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Sun, 25th June 2017

Anirudh Sethi Report

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Archives of “united states dollar” Tag

Trading position :An Update

The expiration of the June contracts and the roll into September positions appears to have boosted activity in the currency futures, and may obscure the signaling effect.  Of the 16 gross positions we track, speculators add to exposure in all but four positions.  There speculators covered gross short Swiss franc, Canadian, Australian, and New Zealand dollar positions.
There were several significant position adjustments, which we define as a gross position change of 10k or more contracts.  Speculators boosted the gross short euro position by 37.2k contracts (to 122.4k).  This accounted for the vast majority of the sharp drop in the net long position from 79k contracts to 44.9k.   Gross longs grew by a mere 3k contracts to 167.2k.
Speculators sold 49k Mexican peso contracts to bring the gross short position to 76.7k contracts.  The gross longs added a 2.2k contracts (to 125.7k).  As a result, the net long position was halved to 49k contracts from 95.8k.
The bulls added 10.1k sterling contracts to lift the gross long position to 50.6k contracts.  However, the bears added 8.2k contracts to the gross short position, which stood at 88.2k contracts.  This means that thee net short position barely changed, slipping to -37.6k contracts from -39.4k.
New Zealand dollar futures were active.  The gross long position rose 11.1k contracts to 38.4k, while the gross short position fell 8.7k contracts to 16.9k.  The net position, which had swung to the long side in the prior week rose to 21.5k contracts from 1.6k.

An Update for US Dollar ,Euro ,JPY ,GBP ,AUD ,OIL

The US dollar edged higher against most of the major currencies over the past week. However, the fundamental backing is still not solid, and it makes as wary of these upticks, even though we think a bottom is being carved. Specifically, the US interest rates still not finding much traction, and President Trump’s legislative agenda still is encountering significant resistance within the Republican Party.  
Since the end of April, the Dollar Index has alternated between advancing and declining weeks.  We suspect the pattern will continue next week.  After this week’s upticks, it means a setback.  Over most of this period the Dollar Index has been confined to a roughly 96.50-98.00 range.  The Dollar Index peaked in front of near 97.90 on June 20.  It can drift toward the lower end of the range, which we expect to hold.  
The euro was confined to narrow trading ranges last week and finished little changed against the dollar.  Since the middle of May, the euro has traded in an $1.11-$1.13 trading range.  After starting the week in Asia above $1.12, it was confined to the lower half of the range in the past several sessions.  The sideways trading has alleviated the extended technical condition we have been monitoring.  In our macro view, we are concerned that a great deal of good eurozone news has been discounted, and that the economic momentum slows and price pressures ease.  The softening seen in the flash PMI is consistent with this.  Next week, the preliminary estimate for June CPI will be reported. The signal may be obscured by a decline in the headline and a small gain in the core.  

IMF’s new program to preapprove emergency access to dollars

The International Monetary Fund will introduce a framework to mitigate currency crises by ensuring easy access to dollars without requiring the onerous structural reforms that have marked past rescue programs.

This arrangement is intended mainly to deal with capital-account crises — currency collapses triggered by severe capital flight. With money likely starting to return to the U.S. as the Federal Reserve pivots from monetary easing, the IMF worries that corresponding outflows from emerging economies could drag down their currencies. Collapsing currencies can give rise to financial crises as foreign-debt loads soar. The situation could be made worse, if speculators take advantage of the situation to make quick profits.

 A country dealing with a capital-account crisis must intervene frequently in foreign exchange markets to prop up its currency by selling dollars. The new arrangement being developed by the IMF will help countries borrow greenbacks, mainly via short-term loans maturing in a year or less.

The IMF will evaluate potential borrowers under normal conditions, looking at such data as their current-account and fiscal balances, and let them join the framework if they are deemed sufficiently healthy. Loans will be limited based on each country’s capital contribution to the fund, among other factors.

China’s holdings of US Treasuries bounce back to six-month high

China’s holdings of US Treasuries rose for the third straight month in April, reaching the highest level since October 2016 at $1.09tn, as weakness in the country’s currency has begun to show signs of stabilising.

It comes after a period of sustained selling by Beijing, with 2016 marking the largest cut to China’s treasury holdings on record. The cut to China’s holdings came as Beijing sought to support the renminbi and manage capital flight by intervening in foreign exchange markets.

So far this year the renminbi has strengthened and China has tentatively returned to the Treasury market, buying $41.1bn of securities since January, with $4.6bn added in April. Still, the country’s holdings remain well below levels at the same time last year of $1.24tn, leading to it slipping into second place behind Japan as the largest foreign holder of Treasuries.

Overall, foreign holders shed $28.6bn bring the total foreign ownership of Treasuries to $6.07tn.

Bitcoin Plunges To 2-Week Lows On Triple-Whammy Of Concerns

After ralying over 80% in the last month, Bitcoin prices are tumbling (down 25% from record highs to 2-week lows) as cryptocurrencies face uncertainty on three fronts.

 

 

As iBankCoin reports, investors are spooked over recent cyberattacks, uncertainty surrounding a Bitcoin platform upgrade, and proposed legislation which adds cryptocurencies a list of reportable assets under existing anti-money laundering laws.

Cyber attack

Emerging Markets :An Update

  • The Reserve Bank of India cut its inflation forecast for FY2017/18.
  • South Korean President Moon suspended the installation of the remaining components of the THAAD missile shield.
  • S&P cut Qatar one notch to AA-.
  • Turkey looks likely to get caught up in yet another regional conflict.
  • Brazil’s structural reform agenda has been delayed as President Temer remains on the ropes.
In the EM equity space as measured by MSCI, Peru (+2.9%), China (+2.5%), and Poland (+1.5%) have outperformed this week, while Qatar (-6.1%), South Africa (-1.7%), and Indonesia (-1.5%) have underperformed.  To put this in better context, MSCI EM rose 0.6% this week while MSCI DM fell -0.4%.
In the EM local currency bond space, India (10-year yield -15 bp), Mexico (-8 bp), and Brazil (-7 bp) have outperformed this week, while Turkey (10-year yield +13 bp), Colombia (+7 bp), and South Africa (+5 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 6 bp to 2.22%. 

Overnight : S&P 500 closes at record high for third straight day

The S&P 500 and Nasdaq Composite inched forward just 0.7 and 4.9 points respectively to new highs on Friday.

The US stock indices were nearly unchanged throughout the trading day and the S&P 500 ended flat at 2,415.80 while the Dow Jones Industrial Average was also nearly unchanged at 21,080.11. The Nasdaq Composite eked out a modest 0.1 per cent gain to end the day at 6,210.20.

For the S&P 500, the record close was the 20th closing high of this year and the 28th record high since the US presidential election. In all of 2016, by comparison, the S&P 500 notched 18 record closings, according to data from S&P Dow Jones indices.

The price of oil had its steepest fall on Thursday in three weeks after Opec said it would extend output cuts as investors appeared disappointed by the agreement. After paring back some losses on Friday, however, Brent crude settled 2.7 per lower for the week. Stocks within the S&P 500 energy index lost 2.2 per cent over the same period.

Elsewhere, the US dollar index measuring the buck against a basket of its peers was also 0.28 per cent higher at 97.417.

Overnight US Market :S&P closed at Record High

What sell-off? In a feat that has not been accomplished in more than a week, the S&P 500 on Wednesday notched a fresh record closing high.

The S&P 500 gained 0.25 per cent to 2,404, the Dow Jones Industrial Average added 0.36 per cent to 21,012.4, and the Nasdaq Composite gained 0.44 per cent to 6,163.

Last week, equities markets took a blow from rising concern over the political fortunes of US President Donald Trump.

Still, after Wednesday’s gains, the most recent bout of selling has been entirely reversed and then some. The S&P 500 index is up 7.4 per cent for the year.

Investors on Wednesday parsed through minutes from the Federal Reserve’s May meeting, which set the table for next month’s meeting, which could see it raise rates for the second time this year. Investors interpreted the news as dovish on margin, however, with the US dollar slipping 0.26 per cent against a basket of six peers.

The yield on the benchmark 10-year Treasury note fell 0.0298 per cent to 2.2502 per cent.

Japan Inc. heading for second straight record profit

Corporate Japan is on track to log a second year in a row of record net profit, driven by electronics makers, trading houses and other sectors making up for the weakness of automakers.

Aggregate fiscal 2017 net profit at listed companies is expected to grow 4% from the previous year to 21.81 trillion yen ($192 billion), with results improving at more than 60% of companies. Profit rose 21% to 20.9 trillion yen in fiscal 2016.

 Friday marked the peak of earnings season, with a record 767 companies with March book-closings releasing results. The Nikkei compiled results put out by 1,332 nonfinancial firms up to that day, representing 85% of listed companies and 92% of total market capitalization.

Electronics manufacturers, trading companies and shippers will enjoy strong profit growth this fiscal year. Sony’s sales of smartphone camera image sensors have improved, and the company projects a profit of more than 100 billion yen in its formerly money-losing semiconductor segment. It sees net profit growing 3.5 times to 255 billion yen in fiscal 2017. “We will deliver results,” Chief Financial Officer Kenichiro Yoshida said.

Fujitsu forecasts its first record profit in three years. “We are heading toward growth as the electronic devices market recovers,” said Hidehiro Tsukano, a senior executive vice president.

China Reserves Jump Most In 3 Years to $ 3.03 Trillion

In all the drama surrounding the French elections, few noticed the PBOC’s announcement that China’s FX reserves rose for the third straight month in April, increasing by $20.45 billion to $3.03 trillion, more than the $11 billion expected and the single biggest monthly increase in three years going back to April 2014, on the back of a weaker dollar and increasingly more draconian capital controls on outflows.

Cited by the WSJ, some economists attributed April’s increase to a dollar that continued to decline in the past month especially after Trump said the U.S. currency “is getting too strong.” The value of other currencies in China’s reserve basket, including the euro, the British pound and Japan’s yen, similarly played a significant role in the rise, said Yan Ling, an economist with China Merchants Securities.

Besides USD softness (USD has weakened against the CFETS basket by over 2% year-to-date through April) and perhaps stronger RMB sentiment, the capital flow management measures introduced over the last several months have also contributed to the slowdown in outflows, Goldman speculated in a Sunday note. That could reverse, as there may be incremental relaxation of the capital account as the flow situation has improved and an overly tight capital account could hinder legitimate international trade and the authorities’ long-term RMB internationalization goals.