Sat, 22nd July 2017

Anirudh Sethi Report


Archives of “July 13, 2017” Day

40% Of The Fed’s Interest On Excess Reserves Is Paid To Foreign Banks

Even as both the Fed and Wall Street are gripped by a raging debate over when, how and how much the Fed should shrink its balance sheet, most appear to be ignoring the $2.1 trillion elephant in the room: the fact that every incremental increase in the Fed Funds rate (also an increase in the Interest On Excess Reserves, or IOER, currently at 1.25%) is a handout to US commercial banks, but that the direct recipient of this explicit Fed subsidy are a substantial number of foreign banks.

Here are the numbers:

  • as of the week of July 5, there were $2.1 trillion in reserves (of which the vast majority is “excess”), the largest liability by far on the Fed’s $4.5 trillion balance sheet (currency in circulation is the other major component and amounts to $1.5 trillion).
  • as of the latest Fed rate hike, IOER is 1.25%

Putting these together, means that as of this moment, assuming no more rate changes, Janet Yellen will pay out $27 billion in interest on reserves parked with the Fed every year.

 This much is known. What is less known, however, is the holding composition of these reserves, i.e., which banks have parked these $2.1 trillion in reserves with the Fed. Courtesy of the Fed’s H.8 statement, however, we can quickly figure out.

Recall that as we showed first all the way back in 2011, the total cash on the books of commercial banks with operations in the US tracks the Fed’s excess reserves almost dollar for dollar. More importantly, the number is broken down by small and large domestic banks, as well as international banks. It is the last number that is of biggest interest, because now that Congress is finally scrutinizing the $4.5 trillion elephant in the room, i.e., the Fed’s balance sheet, it may be interested to know that approximately 40%, or $838 billion as of the latest weekly data, in reserves parked at the Fed belongs to foreign banks.

European Indices end the session higher (with a range of % gains)

UK FTSE unchanged. Portugal stocks outperform (+2%)

The European stocks are higher (or at least unchanged).
  • German Dax is up 0.1%
  • UK FTSE  is unchanged
  • France CAC up 0.3%
  • Italy FTSE MIB up 0.4%
  • Portugal PSI20 up 2%
  • Spain’s Ibex up 0.9%
In the 10 year notes today, yields in Europe are higher:
  • Germany 0.60%, up 2 bp
  • UK 1.303%, up 4 bp
  • France 0.878%, up 2 bp
  • Italy 2.329% up 7 bp
  • Portugal 3.193%, up 9 bp
  • Spain 1.702%, +6 bp
In other markets at NY midday
  • Gold is down $2.60 to $1217.88
  • WTI crude oil is up $0.65 to $46.14. The high reached $46.28. The low $44.99
  • US yields are higher. 2 year 1.367%, up 2.4 bp. 10 year 2.3551%, up 3.7 bp. There is a 30 year auction in an hour or so and the yield is 2.924%, up 4 bp.
  • US stocks are little changed bup up a bit. S&P is up 0.17% or 4 points. The Nasdaq is up 5.6 points or 0.10%.  The Dow is up 31 points or 0.15%

German Police Arrest Suspects In Theft Of Massive 100 Kilogram Gold Coin

German special commandos have arrested several people in connection with the theft of a large gold coin that was stolen from the Bade museum in Berlin back in March in a brazen theft that shocked the public.

While Reuters didn’t say whether police recovered the coin – there was some speculation that the thieves would’ve melted it down for the gold – photographs did show police leading away a suspect, whose face was covered to hide his identity. The arrests were made in the Neukoelln area of Berlin

 “We are at the moment conducting searches and executing arrest warrants in several places in Berlin concerning the break in at the Bode museum in March,” said Berlin police.

The brazen theft involved entering through a museum window, possibly with the use of a ladder then making off with the 100 kilogram (equal to about 220 pounds) gold coin, according to Reuters.

he museum says the coin, known as “Big Maple Leaf,” is in the Guinness Book of Records for its purity of 999.99/1000 gold. It has a portrait of Queen Elizabeth II on one side and maple leaves on the other, and was minted by the Royal Canadian Mint.

The Canadian coin has a face value of about $1 million, but if it were melted down, the materials would be worth $4.5 million.

The coin, 53 centimeters in diameter and 3 centimeters thick, even made it into the Guinness Book of Records for its unrivalled degree of purity. It was loaned to the Bode Museum in December 2010. During the theft, Spokesman Stefen Petersen said thieves apparently entered through a window about 3:30 a.m. Monday, broke into a cabinet where the “Big Maple Leaf” coin was kept, and escaped with it before police arrived.’

The Bode has one of the world’s largest coin collections with more than 540,000 items.

IEA say recent oil price weakness may lead US shale firms to reassess

International Energy Agency out with their monthly report 13 July

  • output may be gushing but profits are not
  • compliance with OPEC cuts slips to 78% in June vs 95% in May
  • Non-OPEC compliance 82%
  • Algeria, Iraq, UAE and Venezeula pump more than allowed
  • 2017 global oil demand growth forecast revised up by 100k bpd to 1.4mln bpd
  • global oil stocks fell in May to 266mln barrels above 5 year average vs 300 mln in April
  • sees hefty stock draw later in 2017 provided there is strong compliance with OPEC cuts and even if Libya,Nigeria output recovers further
  • call on OPEC crude to rise steadily through 2017 and reach 33.6blb bpd in Q4

IEA highlighting the fragile conditions still prevailing and less confident on oil market rebalancing.

WTI $45.03 near session lows as is Brent at $47.45 on the bearish price news. USDCAD unfazed and trawling along around 1.2750

More from the IEA here