•  
Sun, 28th May 2017

Anirudh Sethi Report

  •  

Archives of “finance” 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%

Overnight US Market :S&P closed at Record High

What sell-off? In a feat that has not been accomplished in more than a week, the S&P 500 on Wednesday notched a fresh record closing high.

The S&P 500 gained 0.25 per cent to 2,404, the Dow Jones Industrial Average added 0.36 per cent to 21,012.4, and the Nasdaq Composite gained 0.44 per cent to 6,163.

Last week, equities markets took a blow from rising concern over the political fortunes of US President Donald Trump.

Still, after Wednesday’s gains, the most recent bout of selling has been entirely reversed and then some. The S&P 500 index is up 7.4 per cent for the year.

Investors on Wednesday parsed through minutes from the Federal Reserve’s May meeting, which set the table for next month’s meeting, which could see it raise rates for the second time this year. Investors interpreted the news as dovish on margin, however, with the US dollar slipping 0.26 per cent against a basket of six peers.

The yield on the benchmark 10-year Treasury note fell 0.0298 per cent to 2.2502 per cent.

Four Numbers to Watch in Forex

The US dollar’s downside momentum faded today.  While one should not read much into it, it could be an early sign that the market has discounted the recent news stream,  which includes the fear that the political turmoil in the Washington will adversely impact the President’s economic program, and the continued above trend growth in the eurozone.
The Fed funds futures continue to discount a strong change of a June Fed hike.  Bloomberg puts the odds at 95% of a hike, while the CME’s model says it is about 83% discounted.  Our calculation puts it at 81%.  A June hike would put the Fed funds target range at 1.00%-1.25%.  
Although the two-year note is trading a few basis points through the top of the presumed new range, the odds that the Fed funds target range will be 1.25%-1.50% by the end of the year is also rising slowly.  Bloomberg sees a 45% chance, up from about 28% a month ago.  The CME sees the odds at 39% compared with about 30% a month ago.  
European growth remains above trend and the flash May PMIs today suggest another strong quarter. However, price pressures remain elusive.  Prices in the PMI fell for the first time in 15 months.    To suggest the ECB could hike rates if it weren’t for the low inflation , is like asking, “Besides that Mrs Lincoln, how was the play?”

No Greece deal at Eurogroup, issue to be reviewed in June

Eurozone finance ministers, the International Monetary Fund and the Greek government failed to agree at talks on Monday on a release of further bailout funds for Athens and reached no deal on further offers of debt relief for Greece, EU officials said.

According reports, the issue will be discussed again next month.

Eurogroup President Jeroen Dijsselbloem said at the conclusion of a meeting of the single currency bloc’s 19 finance ministers that Greece has made “huge progress” on implementing the policy package required of it in return for the money it needs to avoid going bankrupt. He said Monday that Greece still has a few actions to undertake while the institutions overseeing the country’s bailout still have to make some checks.

He also said an agreement on Greek debt relief measures was not possible and that further discussions will need to take place before the next meeting of the so-called eurogroup in three weeks, by which time he hopes that the International Monetary Fund will get on board with Greece’s bailout program.

Sources earlier said that an initial meeting, involving all eurozone finance ministers, yielded a mostly positive assessment of Greece’s adoption of a series of prior actions.

Subsequent talks, aimed at reaching a comprehensive agreement that also tackles Greece’s debt, were trickier.

Half Of Canadians Have $200 Or Less In Savings

Two months ago, when quoting the CEO of cell phone insurer Assurant, who appeared on Bloomberg TV to discuss business trends, one of his quotes caught our attention: “the reality is, half of Americans can’t afford to write a $500 check,” Colberg said. We decided to look into the CEO’s claim about the woeful state of US finances. What we found is that according to a recent Bankrate survey of 1,000 adults, 57% of Americans don’t have enough cash to cover a mere $500 unexpected expense. Turns out the CEO was right. And while that may appear dire, it is a slight improvement from 2016, when 63% of U.S. residents said they wouldn’t be able to handle such an expense.

The Bankrate survey findings echoed research published last year by the Federal Reserve, which found that 46% of respondents said they would be challenged to come up with even less, or $400, to cover an emergency expense, and would likely borrow or sell something to afford it. When the Fed asked what types of emergency expenses Americans had actually faced in the last year, more than one out of five cited a major unexpected medical expense. The average expense: $2,782, or almost seven times higher than the Fed’s hypothetical $400 surprise bill.

How does this stunning statistic compare to some other developed nations?

It turns out that the state of half of US finances, deplorable as it may be is positively shining, not to mention “twice as good”, when compared to the country’s neighbor to the north, where a recent Ipsos survey on behalf of accounting firm MNP, found that more than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations. Needless to say, if $500 in savings is bad, half that amount is outright bizarre.

Probability in Trading

The indulgence of probability

Probability in day trading is an extremely flexible and equally subjective authority. It is one such aspect that provides for a comprehensive room in terms of making decisions and analysing the potential effects of the decision as well. It can be envisioned as a semi-mechanical process which is based on an automated system comprising of various probabilities that depict two possible results at the end of it all.

Application of the laws of probability to determine market curve

The laws of probability are majorly applied to the stock market arena in speculating the growth curve. One of the most common examples is the influence of present growth on a stock. For instance the laws of probability in stock market confers to the fact that a stock is expected to underperform following an adverse growth session since major players tend to reap in the benefits without further risk involvement.

The substantial loss is incurred since major proportions of the people seemingly think alike and want to either cash out with the profits they have made or simply by virtue of the fear of losing money. Either way the scenario is completely structured owing to the presumptuous thinking of the common people and the misguiding statistical analysis with probability at its core.

It is therefore easily understandable that probability plays a comprehensive role at the crux of shaping the stock market manoeuvres. Probability in day trading is completely speculative yet self-induced as well. In an easier and subtle language it can be envisioned as a pseudo element that helps to shape the movements. It is significantly a common entity that is extensively present at the back of the mind in each trader.  

Probability based trading

Overnight US Market :Dow closed +232 points.Nasdaq Composite closed above 6000

The Nasdaq Composite closed at a new all-time high on Tuesday, with the S&P 500 not far behind with sentiment brightening sentiment across trading desks.

The tech-heavy Nasdaq climbed 0.7 per cent to 6,025.5 — its first ever close above the 6,000 mark. The small-cap Russell 2000 was up 1 per cent to 1,411.3, having hit an intra-day record earlier in the day. Meanwhile, the S&P 500 gained 0.6 per cent to 2,388.6.

Lower taxes would increase corporate America’s profits and spark higher levels of economic growth, according to analysis from numerous investment banks following the November election. However, the failure of the White House to repeal and replace Obamacare has cast a shadow on the administration’s ability to enact fiscal measures.

Meanwhile, investors continued to unwind positions in havens that were built up ahead of the French vote. The 10-year Treasury yield, which moves in the opposite direction of the price, was up 0.0646 percentage points to 2.338 per cent. Gold slid 1 per cent to $1,263 a troy ounce.

India : P-NOTE INVTS HIT 4-MONTH HIGH OF RS 1.78L-CR IN MAR

Investments in domestic capital markets via participatory notes (P-notes) have surprisingly surged to 4-month high of Rs 1.78 lakh crore at the end of March despite stringent norms put in place by Sebi to curb inflow of illicit funds. P-notes are issued by registered Foreign Portfolio Investors to overseas investors who wish to be a part of the Indian stock markets without registering themselves directly. They however need to go through a proper due diligence process.

According to Sebi data, total value of P-note investments in Indian markets – equity, debt and derivatives -increased to 1,78,437 crore at March-end, from Rs 1,70,191 crore at the end of February. Prior to that, the total investment value through P-notes stood at Rs 1.75 lakh crore in January-end and Rs 1.57 lakh crore in December-end. In March, investments through the route had touched the highest level since November, when the cumulative value of such investments stood at Rs 1,79,648 crore.    

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.

China steel company fails to make interest payment on bond

via Reuters:

China’s Dongbei Special Steel fails to make interest payment on 5-year bond due April 12 – FX trading platform operator

No further details at this stage
earlier in April was this:
  • State-owned Dongbei Special Steel Group Co Ltd said it faces “uncertainties” about paying interest on medium-term notes
  • Owned by the Liaoning provincial government in the country’s “rustbelt” northeast, Dongbei formally entered into a bankruptcy restructuring process in October aimed at recovering a reported $10 billion in debt
  • The company has been at the heart of troubles in China’s debt market, defaulting on nine separate bonds last year, and the province is home to other struggling state steel mills such the Anshan Group and the Benxi Iron and Steel Group.