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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “united states dollar” Tag

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%.

Just How Crowded Is The “Long Dollar” Trade? The Answer In One Chart

Until last night’s Trump statement that the US dollar is overvalued, it was smooth sailing for Wall Street’s momentum chasers, who happily piled into what until recently was Wall Street’s most crowded trade. How crowded?

For the latest answer, we go to the latest just released monthly Fund Managers Survey conducted by BofA’s Michael Hartnett who shows that according to Wall Streeters themselves, the dollar is the most crowded trade by orders of magnitude. In fact, in January the number of respondents who said the “Long USD” is the most crowded trade has risen from 35% in December to a whopping 47%, the highest response rate in the last few years of the survey. Far behind, in second and third place, are “short government bonds” and “long high quality/minimum vol” both at 11%.

 

What makes this observation paradoxical is how reflexive it is, because in the same report BofA writes that contrarians note “long US dollar seen as most crowded trade by a country mile”, and adds that the percentage of investors who think USD is overvalued is the highest in over a decade, or since Nov’06 (net 22%).

Still, they refuse to sell… until now. Because now that the president-elect has publicly taken the other side of the trade, we urge readers to take a second look at RCB’s warning that the “Pain Trade”, i.e. the inversion of Long-USD positions, has begun.

Mario Draghi’s Email Was Hacked By A High-Ranking Mason

First, as Bloomberg reported, in addition to Draghi and Renzi, the extensive cyber-spying operation targeted more than 18,000 e-mail accounts, according to a court document. The aptly named operation “Eye Pyramid” (more on that shortly) revealed cyber-spying of institutions, state agencies, professionals, political figures and business people lasting for years, Italian police said in an e-mailed statement Tuesday.

Police said two people were arrested: a nuclear engineer and his sister, both living in Rome “and well-known in Roman financial circles.”

The two were Giulio Occhionero, 45, and his sister Francesca Maria Occhionero, 48, who were charged with stealing state secrets and illegal hacking. Lawyers representing the two could not be immediately reached. According to the complaint, the alleged hackers acted “with the aim of making a profit for themselves or for others.”

The suspects’ arrest warrant issued by Rome pre-trial Judge Maria Paola Tomaselli states that Draghi’s e-mail at the Bank of Italy was hacked in the summer of 2016. Draghi served as governor of the Italian central bank from 2005 to 2011. An e-mail account belonging to Renzi was also hacked, the document says.

 Among the others hacked is a list of who’s who in Italian politics: “There were tens of thousands of email accounts hacked, and among them were accounts belonging to bankers, businessmen and even several cardinals in the Vatican,” Roberto Di Legami, head of the specialised police cyber unit that conducted the investigation, told Reuters. Other hacker were Italian oil giant Eni SpA, multinational power company Enel SpA and technology company Leonardo Finmeccanica SpA, the court document shows. Political parties, law firms, politicians and ministries were also targeted.

The suspects tried to obtain confidential and sensitive data, especially on banks, at the ECB in Frankfurt and at the Bank of Italy in Rome, according to a person familiar with the investigation, speaking on the condition of not being identified by name. As Bloomberg add, “the two arrested are suspected of obtaining information on national security, serious illegal access to a computer system and illicit interception of computer communications in an investigation led by Rome prosecutors, an Italian police statement said.” 

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.

A Few Takeaways from the Latest IMF Reserve Figures

The IMF is the most authoritative source for reserve holdings of central banks.  It reports the data at the end of each quarter with a quarter lag.  At the end of last year, the IMF published the Q3 16 reserve figures.  As often is the case, the Q3 reserve figures get lost in the holiday shuffle. 
 
Nevertheless, there are a couple of interesting developments.  First, though, let review the basics.  Overall, the valuation of global reserves rose to a little more than $11 trillion, a $36 bln build on the quarter, but off $182 bln from Q3 15.  It is awkward to say, but the $36 bln increase in reserves in Q3 16 is so small that it is practically a rounding error.  Currencies did not fluctuate much in the quarter (euro rose almost 1.2%, and the yen rose 1.8%, sterling was off nearly 2.6%), but still could likely account for much of the change.
The other important point to recall is that not all central banks report the currency allocation of reserves.  Of the $11 trillion of reserves almost $7.8 trillion are allocated, leaving $3.2 trillion unallocated.  Of the allocated reserves, the dollar accounts for 63.3%, the euro accounts for 20.3%, the yen and sterling are about 4.5% each, and the Australian and Canadian dollars are 2% each.  The Swiss franc and other currencies account for the remainder (~3.3%).
Central banks typically move slowly and cautiously when adjusting reserves.  However, there is an important development that is taking place.  China has agreed to report the allocation of its reserves.  However, it is slowly bleeding them in preserve their confidential nature.   Allocated reserves rose by $299 bln in Q3.  Unallocated reserves fell by a little more than $263 bln.    Over the past four quarters, total reserves have fallen by $182 bln.  Allocated reserves have increased by $1.19 trillion, while unallocated reserves have fallen by $1.37 trillion.  

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:

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.

 

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…

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.