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Sun, 22nd January 2017

Anirudh Sethi Report

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Archives of “money supply” Tag

Eurozone inflation confirmed at three-year high of 1.1%

On the up.

The eurozone’s annual inflation rate climbed above the 1 per cent mark for the first time since 2013 in December, underscoring the impact of climbing energy costs on consumer prices which have lagged at worryingly low levels for the last three years.

At 1.1 per cent, year-on-year inflation in December was confirmed in a second reading from Eurostat, which also showed an uptick in core inflation to 0.9 per cent.

Germany, Europe’s largest economy, recorded a more than three-year high of 1.7 per cent last month while Italy remained more sluggish at 0.5 per cent.

South African fin min to Fed: beware the consequences of rate rises

South African finance minister Pravin Gordhan has called on the US Federal Reserve to remain mindful of the impact of its decisions on emerging markets as it continues with a programme of raising interest rates.

Speakng at the World Economic Forum in Davos, Mr Gordhan said the so-called ‘taper tantrum’ of 2013 reminded investors and policymakers of the strong links between global financial markets

“The Fed has shown a new kind of sensitivity to their decisions and the impact on emerging markets and we hope that will continue,” he said.

He also noted that the Fed will be operating in an unusual environment under President Trump.

“The new administration has a particular political outlook, to put it politely, and the Fed has another. That will have implications.”

Emerging Markets :An Update

EM FX ended the week mixed. Markets continue to grapple with the outlook for the so-called Trump Trade, which we believe is intact.  MXN and TRY recovered from the relentless selling of recent days, but both remain vulnerable.  Indeed, if the jump in US yields on Friday continues this week, most of EM should remain under pressure.

India reports December WPI Monday, which is expected to rise 3.50% y/y vs. 3.15% in November.  December CPI came in slightly lower than expected at 3.41% y/y, and so there are some downside risks to WPI.  RBI next meetsFebruary 8 and it will be a tough call since the impact of the November demonetization is still being felt in the economy.

Russia reports November trade Monday.  Exports are seen contracting -2.7% y/y, while imports are seen rising 5.1% y/y.  As a result, the 12-month surplus is expected to narrow to $88.5 bln from $90.1 bln in October and would be the lowest since February 2005.  Q4 current account data will be reported Tuesday and is expected at $7.4 bln.  If so, the 4-quarter surplus would fall to $21.8 bln, the lowest since Q3 1999.  Higher oil prices should prevent the external balances from deteriorating further in 2017.
 
Singapore reports December trade Tuesday NODX is expected to rise 7.0% y/y vs. 11.5% in November.  Despite the trade data, the economy remains a bit soft, but rising price pressures are likely to keep the MAS on hold at its semiannual policy meeting in April.
Malaysia reports December CPI Wednesday, which is expected to rise 1.9% y/y vs. 1.8% in November.  Bank Negara meets Thursday and is expected to keep rates steady at 3.0%.  The bank has been on hold since the last 25 bp cut back in July.  It does not have an explicit inflation target, but rising price pressures are likely to prevent any further easing for now.

“Humiliated” by post-note ban events, RBI staff write to Urjit Patel

Feeling “humiliated” by events since demonetisation, RBI employees today wrote to Governor Urjit Patel protesting against operational “mismanagement” in the exercise and Government impinging its autonomy by appointing an official for currency coordination.

In a letter, they said autonomy and image of RBI has been “dented beyond repair” due to mismanagement and termed appointment of a senior Finance Ministry official as a “blatant encroachment” of its exclusive turf of currency management.

“An image of efficiency and independence that RBI assiduously built up over decades by the strenuous efforts of its staff and judicious policy making has gone into smithereens in no time. We feel extremely pained,” the United Forum of Reserve Bank Officers and Employees said in the letter addressed to Patel.

Commenting on “mismanagement” since November 8, when note ban was announced, and the criticism from different quarters, the letter said, “It’s (RBI’s) autonomy and image have been dented beyond repair.”

At least two of the four signatories — Samir Ghosh of All India Reserve Bank Employees Association and Suryakant Mahadik of All India Reserve Bank Workers Federation — confirmed the letter. The other signatories are C M Paulsil of All India Reserve Bank Officers Association and R N Vatsa of RBI Officers Association.

The forum represents over 18,000 employees of the RBI across the ranks, Ghosh said.

Jeff Gundlach’s Forecast For 2017

Investors will confront excessive debt, high P/E levels and political uncertainty as they enter the Trump presidential era. In response, according to Jeffrey Gundlach, U.S.-centric portfolios should diversify globally.

Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital, a leading provider of fixed-income mutual funds and ETFs. He spoke to investors via a conference call on January 10. Slides from that presentation are available here. This webinar was his annual forecast for the global markets and economies for 2017.

Before we look at his 2017 predictions, let’s review his forecasts from a year ago. His two highest conviction forecasts were that the Fed would not raise rates more than once, despite the Fed’s own predictions, and that Trump would win the presidency. Both predictions were accurate.

But he was also downbeat on emerging markets, and singled out Brazil and Shanghai as likely underperformers. Brazil turned out to be the best-performing emerging market last year, gaining 69.1%, but he was correct about Shanghai, which was the worst performing market, losing 16.5%.

Gundlach said he had a “low conviction” prediction that the yield on the 10-year Treasury would break to the upside. It began 2016 at 2.11% and ended at 2.45%. He said the probability was that U.S. equities would decline in 2016, yet the markets gained approximately 13%. Gold, he said, would hit $1,400 at some point in 2016. It began the year at approximately $1,100, hit a high of $1,365 during the summer and closed at approximately $1,150. 

How to Become a Trillionaire and Other Thoughts

Grab one of these:

zimbabwe_jan7

Careful what you wish for central bankers and fiscal policy makers.  Though we don’t see signs of “rollover risk” in any of the G5 or G20, it’s all about confidence and you know what Joe said about confidence:

Confidence is a very fragile thing.  – Joe Montana

.The World Economic Forum reports this about Zimbabwe’s ghost of hyperinflation past,

Zimbabwe was once so gripped by hyperinflation that the central bank could no longer afford paper on which to print practically worthless trillion-dollar notes. 

The government reported in July 2008 that Zimbabwe was experiencing inflation of 231 million percent (231,000,000%). However, the Libertarian think tank, the Cato Institute, believes that the real inflation rate was 89.7 sextillion percent or 89,700,000,000,000,000,000,000%.

It is interesting to note that the country is now grappling with the opposite problem.

Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is threatened more by the prospect of falling prices. But that doesn’t mean its people are ready to trust that hyperinflation won’t happen again.

FOMC Minutes: Saw gradual rate hike pace appropriate for now -Full Text

Highlights of the Minutes of the Dec 14 FOMC meeting

The Fed hiked rates by 0.25% at this meeting

Highlights of the Minutes:

  • Almost all officials saw upside risks to growth on expectations fiscal policies will be more expansionary under Trump
  • About half of policymakers incorporated those assumptions into forecasts
  • Many saw increased chance of faster rate hike pace due to higher risk of sizeable undershooting of longer-run normal unemployment rate leading to higher inflation
  • Policymakers emphasized their considerable uncertainties on timing, size and composition of legislative and spending changes
  • Almost all members saw unemployment rate running below longer-term normal level
  • Generally agreed o continue to closely monitor inflation
  • Full text

There is never as much detail or conviction in the Minutes as market-watchers hope for. This is the closest thing there is to guidance:

“At this meeting, members continued to expect that, with gradual adjustments in the stance of monetary policy, inflation would rise to the Committee’s 2 percent objective over the medium term as the transitory effects of past declines in energy prices and non-energy import prices dissipated and the labor market strengthened further. This view was reinforced by the rise in inflation in recent months and by recent increases in inflation compensation. Against this backdrop and in light of the current shortfall in inflation from 2 percent, members agreed that they would continue to closely monitor actual and expected progress toward the Committee’s inflation goal.”

The knee-jerk reaction in the FX market was disappointment and the US dollar fell 30 pips but it quickly rebounded back to unchanged.

On the election, here is what the Minutes said:

Preview: What’s priced in for the Federal Reserve ahead of the FOMC Minutes

The FOMC Minutes are due today at 2 pm ET (1900 GMT)

The economic calendar is light today so it’s all about flows to start the year and the FOMC Minutes later in the day.

In general, the Minutes are a release that always gets more attention than deserved. It’s rare the report moves the market and the initial move is often reversed.

But that might not be the case this time because the FOMC hiked rates at the December meeting and left the timing on subsequent rate moves ambiguous. The big market driver was the change in the dot plot.

Here is September compared to December:

Meanwhile, in the press conference Yellen emphasized that the thinking at the Fed hadn’t changed much.

“The shifts that you see here are really very tiny,” she said about the dot plot.

Bitcoin Surges Above $1,000 As China Unveils New Capital Controls

As noted yesterday, for the first time in three years, and only the second time in history, bitcoin rose above $1,000 in Yuan-denominated Chinese trading, however it was limited to the lower side of this “round number” psychological barrier in US trading, as BTC flirted with $999.99 for most of the day on the popular Coinbase exchange, without crossing it.

Overnight, however, Chinese demand proved too great and US markets had no choice but to arb the difference. So with Bitcoin trading in China at an implied price of over $1,050 at this moment, bitcoin finally soared above $1,000 in the US as well, trading just around $1,024 on Coinbase as of this moment.

 

Bitcoin Soars Above $1000 In China

2017 is off to a good start if you are holding Bitcoin as volumes continue to surge through Chinese Bitcoin exchanges amid fears of increased crackdowns on foreign exchange transfers in the new year. In the last 24 hours, BTC China has seen prices spike above 7,100 yuan (well over $1000 at the onshore rate exchange) as Bitstamp reports prices over $990.

Bitcoin in China topped 7,100 this morning – and with USDCNY at 6.945, that is over $1000…