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Tue, 28th March 2017

Anirudh Sethi Report

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Archives of “panic of 1907” Tag

Why China Unexpectedly Hiked Rates 10 Hours After The Fed

As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC’s liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.

The oddly matched rate hikes, prompted Bloomberg to think back to the mysterious “Shanghai Accord” of February 2016, which took place during the peak days of last year’s global capital markets crisis, and whose closed-door decisions – to this day kept away from the public – prompted the market rally that continues to this day. As Bloomberg wrote, the coordinated “response suggests that pledges by the Group of 20 economies a little over a year ago in Shanghai to “carefully calibrate and clearly communicate” policies may not have been hollow after all.”

That said, it was not the first time the People’s Bank of China has acted on the heels of a Fed move. At the peak of the financial crisis, the PBOC cut lending rates after six of its counterparts, including the Fed, had announced a simultaneous rate cut. That October 2008 move enhanced China’s emerging reputation as a global player on the international economic-policy circuit. “Growth divergence is morphing into growth synchronization,” said Chua Hak Bin, a Singapore-based senior economist with Maybank. “Policy divergence was also a narrative for those expecting a strong dollar, but that is moving now to policy synchronization.”

Coordinated or not, as of last night financial conditions in China, like in the US, have become incrementally tighter even if both the Chinese and US stock markets failed to respond accordingly.

The Fed Is Preparing $1 Trillion In QE For The Next Recession: Deutsche

While in recent weeks there has been a material increase in Fed balance sheet normalization chatter, according to a new report from Deutsche Bank analysts, it may all be for nothing for one simple reason: should the US encounter a recession in the next several years, the most likely reaction by the Fed would be another $1 trillion in QE, delaying indefinitely any expectations for a return to a “normal” balance sheet.

As a reminder, as of this month, the duration of the latest expansionary cycle – as defined by the NBER – has reached 93 months, surpassing the 92 months of the 1982-1990 cycle, and is now the third longest in history. Should the cycle persist for another 27 months, or just under two and a half years, it would be the longest period of “economic growth” in history.

Libor Spikes Most In 15 Months To 8 Year Highs

The cost of funding for your average joe, average corporation, and average swaps trader, surged overnight. 3M Libor rose by the most since Dec 2015 (Fed rate hike) to the highest level since April 2009.

Biggest jump since the fed rate hike in Dec 2015…

As Reuters reports, the cost for banks to borrow funds in U.S. dollars surged by the most since December 2015 on Wednesday, a day after a series of Federal Reserve officials jolted short-term interest rate markets with talk of a near-term rate rise.

 U.S. 3-month Libor was set near an eight-year high early on Wednesday at 1.09278 percent compared with 1.064 percent on Tuesday. The 2.878 basis point rise was the largest since Dec 17, 2015, the day after the Fed’s first rate hike following the financial crisis and the Great Recession.

The jump comes as short-term rate markets are rapidly repricing the risk that the U.S. central bank may deliver another rate increase as early as mid-March, when its monetary policy committee next meets.

In recent days a clutch of Fed policymakers have spoken about the case for a near-term rate hike becoming more compelling in the aftermath of the election of Donald Trump as president and a Republican-controlled Congress intent on pursuing an aggressive pro-growth economic agenda.

The latest voices to argue that case came on Tuesday, when both the influential heads of the New York and San Francisco Federal Reserve banks signaled they are concerned about waiting too long to press rates higher.

Fed’s Williams says March ‘very much on the table’ for rate increase

John Williams, president of the Federal Reserve Bank of San Francisco, says that an interest-rate increase is “very much on the table for serious consideration” by the central bank at its upcoming meeting in March.

The remarks — which came in the text of a speech set to be delivered on Tuesday to business leaders in California — sent investors’ expectations climbing. Fed funds futures signalled that investors are now pricing in a 56 per cent chance of an increase at March, up from 52 per cent earlier on Tuesday, and 36 per cent a week ago, according to Bloomberg calculations.

Mr Williams cited a strong outlook for the economy, which he said was in its eighth year of expansion with the workforce at full employment and inflation zeroing in on the Fed’s 2 per cent target. A rate increase would be one tool Fed policymakers could consider to help keep that momentum going, he said, according to a text of his prepared remarks.

Next Week -Watch out :Week ahead: Greece, Fed minutes, Buffett letter

Don’t be fooled by the the holiday-shortened trading week in the US. Next week promises to give investors plenty to watch, including the Greek bailout, minutes of the Federal Reserve’s last meeting, Bank of England governor Mark Carney’s testimony, retail earnings and Warren Buffett’s annual letter.

Here’s what to look for in the coming days.

Greece

The meeting has also gained additional significance, as the last major one slated before European elections begin next month, starting with the Dutch.

“With the two largest eurozone economies facing elections this year, we believe it is in
their policymakers’ interests to contain any potential risks from Greek disruption,” said economists at Nomura. “We therefore expect some transitory agreement to be reached at least at the eurozone level, with the IMF decision on programme participation likely to be delayed even further”.

Carney testimony

Following Federal Reserve chair Janet Yellen’s semi-annual testimony to Congress, investors get to hear from her UK counterpart when Mark Carney testifies before the UK parliament’s Treasury Committee on Tuesday. Mr Carney’s testimony comes after the BoE upgraded its economic forecast, while leaving its inflation forecast and interest-rate policy on hold.

“Since the inflation report was published two weeks ago, we’ve seen downside surprises to wage growth, inflation, and retail sales,” said strategists at TD Securities. “So even after the IR was more dovish than markets expected, we may see a further dovish tone with the IR testimony given the soft tone of the recent data releases.”

Fed minutes

The Federal Reserve will release the minutes of its last monetary policy meeting on Wednesday, though they may seem dated since investors have just heard from Ms Yellen. In her testimony to Congress this week, she painted an upbeat view of the US economy and warned that it would be “unwise” to wait too long before raising interest rates.

Bank of America economists say they believe the minutes will reflect “a great deal of focus on both upside and downside risks,” even as Fed officials “become increasingly constructive on the outlook for the economy.”

Moreover, any discussion on the Fed’s balance sheet is likely to garner interest. “Yellen reiterated the view that the primary tool remains rates and that the balance sheet will only be addressed once the normalization of the fed funds rate is well under way,” said the folks at Bank of America. “We expect the minutes to reinforce this view, but there might be some discussion among members on the issue.”

Overnight US Market :Dow closes back above 20,000, Nasdaq hits record

Banks and other financial companies led stocks higher on Wall Street Friday as President Trump prepares to scale back financial industry regulations. Buyers were also encouraged by a pickup in hiring in January. Small-company stocks, which stand to benefit more than others from stronger economic growth, make sharp gains.

The Dow Jones industrial average jumped back above the 20,000 level as the blue-chip index rose 186.55 points, or 0.9%, to close at 20,071.46. The Standard & Poor’s 500 index gained 16.57, or 0.7%, to 2297.43, moving within one point of its record closing high of 2298.37. The Nasdaq composite index added 30.57, or 0.5%, to set a new record closing high of 5666.77.

The Russell 2000 index of smaller-company stocks climbed 1.5% to 1,377.84. Smaller, domestically-focused companies may have more to gain than their larger peers from faster growth in the U.S. The Russell made large gains at the end of 2016 based on those hopes.

The stock market rally kicked off early after the government reported that U.S. employers added 227,000 jobs in January, higher than last year’s average monthly gain of 187,000 and a sign that President Donald Trump has inherited a robust job market. The unemployment rate ticked up to a low 4.8% from 4.7% in December, but for a good reason: More people started looking for work. The percentage of adults working or looking for jobs increased to its highest level since September.

Financial firms rose after President Donald Trump took his first steps aimed at scaling back regulations on the industry. He signed an order that directs the Treasury Secretary to look for potential changes to the Dodd-Frank law, which reshaped financial regulations after the 2008-09 financial crisis and created the Consumer Financial Protection Bureau.

The order doesn’t have any immediate impact, but suggests Trump is intent on reducing regulations, which could boost profits for financial companies and banks.

Dow components Visa (V) and Goldman Sachs (GS) jumped 4.6%, JPMorgan Chase (JPM) added 3.1% and American Express (AXP) gained 2%. Smaller banks, which could find it easier to lend money if regulations are cut, also traded higher.

Overnight US MARKET :Dow closed -59 points.

Investor skittishness over coming policies under soon-to-be-president Donald Trump just days before his inauguration put stocks in the red Tuesday and pushed the Dow down for a third straight session.

Also haunting the market was another weak day for bank stocks, a sector that had performed strong at the start of the so-called “Trump rally” after Election Day but is running into profit taking. Shares of Morgan Stanley (MS) were down nearly 4% despite posting its best fourth-quarter since the financial crisis, while Goldman Sachs (GS) fell 3.3% and Citigroup (C) tumbled 2.1%.

The Dow Jones industrial average closed down 59 points, or 0.3%, to 19,827, or roughly 175 points shy of 20,000. At its low point, the Dow was down more than 110 points.

Markets were reacting to Trump comments in the Wall Street Journal suggesting that the U.S. dollar is “too strong” and could hurt U.S. multinationals. The president-elect also questioned an alternative tax reform plan being discussed by Republicans in the House of Representatives. A strong dollar hurts sales and earnings of U.S. companies that do a lot of business abroad.

Trump’s comments, not unlike some of his tweets that have caught investors by surprise on individual companies, created fresh uncertainty about what policies will actually be enacted once Trump takes office after Friday’s inauguration. Trump’s latest comments were viewed as new information by Wall Street.

The Standard & Poor’s 500 index closed down almost 7 points, or 0.3%, to 2267.89, while the Nasdaq composite fell 0.6% to 5538.73.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.329%.

Overnight US Market :Dow closed -43 points.

Stocks ended mixed Thursday as retailers dominated the news with Macy’s and Kohl’s both plunging following weak holiday-season reports that led the chains to cut their profit forecasts.

Still, the Nasdaq composite’s modest gain of 11 points, or 0.2%, was enough to notch a new all-time high. Settling at at 5487.94, it topped the old record by half a point.

The Dow Jones industrial average finished down 43 points, a 0.2% decline to 19,899.29. Losing 0.1% was the S&P 500, which settled at 2269 even.

nvestors were also focusing on upcoming U.S. jobs data following the publication of the minutes to the Federal Reserve’s last board meeting.

Private U.S. companies added 153,000 jobs in December, according to payroll processor ADP. That total was a bit lower than analysts expected and slightly slower than the pace of hiring for the rest of 2016. The government will issue its own hiring report on Friday.

Overnight US Market :Dow closed + 60 points.Now 58 points away to kiss 20k

Stocks climbed Wednesday as Wall Street posted a second straight day of gains in the new year and the Dow once again approached the 20,000 milestone.

The Dow Jones industrial average ended up 60 points, or 0.3%, to 19,942.16. The blue-chip index rose has come close to topping 20,000 several times in recent weeks but each time it gets near has pulled back. The Standard & Poor’s 500 index rose 0.6% and the Nasdaq composite index gained 0.9%. Both the S&P 500 and Nasdaq are near their record closing highs.

Stocks maintained their gains following the release of the minutes from the latest Federal Reserve meeting that provided clues to why policymakers raised interest rates in December for only the second time since 2006 and forecast three rate hikes in 2017 instead of the two moves previously anticipated.

Fed officials said they might have to raise interest rates faster than anticipated to prevent rapidly falling unemployment and President-elect Donald Trump’s proposed fiscal stimulus from fueling excessive inflation, according to minutes of the Fed’s December 13-14 meeting.

Benchmark U.S. crude was up 1.8% to $53.24 a barrel in New York. It lost $1.39 on Tuesday.

44 Years Ago, The Dow Crossed 1,000 For The First Time – Here’s What Happened Next

With all eyes desperately urging The Dow to cross 20,000 and prove that everything in the world of Trumplandia is awesome, we thought some reflection on another major milestone in the omnipresent Stock Index would be worthwhile…

As The New York Times reported 44 years ago… The Dow Jones industrial average closed above the 1,000 mark yesterday for the first time in history.

 It finished at 1,003.16 for a gain of 6.09 points in what many Wall Streeters consider the equivalent of the initial breaking of the four-minute mile.

“This thing has an obvious psychological effect,” declared one brokerage-house partner. “It’s a hell of a news item. As for the perminence of it — well, I just don’t know.”

The Dow finally put it all together, the peace rally, the re-election of President Nixon, the surging economy, booming corporate profits and lessening fears about inflation and taxes and controls and other uncertainties of 1973.

With such kingpin issues leading the forward surge, the market fed on its own momentum. The Dow forged past 1,000 at 1:30 P.M. and it kept gaining almost consistently until the final bell.

At 3:29 P.M., red light bars flashed on above and below each of the time clocks surrounding the trading floor of the New York Stock Exchange. This was the traditional visual signal to show that one minute of training time remained. At the same moment, a bell began clanging on the speaker’s rostrum – the auditory warning.

Traders, brokers and clerks on the floor – aware that history was in the making – broke into cheers that lasted about 20 seconds. Some paper was tossed in the air and drifted down like confetti.

Several hundred persons on the floor then turned to face newsreel cameras grinding away on the member’s gallery, some brokers waving like fans at a football game.

An office broker, watching the stock tape from his desk downtown, murmured in wonderment: “There’s a sort of renewed confidence in the whole economic outlook.”