes no difference if debt repaid in euro or franc
Bloomberg with the headlines, not sure what context She was speaking in …
Ahh … here we go
  • interview on France2 TV (a 2 hour interview! Stamina – kudos for that)
  • “Italy, Spain, Greece” all “dying from the common currency built around the DMK”

Rs 6.78 lakh cr remonetised, Rs 9.1 lakh cr in circulation: Govt

In the ongoing process of remonetisation, banknotes worth Rs 6.78 lakh crore returned to the formal banking system between November 10 and January 13, taking the total currency in circulation to Rs 9.1 lakh crore, the government said on Tuesday.

“Remonetisation is taking place ceaselessly at a fast pace. Between November 10, 2016 and January 13, 2017, the notes in circulation have increased by Rs 6.78 lakh crore, thereby taking the total notes in circulation to Rs 9.1 lakh crore,” Minister of State for Finance Arjun Ram Meghwal said in a written reply in Rajya Sabha.

He was answering question on estimated time period for replacing old high denomination notes with new currency.

Supplies are even being effected by air with direct dispatches to some centres to cut down on delivery time, he added.

In a separate reply, when asked how much old Rs 500 and Rs 1,000 notes (SBNs) were deposited/exchanged upon being de-legalised, Meghwal said specified bank notes (SBNs) worth Rs 12.44 lakh crore were returned to currency chests of RBI by December 10, 2016.

India : Asset quality worry for MFIs

Rating agency Icra has expressed concerns over the deterioration in asset quality of non-bank microfinance institutions in the wake of demonetisation.

The agency in a report said an inadequate supply of currency and a disruption in borrowers’ cash flows have led to a sharp decline in collection efficiencies.

The share of overdue loans in a total loan portfolio of around Rs 57,000 crore was less than 1 per cent as on September 30, 2016. But, this has increased to around 19 per cent as on December 31, 2016, Icra said.

 Factors such as over-leveraging, shortage of currency and the possibility of the borrowed amount being used for consumption rather than income generation is affecting credit recovery even as the RBI provided a special dispensation in classification of loans of microfinance institutions.

“While the RBI’s additional 90-day dispensation to classify accounts as non-performing will provide a temporary relief in asset classification, Icra believes it would be difficult for microfinance institutions to recover multiple instalments from borrowers together,” Rohit Inamdar, senior vice-president and group head – financial sector ratings – Icra.

“Over-leveraging among borrowers coupled with the shortage of currency and the impact of demonetisation on borrowers’ earnings will adversely impact the asset quality of microfinance institutions,” he added.

“The pace of replenishment of cash supply in the system, the medium- to long-term impact of demonetisation on borrowers and the quality of customer engagement by the microfinance institutions will be the key determinants of asset quality in the future,” the Icra official said.

“Also, the extent of credit costs that microfinance institutions have to incur will depend on its share of affected portfolio, capital structure as well as loss-sharing arrangements,” he added.

Taking into account the expected increase in both credit costs and operating expenses, Icra has revised its profitability projections to sub-10 per cent for 2017-18 from 13-15 per cent estimated earlier.

How long will ‘strong-dollar breeze’ blow for BOJ?

With the world facing uncertainty over the new administration in Washington, the Japanese central bank is among the many keeping their eyes peeled.

The yen’s depreciation against the dollar since Donald Trump won the U.S. presidential election in November has given the Bank of Japan some much-needed breathing room, as a weaker home currency will likely buoy the economy and consumer prices here.

 BOJ Gov. Haruhiko Kuroda welcomed the prospect of the yen softening on the back of a robust American economy, saying Trump’s planned tax cuts and infrastructure spending would lift the economies of the U.S. and the world.

The BOJ could watch from the sidelines without having to roll out more monetary easing — a particularly helpful development for a central bank nearly out of easing options.

“The specifics of economic policy under the Trump administration have not become clear,” according to BOJ Deputy Gov. Hiroshi Nakaso. But the bank apparently expects lower taxes and other anticipated economic measures to boost the economy.

China’s 2016 capital outflows estimated at over $700bn

A new report from Standard Chartered estimates capital flows out of China totalled almost $730bn in 2016, a near-record level.

Analysts Shuang Ding and Lan Shen estimated outflows had moderated in December to $66bn, down from November’s $75bn.

Beneath the headline figure foreign direct investment flows turned positive for the first time in eight months with a $3bn inflow, while non-FDI outflows remained unchanged from the previous month at $69bn.

They also estimated China’s foreign exchange reserves had fallen $41bn last month to end the year at $3.01tn as depreciation of the euro, yen and pound against the greenback. That reduced the dollar value of China’s holdings in those currencies by about $13bn.

Just How Crowded Is The “Long Dollar” Trade? The Answer In One Chart

Until last night’s Trump statement that the US dollar is overvalued, it was smooth sailing for Wall Street’s momentum chasers, who happily piled into what until recently was Wall Street’s most crowded trade. How crowded?

For the latest answer, we go to the latest just released monthly Fund Managers Survey conducted by BofA’s Michael Hartnett who shows that according to Wall Streeters themselves, the dollar is the most crowded trade by orders of magnitude. In fact, in January the number of respondents who said the “Long USD” is the most crowded trade has risen from 35% in December to a whopping 47%, the highest response rate in the last few years of the survey. Far behind, in second and third place, are “short government bonds” and “long high quality/minimum vol” both at 11%.

 

What makes this observation paradoxical is how reflexive it is, because in the same report BofA writes that contrarians note “long US dollar seen as most crowded trade by a country mile”, and adds that the percentage of investors who think USD is overvalued is the highest in over a decade, or since Nov’06 (net 22%).

Still, they refuse to sell… until now. Because now that the president-elect has publicly taken the other side of the trade, we urge readers to take a second look at RCB’s warning that the “Pain Trade”, i.e. the inversion of Long-USD positions, has begun.

India : Forex Reserves Fall By $935.2 Million To $359.67 Billion

India’s foreign exchange reserves declined by $935.2 million to $359.671 billion in the week to December 23 on account of fall in foreign currency assets, the Reserve Bank said on Friday.

In the previous week, the reserves had fallen by $2.380 billion to $360.606 billion.

They had touched a life-time high of $371.99 billion in the week to September 30, 2016.

Foreign currency assets (FCAs), a major component of the overall reserves, dipped by $933.2 million to $335.970 billion in the reporting week.

FCAs, expressed in US dollar terms, include the effects of appreciation/depreciation of non-US currencies such as the euro, pound and the yen held in the reserves.

Gold reserves remained steady at $19.982 billion in the reporting week, the RBI said.

The special drawing rights with the International Monetary Fund decreased by $0.9 million to $1.427 billion, while India’s reserve position with the Fund too declined by $1.1 million to $2.290 billion, the data showed.

The Scariest Forecast For Treasury Bulls

With Trump’s border tax adjustment looking increasingly likely, the stock market – as JPM has warned in recent days – is starting to fade the relentless Trumponomic, hope-driven rally since election day instead focusing on the details inside the president-elect’s proposed plans. And, as explained earlier in the week, if the border tax proposal is implemented, economists at Deutsche Bank estimate the tax could send inflation far above the Federal Reserve’s 2% target and drive a 15% surge in the dollar.

While this would be bad for stocks, as a 5% increase in the dollar translates into about a 3% negative earnings revision for the S&P 500 all else equal, a surge in inflation would also wreak havoc on bond prices, and send interest rates surging, at least initially, before they subsquently plunge as a result of a rapidly tightening, deep “behind the curve” Fed unleashes a curve inversion and recessionary stagflation becomes the bogeyman du jour.

There’s more.