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Sat, 25th March 2017

Anirudh Sethi Report

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Archives of “Euro” Tag

Greenback Consolidates Losses as Yields Stabilize

The US dollar remained under pressure in Asia following the disappointment that the FOMC did not signal a more aggressive stance, even though its delivered the nearly universally expected 25 bp rate hike.  News that the populist-nationalist Freedom Party did worse than expected in the Dutch elections also helped underpin the euro, which rose to nearly $1.0750 from a low close to $1.06 yesterday.  European activity has seen the dollar recover a little, but the tone still seems fragile, even though US interest rates have stabilized and the 10-year Treasury yield is back above the 2.50% level. 
The US premium over Germany on two-year money peaked a week ago near 2.23.  After the US yield fell in response to the Fed’s move, the spread finished near 2.12%, from which it has not moved far.  Initial euro support has been found a little above $1.07.  The first retracement target of the run-up is a little below there at $1.0690.  The other retracement targets are seen near $1.0675 and $1.0655. 
Few expected the Wilders in the Netherlands to have a say in the next Dutch government.  He drew about 13% of the vote and will hold about 20 seats, which is five more than currently.  Prime Minister Rutte’s party appears to have received the most votes and 33 seats, down from 41.  The other coalition partners did worse.  In particular, the disastrous showing of Labor means that Dijsselbloem, the current finance minister and head of the Eurogroup of finance ministers is unlikely to hold his post.  Labor may have less than 10 seats in the new parliament, down from 38.  The other coalition partner, Liberals, lost eight seats.  

Greece : Prospects for deal in bailout talks get more distant

After yet another round of inconclusive bailout talks in Athens, Prime Minister Alexis Tsipras said he believed a comprehensive deal with creditors could be reached by April while taking a dig at the International Monetary Fund over its tough stance on labor rights.

In comments to reporters at the end of a summit of European Union leaders in Brussels, Tsipras said he believed a technical-level agreement could still be reached in time for a March 20 Eurogroup, with a broader accord, including the specification of medium-term debt relief measures, coming in April.

Tsipras indicated, however, that tough talks on collective wage bargaining would be harder to conclude. “That issue can’t be solved at the technical level. There’s a disagreement,” he said, adding that the IMF must understand that Greece is a European country and that non-European labor models cannot be imposed on it.

In a related development, IMF chief Christine Lagarde said Tsipras asked the Fund “to stand by Greece” in its third bailout program.

“To commit to Greece, as the Greek prime minister has requested, in addition to reforms, the debt should be sustainable,” Lagarde told French newspaper Le Parisien in an interview.

Euro climbs to 3-week high against dollar on rate speculation

The euro climbed to its strongest level against the dollar since mid-February as the markets reassessed the odds of a December rate rise by the European Central Bank.

A day after mildly hawkish comments from European Central Bank president Mario Draghi helped send the single currency higher, the euro tacked on another 0.9 per cent to hit a three week high of $1.0673 following a report that the ECB had discussed whether rates could rise before it ends its bond buying programme.

However, two people familiar with the discussions denied there had been any meaningful debate over the issue. One person said some members are keen for the council to consider raising the deposit rate, now at minus 0.4 per cent, before it ends its quantitative easing programme.

Against the pound, the euro was up 1 per cent at €1.1393 – a level last seen in mid-January. The currency also firmed more than 1 per cent against the Japanese yen at 122.83.

Marine Le Pen: “I Will Introduce The New Franc At A Rate Of One-To-One To The Euro”

Providing some much needed details on her plans to redenominate the French currency, should she win the French presidential election in under two months, on Wednesday Marine le Pen told RTL radio should would introduce a new franc at a rate of one-to-one to the euro and then allow it to fluctuate, despite previously saying that any new national currency would continue to be pegged to a basket of currencies. She said the new French franc would likely fall “against whatever currency Germany uses”, making French car exports more competitive, but said it might rise against the currency in Italy, a country she said would also be better off without the euro.

Incidentally, many agree with Le Pen, and according to Paddy Power, Italy now has even odds of leaving the EU before 2025, far higher than even perpetually depressed Greece.

Emerging Markets :An Update

  • A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.
  • Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.
  • Bulgaria’s interim government said it may apply to join the eurozone within a month.
  • South Africa’s main labor union Cosatu accepted a government-proposed minimum wage.
  • New Commerce Secretary Ross appears to be taking a less confrontational stance with regards to Nafta.
  • Press reports suggest Mexico may request a swap line from the Fed.
  • Peru’s central bank cut reserve requirements again.
In the EM equity space as measured by MSCI, Turkey (+1.5%), Czech Republic (+1.4%), and Mexico (+1.2%) have outperformed this week, while Colombia (-3.4%), Brazil (-2.1%), and UAE (-2.1%) have underperformed.  To put this in better context, MSCI EM fell -1.4% this week while MSCI DM rose 0.3%.
 
In the EM local currency bond space, India (10-year yield -11 bp), Poland (-9 bp), and Indonesia (-3 bp) have outperformed this week, while Turkey (10-year yield +44 bp), Colombia (+18 bp), and Malaysia (+14 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 18bp to 2.50%.
 
In the EM FX space, MXN (+1.6% vs. USD), PLN (+0.4% vs. EUR), and ARS (+0.2% vs. USD) have outperformed this week, while COP (-3.1% vs. USD), TRY (-3.0% vs. USD), and KRW (-2.2% vs. USD) have underperformed.
 
A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.  He is accused of exchanging bribes for government favors, which were uncovered during the investigation of President Park.  Lee allegedly directed tens of millions of dollars to a confidante of President Park in return for government support of a 2015 merger that benefited his interests.  These developments could fundamentally change the role of the chaebol in the Korean economy.
Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.  If confirmed, the move would likely be in retaliation for Korea agreeing to deploy a US missile defense system.  Spokesman for China’s Foreign Ministry said he wasn’t aware of any such measures while an official at the Korea Tourism Organization (KTO) said China has issued the ban.  KTO estimates that nearly half of the foreign visitors to Korea last year were from China.

Chidambaram questions government’s GDP figure

Former Finance Minister and senior Congress leader P Chidambaram on Friday questioned the Central Statistical Organisation’s GDP growth figure and termed demonetisation a fixed match between the government and Reserve Bank of India (RBI).

He said demonetisation has interrupted India’s economic story and “to recover from this, it would take between 12-18 months, maybe right up to the end of 2017-18”.

“Look at the CSO’s numbers, it seems nothing has happened to the economy. The dazzle of the number cannot hide the fact that crores of people in the country have been devastated,” said Chidambaram.

“The government has changed the methodology. The Gross Value Addition (GVA), when they add taxes to it and subtract subsidies, they arrive at the GDP,” he added.

Chidambaram further said: “The additional tax revenue is not a reflection of growth. Equally being stingy on subsidies doesn’t impact growth.”

Giving out quarter-wise GVAs of three years, Chidambaram said: “In 2014-15, quarter-wise GVAs were 7.26, 7.91, 6.29 and 6.19 per cent. There is no particular trend. It went up and came down. In 2015-16, the numbers are 7.75, 8.44, 6.95 and 7.42 per cent. Again it doesn’t show any trend.

Bitcoin price tops gold for the first time ever

The price of a bitcoin has climbed above that of a troy ounce of gold for the first time on record after the cryptocurrency enjoyed a dramatic upswing in interest since last year.

Bitcoin has jumped by nearly 33 per cent this year to trade at $1,265 on Thursday amid a surge in interest in China, where the authorities fret the digital currency is being used to facilitate capital flight from the country. Bitcoin has risen nearly 200 per cent over the past 12 months, despite efforts to curb its use in China.

Of course, comparing gold to bitcoin is arbitrary, given that the precious metal is measured in weight – a troy ounce of gold (about 31 grams) cost $1,233 on Thursday – while the virtual currency beloved of technologists is entirely ephemeral and abstract. But the cross is nonetheless symbolic of its unexpected staying power and influence in certain circles.

SEC officials on February 14 met with Tyler and Cameron Winklevoss – the bitcoin ETF’s champions – to discuss the proposal and a decision is due by March 11, according to Bloomberg.

The digital currency came close to the headline gold price in late 2013, when it spiked above $1,000 per dollar for the first time, but then quickly halved in value in 2014, traded sideways for much of 2015 before embarking on a sharp rally in the middle of last year.

Dollar hits six-week high

The dollar hit its highest level in more than six weeks on Wednesday morning, amid a sharp increase in bets that the US Federal Reserve will raise interest rates this month.

The dollar index hit 101.78 on Wednesday morning, its strongest level since January 12th and a 0.3 per cent rise on the day, following hawkish comments from an influential member of the Federal Reserve’s policy-setting board.

The probability that rates will rise when the Federal Reserve meets this month shot up from 50 per cent to 80 per cent yesterday after William Dudley, head of the New York Federal Reserve, said that the prospects for adding to the December 2016 rate increase had become “a lot more compelling”.

The rise in the dollar sent the pound to its weakest level in more than three weeks at $1.2348. The US currency was up 0.7 per cent against the Japanese yen at Y113.5 while the euro fell 0.3 per cent to €1.0544.

The Fed meets on March 14-15.

European Indices Closed in RED

European stock market close 16 February 2017

If you can call a 0.16% gain “standing out” that is.

  • FTSE -0.4%
  • Cac -0.6%
  • Dax -0.4%
  • Ibex -0.4%
  • FTSE Mib +0.2% (I’ve done them a favour and rounded it up)

European bonds

  • Italy 2.14% -10bp
  • Spain 1.59% -9bp
  • Portugal 3.97% -12bp
  • Germany 0.350% -2bp
  • Greece 7.79% +3bp

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”