Sat, 27th May 2017

Anirudh Sethi Report


Archives of “international trade” Tag

Moody’s downgrades Hong Kong after China ratings cut

Where China goes, so goes Hong Kong.

Moody’s has cut Hong Kong’s local and foreign currency ratings by a notch to A1 on Wednesday just hours after it downgraded its rating on China amid concerns over the country’s rising debt and slow pace of economic reforms.

In a statement, the US ratings agency cites Hong Kong’s exposure to the mainland for the move. It said:

The downgrade in Hong Kong’s rating reflects Moody’s view that credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close and tightening economic, financial and political linkages with the mainland.

In the nearly 20 years since Hong Kong reverted back to Chinese rule, the economic and financial ties between the two have tightened considerably. As Moody’s noted:

Directly, China accounts for more than half Hong Kong’s exports of goods, three quarters of tourist arrivals and 40 per cent of exports of services in general. Indirectly, Hong Kong is a very open economy with exports, the vast proportion of which are re-exports, accounting for nearly 190 per cent of GDP. Combined with China’s rising share in world GDP and global trade, Hong Kong’s very high openness to global trade intensifies the effective economic links between Hong Kong and China.

Financial linkages between Hong Kong and China are broad in nature and large in the size of the assets involved. The Hong Kong banking sector’s exposure to mainland China increased further in the second half of last year. Total mainland-related lending rose to HKD3.6 trillion at the end of 2016, up 3.5 per cent compared with last June, while other non-bank exposures also increased by 11.4 per cent to HKD1.2 trillion.


Strong performance by petroleum, engineering and textiles sectors pushed up India’s exports growth by 19.77 per cent to $ 24.63 billion in April but trade deficit witnessed about three-fold increase to $13.24 billion mainly on account of sharp jump in gold and crude oil imports during the month.

“In continuation with the double digit growth exhibited by exports during March, exports during April have shown growth of 19.77 per cent,” the commerce ministry said in a statement.

The country’s imports too jumped 49.07 per cent to $37.88 billion last month from $25.4 billion in April 2016.

Gold imports rose three-fold to $3.85 billion in April compared to $1.23 billion in the same month last year.

In April, petroleum, textiles, engineering goods and gems and jewellery shipments recorded a growth of 48.77 per cent, 31.72 per cent, 28.21 per cent and 15 per cent respectively.

The other sectors that helped boost exports include chemicals, iron ore, marine products, cashew, oil meals, iron ore and plastic. Further, oil imports grew by 30.12 per cent to $7.35 billion. Non-oil imports too rose by 54.50 per cent to $30.52 billion.

How Hedge Funds Play The OPEC Deal Extension

We’ve had a good two-way crude oil market since the first of the year which has helped hold crude oil in a relatively narrow range as aggressive traders continue to play the long side, in anticipation of a balance between supply and demand.

This year began with an oversupplied crude oil market, but with a bullish tone set by OPEC when they decided to start reducing output in an effort to trim supply and stabilize prices. On paper, the idea seemed bullish. What they didn’t expect, however, was the surge in U.S. production that skewed their forecasts and timetables for global supply and demand to reach a balance.

For nearly six months, traders have been pelted with stories nearly every day telling them about OPEC supply cuts and increased U.S. production. The stories seem to have neutralized the markets to a point where crude oil prices have become range bound.

In order for a market to become range bound, some major market player has to be selling enough crude oil to stop a rally and some major market player has to be buying enough crude oil to stop the decline.

However, inside the trading range we’ve seen several pockets of volatility and these moves can only be blamed on the speculators and namely, the hedge funds.

If you’ve traded speculative markets, I’m sure you’ve noticed that markets come down faster than they go up. Essentially, this is because speculative buyers tend to be very careful about where they buy or enter the market, but when it’s time to sell, they don’t care what they pay to get out.

China Reserves Jump Most In 3 Years to $ 3.03 Trillion

In all the drama surrounding the French elections, few noticed the PBOC’s announcement that China’s FX reserves rose for the third straight month in April, increasing by $20.45 billion to $3.03 trillion, more than the $11 billion expected and the single biggest monthly increase in three years going back to April 2014, on the back of a weaker dollar and increasingly more draconian capital controls on outflows.

Cited by the WSJ, some economists attributed April’s increase to a dollar that continued to decline in the past month especially after Trump said the U.S. currency “is getting too strong.” The value of other currencies in China’s reserve basket, including the euro, the British pound and Japan’s yen, similarly played a significant role in the rise, said Yan Ling, an economist with China Merchants Securities.

Besides USD softness (USD has weakened against the CFETS basket by over 2% year-to-date through April) and perhaps stronger RMB sentiment, the capital flow management measures introduced over the last several months have also contributed to the slowdown in outflows, Goldman speculated in a Sunday note. That could reverse, as there may be incremental relaxation of the capital account as the flow situation has improved and an overly tight capital account could hinder legitimate international trade and the authorities’ long-term RMB internationalization goals.

Angola Oil Minister Expects OPEC to Reach Oil Deal Extension Decision in May

Angola’s minister of petroleum said Thursday he expects the Organization of the Petroleum Exporting Countries (OPEC) to reach an oil output extension decision in May even if Russia declines to take part.

“I think so, yes,” Jose Maria Botelho de Vasconcelos told reporters when asked if the decision could be expected at OPEC’s next meeting in Vienna on May 25.

The Angolan minister said the cartel would decide on a six-month output cut extension if oil prices do not grow, naming $60 per barrel as a reasonable target.

Botelho de Vasconcelos added that OPEC’s decision would be reached even if non-member Russia opted out of the extension.

Draghi says risks of deflation have largely disappeared

Draghi statement to IMFC

  • Growth in the Eurozone is firming and broadening
  • There are sign of a somewhat brighter global recovery and increasing global trade
  • Cannot yet have confidence that a sustained rise in inflation will materialize in a sustainable manner
  • Underlying inflation has not shown a convincing upward trend

You could say he’s cautiously optimistic.

Earlier in the year, the market read the optimism as a sign of potential action to tighten but officials have fought back against that idea, and that’s what helped to cap the euro at 1.09.

“As underlying inflation remains subdued and the path of inflation crucially dependent on the prevailing very favourable financing conditions, we cannot yet have sufficient confidence that a sustained adjustment in inflation will materialize in a durable manner,” he wrote.

It’s a similar line to what he said after the March 9 ECB meeting. The next ECB meeting is April 27.

Japan – Trade balance for March: Y 614.7bn (expected Y 608.0bn)

Here’s the Trade balance for March, from the Ministry of Finance
Y 614.7bn
  • expected Y 608.0bn, prior was Y 813.5bn
Trade balance (adjusted): Y 172.2bn
  • expected Y172.0 bn, prior was Y 680.3bn
Exports for March y/y:  12.0% big BEAT
  • expected 6.2%, prior was 11.3%
  • fastest rise in exports since January of 2015
  • exports to US +3.5% y/y
  • to China +16.4% y/y
  • to Asia +16.3% y/y
  • to EU +1.4% y/y
Imports for March y/y:  15.8% and another big BEAT
  • expected 10.2%, prior was 1.2%
The improvement in Japanese exports continued in March.


India’s gold import witnessed a fall of about 24 per cent to $23.22 billion in April- February period of the last fiscal, which is expected to keep a lid on the current account deficit.

Total import of the precious metal in the corresponding period of 2015-16 stood at $30.71 billion.

According to industry experts, softening prices of gold in the domestic and world markets could be the reason for the same.

The contraction in import helped in narrowing the trade deficit to $95.2 billion during the 11-month period of 2016-17 as against $114.3 billion in the same period of the previous fiscal.   

Global economy – what’s coming up this week?

How is this for a quick summary of what the major global economic events are coming up this week? What have I missed that you are watching for (in the comments please)?

  • 0830GMT 11 April  – U.K. inflation, expected 2.3% y/y (prior also 2.3%)
  • 0900GMT 11 April – Eurozone industrial production (Eurostat data), expected +0.1% on the month (1.9% y/y), prior 0.9% (0.6%)
  • 0130GMT 12 April – China CPI and PPI, March
  • CPI expected 1.0% y/y, prior 0.8%
  • PPI expected 7.5%, prior 7.8% (highest since 2008)
  • Some time on 13 April Asian day China March trade balance … expect the impact of the lunar new year holiday to start top fade from the data with this release
  • 1230GMT 14 April – US retail sales & CPI for March
  • Retail sales headline -0.1% m/m, prior +0.1%
  • Core CPI headline 0.2% m/m (2.3% y/y) with prior of 0.2% (2.2%) (Core is excl food and energy)

EU Brexit chief Barnier: ‘the devil will be in the detail’

Michel Barnier, the EU’s chief Brexit negotiator, has dampened hopes for a speedy UK exit and trade deal, warning talks will be bedeviled by details over the next two years.

“Theresa May’s [Article 50] letter seeks a rapid agreement, but quite clearly the devil is going to be in the detail. The six months work I’ve done so far points to that”, said Mr Barnier, addressing MEPs in Strasbourg on Wednesday.

The former French foreign minister, who will be carrying out Brexit negotiations on behalf of the EU, said Britain’s desire to carry out its divorce talks alongside arrangements for a free trade deal was a “very risky approach”.