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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “economics” Tag

China Orders No Market Selloffs During President’s Davos Trip

As we observed in yesterday morning’s market wrap, while US traders took the day off for the MLK holiday, China was busy defending an accelerating selloff across its stock markets.

During Monday trading, having traded quietly lower for the past few days, Chinese stocks tumbled in early trading on the mainland and in Hong Kong’s offshore market amid weakness in Asian equities. The Shanghai Composite Index dropped as much as 2.2% to head for its fifth loss in as many days, its longest losing streak since Aug. 2015.However a sudden bout of late afternoon buying sent the loss down to just -0.3%, on speculation China’s national team was once again back in the markets.

 

10 takeaways from Xi’s Davos speech

Chinese President Xi Jinping delivered a keynote speech on Tuesday at the opening plenary of the 2017 annual meeting of the World Economic Forum in the Swiss town of Davos.

Here are 10 quick takeaways from the 50-minute address, which touched upon globalization, protectionism, world economy and China’s development among other subjects.

1. Many of the problems troubling the world are not caused by economic globalization. Just blaming economic globalization for the world’s problems is inconsistent with reality, and it will not help solve the problems.

2. Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend.

3. At present, the most pressing task before us is to steer the global economy out of difficulty.

4. Lack of robust driving forces for global growth makes it difficult to sustain the steady growth of the global economy; inadequate global economic governance makes it difficult to adapt to new developments in the global economy; uneven global development makes it difficult to meet people’s expectations for better lives.

5. The world should develop a dynamic, innovation-driven growth model; pursue a well-coordinated and inter-connected approach to develop a model of open and win-win cooperation; develop a model of fair and equitable governance in keeping with the trend of the times; and develop a balanced, equitable and inclusive development model.

6. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war.

7. The Paris Agreement is a hard-won achievement which is in keeping with the underlying trend of global development. All signatories should stick to it instead of walking away from it as this is a responsibility we must assume for future generations.

Japan: Nov Machine Orders -5.1% m/m (expected -1.4%) & Dec PPI -1.2% y/y (expected -1.4%)

Japanese data for machinery orders and PPI

November Machine orders
 -5.1% m/m
  • expected -1.4%, prior +4.1%
  • largest decline since April 2016
  • Not a positive sign for capex intentions (its regarded as an indicator of capital expenditure in the coming six to nine months)
 +10.4% y/y
  • expected % +8.1%, prior -5.6%
And PPI for December
 0.6% m/m
  • expected 0.4%, prior 0.4%
-1.2% y/y
  • expected -1.4%, prior -2.2%

China press (Xinhua): “China collapse” would be good for no one

A commentary piece in Xinhua that outloines current challenges facing the Chinese economy:

  • Such as a weak global recovery, rising trade protectionism, domestic debt overhang & excess capacity
But still, it says:
  • China’s contribution to world growth in 2016 is again poised to top that of all other countries, exceeding the figure for all developed economies combined
  • The IMF has projected China’s growth to be 6.6 percent with global growth at 3.1 percent in 2016
  • However, China’s growth last year appears set to hit 6.7 percent
It concludes with a projection on growth at 6.5%
( Xinhua News Agency is the official press agency of China, it is a ministry-level institution subordinate to the central government and its head is a member of the Central Committee of China’s Communist Party.)

India : Note ban gains ‘highly uncertain’, says Fitch

Benefits of demonetisation are “highly uncertain” and the potential positives are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects, global ratings agency Fitch said today. Taking into account the short-term disruptions, it also revised down the GDP growth estimate for the current fiscal to 6.9 per cent from the earlier 7.4 per cent.

“The note ban move has some potential benefits, but the positive effects are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects…benefits of demonetisation are highly uncertain,” the ratings agency said in a note.

“The intentions behind demonetisation are positive and in keeping with the broader reform efforts, but the short-term pains may outweigh the uncertain long-term gains,” it said.

Terming the note ban as a “one-off event” as people will still be able to use the new high denomination bills and other options like gold to store their wealth, it warned that “there are no new incentives for people to avoid cash transactions. The informal sector could soon go back to business as usual.”

World Bank latest reports says global growth to accelerate slightly

World Bank’s latest Global Economic Prospects report … headlines:

 
  • Forecasts global real GDP growth at 2.7% in 2017 vs 2.3% in 2016
  • Forecasts advanced economies’ growth at 1.8% in 2017 (vs 1.6% in 2016)
  • Emerging/developing economies’ growth at 4.2% in 2017 (3.4% in 2016)
  • Forecasts US growth at 2.2% in 2017 (vs 1.6% in 2016) … they say their forecast excludes effects of any policy proposals from trump administration

More:

  • Challenges for emerging market commodity exporters are receding, while domestic demand solid in emerging market commodity importers
  • Fiscal stimulus in US could generate faster domestic and global growth, but extended uncertainty over policy could keep global investment growth slow
  • Forecasts China’s growth slowing to 6.5% in 2017 (from 6.7% in 2016)
(Headlines via Reuters)
 
The World Bank looking at the recovering oil and commodity prices, noting this eases the pressures on emerging-market commodity exporters. Expects the recessions in Brazil and Russia to end.
As always the Bank notes uncertainties in its forecasts (all forecasters should), with upside uncertainty (in the short term at least) on US potential increased fiscal stimulus, tax cuts, infrastructure spending.  Looking further out, though, a surge in debt load, higher interest rates & tighter financial conditions would have adverse effects.
Also downside potential on a more protectionist trade stance.

Note ban most disruptive policy innovation since 1991: Subbarao

Former Reserve Bank governor D Subbarao on Thursday termed demonetisation as “creative destruction and the most disruptive policy innovation since 1991 reforms” that has helped destroy black money.

“On November 8, the Prime Minister (Narendra Modi) and the Reserve Bank have demonetised 86 per cent of currency in circulation overnight, which is what is arguably the most disruptive policy innovation in India since the 1991 reforms,” he said.

“Demonetisation, in that sense, is creative destruction. But it is a very special type of creative destruction. Because what it has destroyed is a destructive creation — black money. So, you can understand that demonetisation is creative destruction of a destructive creation,” Subbarao said.

He was addressing an international conference organised by the Institute for Development and Research in Banking Technologies (IDRBT) in Hyderabad. He further said demonetisation is “arguably” leading to a flurry of innovations in Indian financial sector by way of digitisation of payments.

Preview: What’s priced in for the Federal Reserve ahead of the FOMC Minutes

The FOMC Minutes are due today at 2 pm ET (1900 GMT)

The economic calendar is light today so it’s all about flows to start the year and the FOMC Minutes later in the day.

In general, the Minutes are a release that always gets more attention than deserved. It’s rare the report moves the market and the initial move is often reversed.

But that might not be the case this time because the FOMC hiked rates at the December meeting and left the timing on subsequent rate moves ambiguous. The big market driver was the change in the dot plot.

Here is September compared to December:

Meanwhile, in the press conference Yellen emphasized that the thinking at the Fed hadn’t changed much.

“The shifts that you see here are really very tiny,” she said about the dot plot.

Demonetisation a big blow! GDP growth may dip below 6% in FY17

With consumption spends in rural and urban India stifled by the acute scarcity of cash, the economy is set to clock sharply lower levels of growth in the current and coming quarters. While the initial days of demonetisation saw economists merely pruning their growth estimates, the cuts could get bigger.

Nomura, for instance, believes there is a downside risk to its Q1 GDP growth projection of 6.9% y-o-y. “Near-term growth may fall much more than expected,” economists at the brokerage wrote. They alluded to proprietary indicators which had slumped to their lowest level since the series started in 1996 and were consistent with a below 6% GDP growth.

While sales have decelerated across markets, given the larger volume of cash transactions, the hinterland has been hurt far more than urban areas.

BOJ taking ‘a step forward,’ says Kuroda

The Bank of Japan revised its economic outlook for the first time in 19 months during the two-day policy meeting that ended Tuesday. But that is apparently the only step the central bank is taking at this time.

“The headwinds seen in the first half of this year have ceased,” BOJ Gov. Haruhiko Kuroda told reporters following the meeting. Markets were riled by heightened concerns directed at emerging economies at the beginning of 2016, only to be shocked in June by Britain’s referendum to exit the European Union. The BOJ was forced to loosen its policy in July, raising its target for exchange-traded fund purchases.

 During the second half of 2016, the economic landscape has slowly brightened, beginning with U.S. readings. The Japanese economy has followed suit with increased exports and production. Consumption also recovered from a slump caused by a soft stock market and inclement weather at the beginning of the year.

“Japan’s economy has continued its moderate recovery trend,” the BOJ said in a statement published after the meeting. The central bank had previously qualified that view by highlighting sluggish exports and production.