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Tue, 25th April 2017

Anirudh Sethi Report

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Archives of “gold standard” Tag

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.

WSJ on Yellen:”indicates era of extremely stimulative monetary policy is coming to an end”

The Wall Street Journal recap of Yellen’s speech and remarks earlier today

  • Ms. Yellen said the Fed was moving away from its efforts to revive a recession-scarred economy and focusing instead on maintaining the gains of the past few years
  • That will change the central bank’s policy-making stance, she said
  • Noting that Fed officials plan to continue gradually raising interest rates unless the economy begins to deteriorate
  • The Fed’s benchmark short-term interest rate will continue to move up to its long-term average, she said.
None of which comes a surprise, Fed communication efforts in past days have been on this message.

Soft NFP data has USD in retreat again but buyers lurking still

weaker than expected US non-farm payrolls data left bulls disappointed

  • Fed funds futures imply 61% now see June rate hike from 70% yesterday
  • 2year treasury yields hit 5 week low of 1.198%
  • 30yr yields touch lowest since 18 Jan at 2.939%
  • 5year yields 1.784% lowest since Nov 2016

So who thinks a rate hike is imminent now? Ok, so one swallow doesn’t make an summer but if the Fed is data dependent then this will have them scratching their chins at the very least

USD buyers returning though as I type as befits a market that’s chasing shadows with Syria and Trump/Xi talks also in the mix as I highlighted earlier.

GBPUSD back to 1.2428 after failing at 1.2450 again. USDJPY 110.44 from 110.16. EURUSD 1.0624 from 1.0667.

As we were then before the data came out but I hope you took the opportunity to take some profit or enter into fresh trades.

Richmond Fed President Lacker Resigns After Admitting He Leaked Confidential Fed Information

We can now close the case on who leaked that confidential, market-moving data to Medley global back in 2012: it was Richmond Fed’s Jeffrey Lacker, who previously was expected to retire in October, and  is resigning immediately.

In a statement, Lacker confirms he revealed confidential FOMC information to Medley Global and that he lied to the Fed’s general counsel on at least two occasions. His full statement is below: 

Statement Of Dr. Jeffrey Lacker 

During the past 13 years it has been my privilege to serve as President of the Federal Reserve Bank of Richmond. It has also been an honor to contribute to the development of our nation’s monetary policy as a member of the Federal Reserve’s Federal Open Market Committee (“FOMC”).

 While transparency of the monetary policy process is important, equally important are the confidentiality policies that protect the internal deliberations of the FOMC and ensure the integrity of our financial markets. The Federal Reserve’s confidentiality policies seek to guide participants in maintaining the balance between transparency and confidentiality. The FOMC has had in place for many years two specific policies relating to confidentiality. the FOMC Policy on External Communications of Committee Participants (the “External Communications Policy-) and the Program for Security of FOMC Information (the “Information Security Policy”). 

In 2012, my conduct was inconsistent with those important confidentiality policies. Specifically, on October 2, 2012, I spoke by phone with an analyst (“the Analyst”) concerning the September 2012 meeting of the FOMC. The Analyst authors reports on Federal Reserve matters on behalf of Medley Global Advisors (“Medley’). Medley publishes macro-economic policy intelligence for institutions such as hedge funds and asset managers and is owned by the Financial Times Limited. 

Gold forecast from BNP, lower due to Fed hikes ($ 1220 for 2017 ,$ 1120 for 2018 )

A piece from BNP says analysts there are bearish on gold due to a stronger USD expected as the Federal Reserve hikes rates

BNPs gold forecast
  • An average price of USD1,245 for Q2 of 2017
  • $1220 for 2017 as a whole on average
  • $1120 for 2018 as a whole on average
  • BNP hedge that demand may increase on European political uncertainty though
  • Longer term trend remains down though
On the Fed:
  • Expect a total of 3 Federal Reserve hikes this year
  • And more over the coming year, says market is too complacent on the potential 2018 hikes also

People’s Bank of China sets yuan reference rate at 6.8701 (vs. Friday at 6.8845)

PBOC open market operations today … well, the bank says none today. The Bank says bank liquidity is high.

By skipping OMOs in effect the bank has drained a net 80bn yen (maturing RRs)
CNY set at its highest against the USD for a month today.
RMB index: On Friday the CNY was set against its basket at 92.91, down 0.41 on the week

Upcoming Week :Fed speakers, Russia probe, Isis fight

With a rate rise in the books investors get to hear from a handful of Federal Reserve speakers next week. On the geo-political front a hearing on Russia’s interference in the US presidential election and a meeting on combatting Isis take the spotlight.

Here’s what to watch in the coming days.

Fed speakers

“Moreover, we’d also look for clarification on the addition of ‘symmetric’ in the press statement when it came to defining the inflation reaction function,” strategists at RBC Capital Markets said. “Our sense is that this was in an effort to put an end to inflation level targeting—also not a dovish development.”

Ms Yellen will deliver the opening keynote at the Federal Reserve System Community Development Research Conference in Washington on Thursday. Through the week, investors also get to hear from voting members of the monetary policy setting Federal Open Market Committee, including Chicago Fed president Charles Evans, Dallas Fed president Robert Kaplan and Minneapolis Fed president Neel Kashkari — the only voting FOMC member to dissent at the March meeting and who has explained his rationale for the move on Friday.

On the economic data front, the calendar is fairly light but investors will keep an eye on fourth quarter current account deficit figures due Tuesday and durable goods orders slated for Friday.

Russia probe

Post-FOMC Reuters poll of primary dealers: Most see 2 more hikes this year

Reuters poll of banks that do business directly with the Federal Reserve, these are the US ‘Primary Dealers” banks:

  • Most US primary dealers see 2 more Fed rate hikes in 2017 and at least 3 in 2018
  • 16 of 17 primary dealers expect federal funds target rate to rise to 1.25-1.50% by year end (vs. 0.75-1.00% now)
  • 11 of 17 dealers see next Fed rate hike by end of Q2; 6 see next move by end of Q3
  • 12 of 15 dealers see at least 3 hikes in 2018; 7 see 3 increases while 5 forecast 4 hikes
  • -8 of 15 dealers see the Fed announcing its balance sheet reduction plan later this year; 7 see it happening in 2018 or later
  • On near-term risks to the economy, 6 cite trade policy as greatest threat, 5 cite fiscal policy, 2 cite us dollar strength

India : Gold imports said to almost triple in February on wedding demand

Gold imports by India, which competes with China for the role of world’s biggest consumer, are said to have risen almost three-fold in February from a year earlier as jewellers increased stockpiles before the festival and wedding period that starts next month.

Shipments jumped 175% to 96.4 metric tons in February from a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the data aren’t public. Overseas purchases slid 32% to 595.5 tons in the 11 months to February. Ministry spokesman D. S. Malik declined to comment on the data.

After a lull in demand exacerbated by Prime Minister Narendra Modi’s move to withdraw high denomination currency notes, jewellers are building up inventories.

They expect to see some recovery in purchases ahead of India’s wedding season and on the auspicious Hindu gold-buying day of Akshaya Tritiya that falls toward the end of April this year.

Next Week :Watch For China, US jobs, ECB

China’s National People’s Congress gets underway this weekend, and investors will get an update on the health of the US labour market.

Here’s what to watch in the coming days.

China

While much of the discussion takes place in closed-door meetings, economists are paying attention to the Government Work Report and the 2017 growth target. Jian Chang, economist at Barclays, said their base case is for 6.5 per cent growth. He also expects the government to maintain the budget deficit at 3 per cent and inflation target at 3 per cent.

On the politics front, China-watchers will keep their eyes peeled for clues on who could make it to China’s 25-member Politburo and possibly the Politburo Standing Committee (PSC), following a reshuffle of some senior provincial and central government leaders, particularly with the 19th Party Congress scheduled for this fall.

UK budget

UK chancellor Philip Hammond will present his first budget on Wednesday, and economists expect it to show a decline in gilt issuance.

“The UK economy has outperformed earlier forecasts, and so there should be a bit more revenue to play with, leading to the first decline in borrowing in 3 years,” strategists at TD Securities said. “But we see a cautious budget with few giveaways as the UK approaches Brexit.”

European Central Bank