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Sat, 25th February 2017

Anirudh Sethi Report

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Archives of “federal reserve system” Tag

Overnight US Market :Dow closed up 107 points.Crosses 20600.S&P 500 -Nasdaq Hitting New High

Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.

The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.

Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.

The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.

Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.

Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.

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.

Overnight US Markets :Dow closed + 92 points -Hits New High

Stocks shook of earlier losses and ended higher Tuesday, led by a rise in bank stocks as major indexes pushed further into record territory.

The Dow Jones industrial average gained 92 points, or 0.5%, to an all-time closing high well above that landmark 20,000 level — and a little over halfway to the next 1,000-point rung, at 20,504.41.

Meanwhile the Standard & Poor’s 500 index rose 0.4% and the Nasdaq composite index gained 0.3%. Both indexes also set new all-time closing highs. All three indexes’ previous closing highs came in Monday’s session.

Bond yields rose after Federal Reserve Chair Janet Yellen said the central bank is still on track to raise interest rates gradually.

Yellen answered questions before a Senate committee, and she said that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates.

Bond yields moved higher immediately following Yellen’s comments. The yield on the 10-year Treasury note rose to 2.47% from 2.43% late Monday.

Fed’s Yellen: Hike appropriate at one of its upcoming meetings

Fed’s Janet Yellen Humphrey Hawkins testimony 14 February 2017

  • Rate hike will likely be appropriate at one of its upcoming meetings if employment and inflation evolve in line with expectations
  • Reiterates the view that three hikes are possible in line with Fed forecasts
  • Repeats, waiting too long to tighten would be unwise
  • Gradual increases in Fed funds rate will likely be appropriate but mon pol is not on a set course
  • Hopes that fiscal policies will be consistent with putting the US on a sustainable trajectory
  • Incoming data suggests that the labour market continues to strengthen and inflation moving up to 2% in line with FOMC expectations

The buck has jumped on what is pretty much a repeat of the last FOMC meeting. USDJPY is up to 114.20 on this.

Traders have jumped on the “upcoming meeting” comment but that’s a straw clutch at best, as far as picking a date goes.

The “March” of the Yellen starts today

Yellen starts her two day appearance in front of the government

I’ll keep this one short and sweet. There’s really only going to be one thing the market is going to hang on for when Yellen starts speaking, and that’s whether March is going to feature as a hike possibility.

We’ve almost got a repeat situation to last year where we had a Dec hike accompanied by FOMC members proclaiming multiple hikes throughout the year. We all know what we got then and I suspect we’ll get the same now.

The market is looking at the summer for the next likely hike but it will be on guard to change that if Yellen gives them cause to do so, so any green light for a March hike will see the buck pop higher.

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.

Next Week :Yellen testimony, US data, Netanyahu visit

Federal Reserve Chair Janet Yellen’s semiannual testimony takes the spotlight next week as investors watch for clues on US monetary policy and her take on the current political climate.

Here’s what to watch in the coming days.

Yellen testimony

The Fed has signalled three interest rate rises this year. Sticking to its mantra that all meetings are ‘live’, investors will watch for closely watch “how forceful she is in promoting the notion that March is still on the table,” said Tom Porcelli of RBC Capital Markets.

Indeed, federal fund futures currently imply a 13.3 per cent chance of a rate rise next month, according to CME data.

“Given the uncertainty of timing on the fiscal agenda and the relatively modest uptick in inflation thus far this year, we think it will be difficult for the committee to get enough members on board for a hike in March (not to mention that the French election in late April/early May looms large as a potential catalyst for global volatility),” Mr Porcelli said. “But Yellen could certainly move the “perception” needle on this.”

In the Q&A session, Ms Yellen will likely be grilled on Fed independence, the central bank’s economic outlook and its view on Mr Trump’s planned proposals.

US data

BOJ’s government bond holdings top 40% for 1st time

The Bank of Japan’s holdings of Japanese government bonds has topped 40% of the outstanding balance for the first time, the central bank said Wednesday.

The BOJ has been snapping up JGBs in large quantities since it implemented drastic monetary easing measures in April 2013.

  Statistics released by the bank show that its JGB holdings stood at about 358 trillion yen ($3.19 trillion) as of the end of January, or about 40% of the outstanding total of some 894 trillion yen.

Last September, the BOJ switched its policy focus from quantity to interest rates, aiming to keep long-term rates at around 0% to achieve its inflation target. Nevertheless, its JGB holdings continue to rise, with the bank sticking to its annual target of 80 trillion yen for JGB purchases.

With the amount of such bonds circulating in the market declining, “the bank will reach the limits of its bond purchase program as early as the first half of 2019,” said Takenobu Nakashima of Nomura Securities.

Fed’s Kashkari Says “Stock Prices Appear Somewhat Elevated”, Explains “What Might Be Wrong”

This morning, Minneapolis Fed Chairman Neel Kashkari penned an essay “Why I Voted to Keep Rates Steady” in which the former Goldmanite says that while core inflation “seems to be moving up somewhat, it is doing so slowly, if at all.”  He adds that “financial markets are guessing about what fiscal and regulatory actions the new Congress and the Trump administration will enact. We don’t know what those will be, so I don’t think we should put too much weight on these recent market moves yet.”

Repeating a on often heard lament about the lack of rising wages, Kashkari points out that “the cost of labor isn’t showing signs of building inflationary pressures that are ready to take off and push inflation above the Fed’s target” and adds that “it seems unlikely that the United States will experience a surge of inflation while the rest of the developed world suffers from low inflation.”

Consultations on note ban were on since February 2016: Arun Jaitely to RS

A series of consultations were held between the government and top Reserve Bank of India (RBI) functionaries on demonetisation since February last year, before the central bank Board took a formal decision and conveyed it to the government which took the final call, Rajya Sabha was informed on Tuesday.

Finance minister Arun Jaitley said eight of the 10 directors of the RBI Board were present at the 8 November meeting which made an independent final recommendation with regard to demonetisation to government. He said that in May 2016, the RBI Board took a decision on printing currency of higher denomination as a replacement to demonetised currency.

“Consultations at a very senior level with the RBI on this issue had started way back in the month of February 2016 itself. The RBI Board in the month of May 2016, as a part of these consultations, had decided to go in for and approve the design and taken the decision with regard to the high denomination currency which was required to be printed as a replacement currency itself.

“Thereafter a series of meetings used to be held periodically, at times on a defined day once a week, where the seniors in the RBI as also in the government were in consultation. Because the decision had to be kept in utmost secrecy, it is for this particular reason that these were not put into public domain,” Jaitley informed the Rajya Sabha during Question Hour.