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Fri, 26th May 2017

Anirudh Sethi Report

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Archives of “mexican peso” Tag

Emerging Markets :An Update

  • A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.
  • Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.
  • Bulgaria’s interim government said it may apply to join the eurozone within a month.
  • South Africa’s main labor union Cosatu accepted a government-proposed minimum wage.
  • New Commerce Secretary Ross appears to be taking a less confrontational stance with regards to Nafta.
  • Press reports suggest Mexico may request a swap line from the Fed.
  • Peru’s central bank cut reserve requirements again.
In the EM equity space as measured by MSCI, Turkey (+1.5%), Czech Republic (+1.4%), and Mexico (+1.2%) have outperformed this week, while Colombia (-3.4%), Brazil (-2.1%), and UAE (-2.1%) have underperformed.  To put this in better context, MSCI EM fell -1.4% this week while MSCI DM rose 0.3%.
 
In the EM local currency bond space, India (10-year yield -11 bp), Poland (-9 bp), and Indonesia (-3 bp) have outperformed this week, while Turkey (10-year yield +44 bp), Colombia (+18 bp), and Malaysia (+14 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 18bp to 2.50%.
 
In the EM FX space, MXN (+1.6% vs. USD), PLN (+0.4% vs. EUR), and ARS (+0.2% vs. USD) have outperformed this week, while COP (-3.1% vs. USD), TRY (-3.0% vs. USD), and KRW (-2.2% vs. USD) have underperformed.
 
A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.  He is accused of exchanging bribes for government favors, which were uncovered during the investigation of President Park.  Lee allegedly directed tens of millions of dollars to a confidante of President Park in return for government support of a 2015 merger that benefited his interests.  These developments could fundamentally change the role of the chaebol in the Korean economy.
Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.  If confirmed, the move would likely be in retaliation for Korea agreeing to deploy a US missile defense system.  Spokesman for China’s Foreign Ministry said he wasn’t aware of any such measures while an official at the Korea Tourism Organization (KTO) said China has issued the ban.  KTO estimates that nearly half of the foreign visitors to Korea last year were from China.

Mexico’s Pemex cuts net loss by almost 60% in 2016

Pemex, Mexico’s national oil company, slashed its 2016 net loss by nearly 60 per cent to 296bn ($14.3bn) pesos from 713bn pesos in 2015 amid cost-cutting, and Juan Pablo Newman, finance director, told a conference call “finances are stable, but can certainly be improved”.

In the fourth quarter, Pemex trimmed its net loss by 91 per cent to 32.2bn pesos from 360bn. It was its 17th straight loss, but as a sign of the improving trend, Mr Newman noted that with 2016 average production of 2.154m barrels per day, crude output beat the company’s target.

He said efforts to reduce costs and improve efficiency would “continue to bear fruit” and highlighted key associations, asset sales plus the sale this month of the biggest-ever emerging market eurobond as signs that Pemex is on the right track.

Emerging Markets: An Update

  • Press reports suggest that China’s central bank has ordered banks to limit new loans in Q1.
  • Fitch revised the outlook on Nigeria’s B+ rating from stable to negative.
  • Russia announced details of the FX purchase plan.
  • Brazil’s central bank confirmed it will simplify the reserve requirement system for banks.
  • S&P cut the outlook on Chile’s AA- rating from stable to negative.
  • Mexican announced another hike in fuel prices will take place on February 4.
  • Mexican President Pena Nieto canceled a planned meeting with President Trump as tensions flare

In the EM equity space as measured by MSCI, Mexico (+5.1%), Russia (+4.5%), and Poland (+4.0%) have outperformed this week, while UAE (-1.5%), Hungary (-0.1%), and South Africa (flat) have underperformed.  To put this in better context, MSCI EM rose 2.2% this week while MSCI DM rose 1.1%.

In the EM local currency bond space, Colombia (10-year yield -17 bp), the Philippines (-16 bp), and Peru (-10 bp) have outperformed this week, while Poland (10-year yield +18 bp), South Africa (+13 bp), and Korea (+7 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 3 bp this week to 2.50%.

 
In the EM FX space, MXN (+2.7% vs. USD), CLP (+1.1% vs. USD), and ZAR (+0.9% vs. USD) have outperformed this week, while TRY (-2.7% vs. USD), HUF (-0.7% vs. EUR), and COP (-0.4% vs. USD) have underperformed.
 
Press reports suggest that China’s central bank has ordered banks to limit new loans in Q1.  The PBOC reportedly emphasized its concern about mortgage lending.  Reports also suggest that it may make some lenders pay more for deposit insurance.  If reports are true, then we would expect the economy to slow as we move through 2017.  For now, China is not one of the major market drivers but this news would clearly be negative for risk and EM.

Peso Plunges To Record Low After Trump Tweet

The Mexican Peso is plunging once again this morning – very close to all-time record lows – as fears spread that Ford’s decision yesterday may become the norm following president-elect Trump’s tweet that “this is just the beginning.”

Bloomberg notes that Ford’s move, which follows a similar decision by United Technologies Corp.’s Carrier in November, makes it all the more important for Mexican President Enrique Pena Nieto to dissuade other foreign companies from following suit in the face of Trump’s wrath. Mexico’s northern neighbor buys 80 percent of the Latin American nation’s exports, and luring U.S. companies is a cornerstone of the government’s plans to modernize industries from construction to oil.

“A lot’s at stake, considering that since 1999 close to 46 percent of foreign direct-investment flows into Mexico originated in the U.S.,” said Alonso Cervera, chief Latin America economist for Credit Suisse Group AG. “Investors will likely be anxious to see which other companies may do the same.”

 The damage caused by companies buckling under political pressure offers a preview of the ripples that could jolt Mexico’s economy should Trump also follow through with threats to tear up free-trade agreements and to build a border wall. Economists in Bloomberg surveys have already cut their median forecasts for GDP growth in 2017 to 1.7 percent from an estimate of 2.3 percent before Trump was elected.

 

Emerging Markets: An Update

  • China will raise the sales tax on small cars to 7.5% in 2017.
  • New methodology used by Turkstat to measure Turkish GDP has led to significant upward revisions.
  • Turkish authorities are growing more concerned about the weak lira.
  • Fitch moved the outlook on Chile.
  • Chile’s central bank shifted to an expansionary policy bias.
  • Colombia selected Juan Jose Echavarria to be the new central bank governor.
  • Fitch revised the outlook on Mexico’s BBB+ rating from stable to negative.
  • Banco de Mexico hiked rates by a larger than expected 50 bp.

In the EM equity space as measured by MSCI, Hungary (+4.3%), Russia (+3.2%), and Turkey (+2.3%) have outperformed this week, while Brazil (-3.8%), China (-3.6%), and Chile (-3.5%) have underperformed.  To put this in better context, MSCI EM fell -2.3% this week while MSCI DM fell -0.1%.

In the EM local currency bond space, Poland (10-year yield -15 bp), Korea (-4 bp), and Czech Republic (-4 bp) have outperformed this week, while the Philippines (10-year yield +41 bp), Indonesia (+32 bp), and Hong Kong (+32 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 12 bp this week to 2.59%.

In the EM FX space, RUB (+1.4% vs. USD), HUF (+0.9% vs. EUR), and PLN (+0.7% vs. EUR) have outperformed this week, while CLP (-2.7% vs. USD), EGP (-2.7% vs. USD), and ZAR (-1.7% vs. USD) have underperformed.
 
China will raise the sales tax on small cars to 7.5% in 2017.  The tax will be increased further to 10%, according to the Finance Ministry.  The government cut this tax rate from 15% in October 2015 after lobbying from China’s auto association.  Automakers had asked for the tax cut to be made permanent.

Banco de Mexico raises rates by 50 basis points to 5.25%

This is as expected.

The Bank of Mexico increased rates by 50 basis points to 5.25% as expectations.
The MXN weakened initially on the report but has since moved back higher. The price remains between the 100  hour MA above at 20.4743 above and the 38.2% retracement below at 20.1508.
  • rate hike seeks to counteract inflationary pressures  and keep inflation expectations anchored
  • closely watching for any pass-through from peso to prices
  • bank does not have  exchange rate target
  • will also be vigilant on relative  monetary policy stance with US  without  ignoring the output gap
  • Mexico is in a position of strength but needs to additionally strengthen macroeconomic fundamentals
  • Expects inflation to end year slightly above 3% target rate/return to close to 3% in 2018

Overnight US Market :Dow closed -105 points.S&P 500 posts 6th straight loss

Stocks tumbled Tuesday, with the S&P 500 posting its sixth straight loss as nervous investors continued to monitor the run-up to the 2016 election and wait for news from the Federal Reserve, which concludes a two-day policy meeting on Wednesday.

The Dow Jones industrial average ended down 105 points, or 0.6%.  The Standard & Poor’s 500 index fell 0.7% and the Nasdaq composite dropped 0.7%.

Increasingly, investors’ focus has been the presidential election, as polls between Hillary Clinton and Donald Trump appear to have tightened following last week’s news that the FBI had opened a new investigation into Clinton’s private email server. The narrowing in the race has introduced a new element of uncertainty into the market, something that analysts say is likely to keep trading in check.

There were signs of nervousness in the market. Gold prices rose more 1% and the Mexican peso, which has become a proxy for Trump’s chances to win, has been falling steadily against the U.S. dollar since Friday. The peso is down 1.2% against the dollar, a significant move in currency trading.

Investors are also keeping an eye on the Federal Reserve as policymakers started its two-day meeting on Tuesday, where it is widely expected the nation’s central bank will keep interest rates stable.

U.S. manufacturing grew last month at the fastest pace since July, a sign that American factories are coping with economic weakness overseas and a strong dollar. The Institute for Supply Management says its manufacturing index came in at 51.9 up from 51.5 in August. Anything above 50 signals growth. Production and export orders grew faster in October.

Speculative Positioning in the Forex ,Crude

Speculators turned more bearish the euro and less bullish the Japanese yen in the Commitment of Traders week ending October 11.   The dramatic shift in US presidential polls and the continued rally in oil appeared to have spurred speculators to reduce short Mexican peso positions and add to longs.
 
Speculators in the futures market added 20.1k contracts to their gross short euro position, lifting it to 207.8k contracts.  There were still a few speculators that tried picking a bottom before the euro slipped below $1.10 in the spot market.  The bulls added 8.6k contracts, lifting the gross long position to 114.3k contracts.
 
The largest speculative gross long and gross short position in the euro.  The net short position rose to 93.5k contracts from 82.1k.  This is a two month high.  However, sterling’s net short position is larger at 95.5k contracts.  This slightly smaller than the previous reporting period (-97.6k contracts).  This reflected the fact that speculators covered more gross short positions than liquidated gross long positions.  Specifically, the 6.4k long contracts were cut while 8.5k short contracts were covered (leaving the gross long position at 50.4k contracts and the gross short position of 145.9k contracts).
Yen bulls move may be having second thoughts in the face of the continued (three consecutive weeks) dollar recovery in the spot market.  They liquidated 22.7k contracts to leave a gross long position of 79.3k contracts.  The bears were not enticed and added nearly a hundred contracts to the gross short position, which now stands 33.4k contracts. The net long position of 45.9k contracts (down nearly 23k contracts in the latest reporting week) is the smallest in two months. 

Overnight US Market :Dow Closed + 133 points ,S&P 500 +14 Ppoints

U.S. stocks rallied Tuesday following the first presidential debate, as investors digest the first face-off between Hillary Clinton and Donald Trump.

In the first trading session following the first of three face-to-face battles between the Democratic and Republican nominees for president, stocks broke a two-day losing streak, suggesting that markets are giving the first-debate decision to Clinton, although far from a knockout.

In general, Wall Street views Clinton as a more favorable candidate, as she and her policies are viewed as more of a known quantity than Trump, who investors view as a candidate that would inject more uncertainty into financial markets given his views on trade, immigration and other issues.

The Dow Jones industrial average rose 133 points, or 0.7%, to close at 18,228. The broader Standard & Poor’s 500 stock index gained 0.6% to 2160 and the Nasdaq composite index  rose 0.9% to 5306.

Stocks were also reacting to good news on consumer confidence. The Conference Board reported that its index of consumer confidence this month jumped to a nine-year high of 104.1, which was better than August’s 101.8 reading and consensus for September of 99. In housing news, the S&P CoreLogic Case-Shiller 20-city price index was flat in July, in line with estimates, and “consistent with the moderate recovery in the housing market.

Speculative Position in Euro ,Sterling ,CAD ,Mexican Peso ,Crude

There are a few notable exceptions.  First, over the past several weeks, speculators have reduced gross short euro positions by more than 20% since the end of July.  It stands at 173.3k contracts, after the bears covered 16.7k contracts in the CFTC reporting period ending September 13.
If the bears were pulling back in the euro, they were showing their claws on the Mexican peso.  The gross short position rose by 10.4k contracts, after increasing by 22k contracts the previous reporting period.  At 85.7k contracts, the gross short position is the largest since April.  The net short peso position has more than doubled to 65.7k contracts in the past two weeks.
Although the position adjustments in sterling has been modest, the market has turned and has stopped extending gross and net short positions. Both have fallen for two consecutive reporting period from record levels.  The gross short speculative position fell by 5.5k contracts to 123.2k contracts, roughly the same amount that was covered in the previous week.  The bottom pickers have slowly entered the market.  The gross long position bottomed in mid-July near 28k contracts.  It edged up 1.6k contracts in the latest reporting period to 40.1k contracts.  The net short sterling position of 82.8k contracts surpassed the euro (net short 81.5k contracts) to have the dubious honor of the largest such speculative position.