•  
Tue, 28th March 2017

Anirudh Sethi Report

  •  

Archives of “pound sterling” Tag

Overnight US Market :Dow closed -8.50 points.Nasdaq Unchanged

Nasdaq unchanged.  Dow down about -0.04%

The S&P index is ending the day down about -0.20% on the day to 2273.50. The high reached 2379.55. The low 2369.66.
The Nasdaq was unchanged at 5901.50. The high reached 5915.12. The low 5888.
The Dow was down about 8.5 points to 20906. The high reached 20955. The low extended to 20885.
In other markets:
  • 2 year yield fell -2.6 bp to 1.288%
  • 5 year yield fell -3.1 bp to 1.986%
  • 10 year yield fell -3.7 bp to 2.462%
Spot gold is up $5 to $1234.39. The high reached 1235.78. The low 1229.15.
WTI Crude oil is trading at $48.21, down -$0.57
The snapshot of the major currencies shows the NZD is the strongest while the GBP is the weakest (PM May will trigger Article 50 on March 29th). The USD was mixed with the dollar gaining against the GBP. It was down against the AUD and NZD and little changed against the other major currencies.

Euro climbs to 3-week high against dollar on rate speculation

The euro climbed to its strongest level against the dollar since mid-February as the markets reassessed the odds of a December rate rise by the European Central Bank.

A day after mildly hawkish comments from European Central Bank president Mario Draghi helped send the single currency higher, the euro tacked on another 0.9 per cent to hit a three week high of $1.0673 following a report that the ECB had discussed whether rates could rise before it ends its bond buying programme.

However, two people familiar with the discussions denied there had been any meaningful debate over the issue. One person said some members are keen for the council to consider raising the deposit rate, now at minus 0.4 per cent, before it ends its quantitative easing programme.

Against the pound, the euro was up 1 per cent at €1.1393 – a level last seen in mid-January. The currency also firmed more than 1 per cent against the Japanese yen at 122.83.

Marine Le Pen: “I Will Introduce The New Franc At A Rate Of One-To-One To The Euro”

Providing some much needed details on her plans to redenominate the French currency, should she win the French presidential election in under two months, on Wednesday Marine le Pen told RTL radio should would introduce a new franc at a rate of one-to-one to the euro and then allow it to fluctuate, despite previously saying that any new national currency would continue to be pegged to a basket of currencies. She said the new French franc would likely fall “against whatever currency Germany uses”, making French car exports more competitive, but said it might rise against the currency in Italy, a country she said would also be better off without the euro.

Incidentally, many agree with Le Pen, and according to Paddy Power, Italy now has even odds of leaving the EU before 2025, far higher than even perpetually depressed Greece.

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

Dollar hits six-week high

The dollar hit its highest level in more than six weeks on Wednesday morning, amid a sharp increase in bets that the US Federal Reserve will raise interest rates this month.

The dollar index hit 101.78 on Wednesday morning, its strongest level since January 12th and a 0.3 per cent rise on the day, following hawkish comments from an influential member of the Federal Reserve’s policy-setting board.

The probability that rates will rise when the Federal Reserve meets this month shot up from 50 per cent to 80 per cent yesterday after William Dudley, head of the New York Federal Reserve, said that the prospects for adding to the December 2016 rate increase had become “a lot more compelling”.

The rise in the dollar sent the pound to its weakest level in more than three weeks at $1.2348. The US currency was up 0.7 per cent against the Japanese yen at Y113.5 while the euro fell 0.3 per cent to €1.0544.

The Fed meets on March 14-15.

Le Pen Victory Would Lead To “Massive Sovereign Default”, Global Financial Chaos, Economists Warn

With two months left until the French election, analysts and political experts find themselves in a quandary: on one hand, political polls show that while National Front’s Marine Le Pen will likely win the first round, she is virtually assured a loss in the runoff round against either Fillon, or more recently Macron, having between 20 and 30% of the vote; on the other, all those same analysts and political experts were dead wrong with their forecasts about both Brexit and Trump, and are desperate to avoid a trifecta as being wrong 3 out of 3 just may be result in losing one’s job.

Meanwhile, markets are taking Le Pen’s rise in the polls in stride, and French spreads over Germany are moving in lockstep with Le Pen’s rising odds. In fact, as noted earlier in the week, French debt is now the riskiest it has been relative to German in four years.

Bank of England decision day – ‘Super Thursday’ preview

Bank of England announces
  1. Its interest rate decision
  2. The minutes from the policy meeting
  3. And the Quarterly Inflation Report
A three-in-one, that’s why its called Super Thursday.
  • All three come at 1200GMT
  • Governor Carney’s press conference follows at 1230GMT
1. On interest rates – the Bank is pretty much unanimously expected to keep rates unchanged (0.25%) and the asset purchase target at £435bn (I have seen just one analyst expect the target to lower).
It is worth noting the UK economy is showing better than expected signs:
  • Growth is stronger than it was expected to be after the yes vote on Brexit. There are plenty of expectations around for slower growth ahead as the impacts of Brexit become clear, but these have not been evident in the official data. I’ll admit to being in ‘you are all doomed, just you wait’ camp, but the evidence so far has been opposite this (i.e. don’t listen to me!). Yesterday I posted the view of the UK’s National Institute of Economic and Social Research – they are pretty much of the same view as me, & they’ve been eating humble pie too: NIESR has progressively revised up its short-term estimates for British economic growth since the referendum, thanks in large part to consumers who kept on spending
  • Unemployment is falling (at an 11-year low if I recall correctly)
  • Inflation is ticking higher, and will perhaps overshoot the topside target (2% is the target). BoE Governor Carney is on record as saying the bank will not be overly tolerant of an inflation overshoot.
Despite these better signs the Bank is expected to be remain in ‘wait and see’ mode, watching more data, especially on business activity and consumer spending. In November Governor Carney said the Bank had a neutral policy bias, so I’d expect a clear indication of a shift in the bias before any policy move on rates or QE. This (a shift in policy bias) is something to watch for from the Bank today.
 
2. The minutes will be scoured for hints of how the Monetary Policy Committee members voted and reasoned, looking for signs for the future direction on rates and QE
3. The Quarterly Inflation Report will be a big key focus. It will include the BoE’s latest forecasts for growth & inflation. The most recent Bank update to these forecasts was way back in  November;
  • the GDP forecast was 2.2% for 2016
  • 1.4% 2017
  • 1.5% 2018
  • 1.6% 2019

China’s 2016 capital outflows estimated at over $700bn

A new report from Standard Chartered estimates capital flows out of China totalled almost $730bn in 2016, a near-record level.

Analysts Shuang Ding and Lan Shen estimated outflows had moderated in December to $66bn, down from November’s $75bn.

Beneath the headline figure foreign direct investment flows turned positive for the first time in eight months with a $3bn inflow, while non-FDI outflows remained unchanged from the previous month at $69bn.

They also estimated China’s foreign exchange reserves had fallen $41bn last month to end the year at $3.01tn as depreciation of the euro, yen and pound against the greenback. That reduced the dollar value of China’s holdings in those currencies by about $13bn.

India : Forex Reserves Fall By $935.2 Million To $359.67 Billion

India’s foreign exchange reserves declined by $935.2 million to $359.671 billion in the week to December 23 on account of fall in foreign currency assets, the Reserve Bank said on Friday.

In the previous week, the reserves had fallen by $2.380 billion to $360.606 billion.

They had touched a life-time high of $371.99 billion in the week to September 30, 2016.

Foreign currency assets (FCAs), a major component of the overall reserves, dipped by $933.2 million to $335.970 billion in the reporting week.

FCAs, expressed in US dollar terms, 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 steady at $19.982 billion in the reporting week, the RBI said.

The special drawing rights with the International Monetary Fund decreased by $0.9 million to $1.427 billion, while India’s reserve position with the Fund too declined by $1.1 million to $2.290 billion, the data showed.

The life of EURUSD in 2017 by Danske Bank

The jolly chaps and chapesses at Danske Bank have the euro all mapped out for next year

Danske see EURUSD bottoming at 1.0200 in their 1 month forecast.

“In the short term, on the one hand there will be downward pressure on the US monetary base from the higher federal funds target and from the impact of new banking regulation with US banks set to be required to have an LCR of 100% by 1 January 2017. On the other hand, deposits on the US treasury account may fall at the beginning of next year after a resuspension of the debt ceiling, which will tend to increase the monetary base. Overall, this is likely to be marginally positive for USD and weigh on USD FX forward points vis- à-vis EUR and the Scandinavian currencies on top of the impact of the repricing of the path of Federal Reserve rate hikes, e.g. keeping the 3M EUR/USD basis spread around the present 70-80bp, and thus maintaining a significant negative carry on short USD positions.”

In 12m they see the euro at 1.1200.