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Sun, 28th May 2017

Anirudh Sethi Report

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Archives of “federal reserve system” Tag

When Economists get news they don’t want to hear

The problem with predictions and ego

Pickup and economists research note from the past month and it’s likely to say the same thing — the Fed is going to hike in June.

Everyone is singing from the same hymnbook. The problem is that the Fed is the piano player and yesterday changed its tune. This is the line in the FOMC Minutes:

“Members generally judged that it would be prudent to await additional evidence indicating that the recent slowing in the pace of economic activity had been transitory before taking another step in removing accommodation.”

That can’t be misunderstood.

What it says is that if economic data continues to be soft, they’re not hiking in June.

That doesn’t mean that a hike is off the table but it certainly means that it’s not a sure thing.

Here are a few data points since the May 3 meeting:

  • Q1 nonfarm productivity -0.6% vs -0.1% exp
  • Factory orders +0.2% vs +0.4% exp
  • Nonfarm payrolls 211K vs 190K exp
  • Avg hourly earnings 2.5% vs 2.7% y/y exp
  • JOLTS 5743K vs 5725K exp
  • Core PPI +0.7% vs +0.2% exp
  • CPI +2.2% y/y vs +2.3% exp
  • Retail sales control group +0.2% vs +0.4%
  • Empire Fed -1.0 vs +7.5 exp
  • NAHB housing market index 70 vs 68 exp
  • Housing starts 1172K vs 1260K exp
  • Building permits 1229K vs 1270K exp
  • Industrial production +1.0% vs +0.4%

Bitcoin Explodes, Trades Above $4,000 In South Korea

In recent weeks it has been Japanese demand (and notable premia) that has driven the exponential rise in Bitcoin, but recently, as CoinTelegraph reports, it has been South Korea. Overenight saw Bitcoin prices explode once again, smashing through $2500, $2600, and $2700 for the first time…

As CoinTelegraph.com reports, South Korean Bitcoin traders are facing asking prices of $4,500 as the virtual currency’s price continues to surge.

Order books from domestic exchange Coinone list a current price of 4,254,000 won ($3805), with a 24-hour high of 5,025,000 ($4494).

Bitcoin Live Orderbook

Coming Week Eye on :Trump, Fed minutes, Opec

Investors will keep a close eye on US politics next week as US President Donald Trump’s first foreign trip coincides with a growing White House scandal at home.

Here’s what to watch in the coming days.

Trump

The nine-day tour will also see Mr Trump visit Israel and continue on to Rome before heading to a Nato summit in Brussels. The meeting comes as the president’s attempts to give Nato a more formal role in the anti-Isis coalition has faced resistance from France and Germany. Mr Trump will also attend a G-7 meeting in Sicily.

The overseas trip comes with Mr Trump under siege at home following revelations that he pressed James Comey, the FBI director who was abruptly dismissed last week, to drop a probe into the Trump administration’s ties with Russia. Mr Comey has been invited to testify before Congress on Wednesday.

Further complicating matters, new Russia claims were published just after Mr Trump departed Washington on Friday, casting more clouds over the trip even as it got underway.

Fed minutes

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

With the Fed contemplating whether to hike again next month and start “normalizing ” its balance sheet before the end of 2017, the two other major central banks are facing far bigger problems.

* * *

Two months after the BOJ quietly started tapering its QE program, when it also hinted it may purchase 18% less bonds than planned…

… Governor Haruhiko Kuroda admitted last week that the Bank of Japan’s bond holdings are currently growing at an annualized pace of only ¥60 trillion ($527 billion), 25% below the bottom-end of its policy range, and confirming that without making any formal announcement, the BOJ has quietly followed the ECB in aggressively tapering its bond buying program.

World Money: Five Hidden Signals From The IMF

Less than a month ago a handful of the world’s policy makers gathered in Washington at the International Monetary Fund (IMF), no surprising headlines were run – but an obscure meeting and a discreet report launched exclusive signals for the next global economic crisis.

The panel, which included five of the most elite global bankers, was held during the IMF’s spring meetings to discuss the special drawing rights (SDR) 50th anniversary.  On the surface the panel was a snoozefest, but reading beyond the jargon offers critical takeaways.

The discussion revealed what global central banks are planning for a future crisis and how the IMF is orchestrating policy for financial bubbles, currency shocks and institutional failures.

Why the urgency from the financial elites?

In his opening remarks Obstfeld identified, “There has been increasing debate over the role of the SDR since the global financial crisis. We in the Fund have been looking more intensively at the issue over whether an enhanced role for the SDR could improve the functioning of the international monetary system.”

“The official SDR is something we are familiar with but is there a role for the SDR in the market or a market SDR? What is the SDR’s role for the unit of account?”

Here’s the five most important signals from the world money panel, what they could mean for the international monetary system and the future of the dollar.

1. China Spars for the SDR Market

Key Economic releases/events next week

For the week starting May 14th, 2017

Monday May 15, 2017
  • New Zealand Retail sales.
  • China Industrial Production
  • US Empire state Manufacturing index
Tuesday, May 16, 2017
  • Australia Monetary Policy Meeting minutes
  • UK CPI
  • ECB Notwotny speaks
  • ECB Coeure speaks
  • US Housing starts/building permits
  • US Capacity Utilization/Industrial Production
  • US Building permits
  • NZ Global Dairy Trading prices index
Wednesday, May 17, 2017
  • NZ PPI QoQ
  • UK Employment statistics
  • EU Final CPI YoY
  • Canada Manufacturing Sales
  • Crude oil inventories
Thursday, May 18, 2017
  • Japan Preliminary GDP
  • Australia Employment
  • UK Retail Sales
  • ECB Mersch speaks
  • US Unemployment claims
  • Feds Mester speaks on the economy/monetary Policy
Friday, May 19, 2017
  • ECB Constancio speaks
  • Canada CPI
  • Canada Retail Sales
  • Fed’s Bullard speaks on the economy and monetary policy

A Problem Emerges: Central Banks Injected A Record $1 Trillion In 2017… It’s Not Enough

Two weeks ago Bank of America caused a stir when it calculated that central banks (mostly the ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record.” 

 

Forex reserves increase by $889.4 mn to $369.887 bn

India’s foreign exchange reserves rose by USD 889.4 million to USD 369.887 billion during the week ended April 14, helped by increase in foreign currency assets, the Reserve Bank said.

They had declined by USD 956.4 million to USD 368.998 billion in the previous reporting week.

The reserves had touched a life-time high of USD 371.99 billion in the week to September 30, 2016.

Foreign currency assets (FCAs), a major component of the overall reserves, surged by USD 881 million to USD 346.248 billion in the reporting week, RBI said.

Expressed in US dollar terms, FCAs 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 unchanged at USD 19.869 billion, the apex bank said.

The special drawing rights with the International Monetary Fund was up by USD 3.1 million to USD 1.446 billion.

India’s reserve position with the Fund, too, rose by USD 5.3 million to USD 2.323 billion, RBI said.

Emerging Markets :An Update

  • Malaysia’s central bank said it will allow investors to fully hedge their currency exposure.
  • Egypt declared a 3-month state of emergency after two deadly church attacks.
  • South Africa’s parliamentary no confidence vote has been delayed
  • Argentina central bank surprised markets with a 150 bp hike to 26.25%.
  • Brazil central bank accelerated the easing cycle with a 100 bp cut in the Selic rate.
In the EM equity space as measured by MSCI, South Africa (+3.1%), Turkey (+2.5%), and the Philippines (+0.9%) have outperformed this week, while Russia (-3.9%), Peru (-3.4%), and Brazil (-2.6%) have underperformed.  To put this in better context, MSCI EM fell -0.3% this week while MSCI DM fell -0.7%.
 
In the EM local currency bond space, South Africa (10-year yield -18 bp), Poland (-8 bp), and Indonesia (-8 bp) have outperformed this week, while Brazil (10-year yield +11 bp), Peru (+9 bp), and Colombia (+9 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 15 bp to 2.24%.
 
In the EM FX space, ZAR (+2.5% vs. USD), RUB (+1.9% vs. USD), and ARS (+1.2% vs. USD) have outperformed this week, while HUF (-0.9% vs. EUR), KRW (-0.5% vs. USD), and PLN (-0.5% vs. EUR) have underperformed.

Trump puzzles traders, but sends European bonds to highest point of the year

“I like a low interest rate policy, I must be honest with you,” Donald Trump told the Wall St Journal yesterday. His comments have further fired up already strong US government bonds, with the effects spilling over into European debt this morning. Like their US counterparts, German 10-year bond prices are now around their strongest point of the year.

Mr Trump’s new comments are not the only weight on global bond yields. Among other things, geopolitical nerves and the failure of his healthcare plans have also imposed a longer-term weight.

Still, 10-year Bund yields have sunk by 0.02 percentage points so far today to 0.175 per cent. (Yields fall when prices rise.) That’s the strongest level for Bunds since late December.

US yields, which exert a strong gravitational pull on other core markets, now stand at 2.32 per cent, the lowest since mid-November.

Some have doubts this will last.