Sat, 22nd July 2017

Anirudh Sethi Report


Posts Authored by: “Jim John”

Emerging Markets :An Update

  • South Korea proposed resuming military and humanitarian exchanges with North Korea.
  • The European Union may sanction Poland over its controversial judicial overhaul.
  • Turkish Prime Minister Yildirim announced a cabinet shuffle after meeting with President Erdogan.
  • Turkey’s worsening relations with Germany will come with economic costs.
  • South African Reserve Bank surprised markets by starting the easing cycle with a 25 bp cut to 7.0%.
  • Brazil will raise fuel taxes and freeze spending in an effort to meet its fiscal targets
  • S&P raised the outlook on Mexico’s BBB+ rating from negative to stable.
In the EM equity space as measured by MSCI, South Africa (+1.8%), Chile (+1.6%), and China (+1.5%) have outperformed this week, while Indonesia (-1.8%), Russia (-1.5%), and Colombia (-1.5%) have underperformed.  To put this in better context, MSCI EM rose 1.2% this week while MSCI DM rose 0.5%.
In the EM local currency bond space, Brazil (10-year yield -23 bp), South Africa (-17 bp), and Russia (-10 bp) have outperformed this week, while Chile (10-year yield +10 bp), Colombia (+4 bp), and China (+4 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 10 bp to 2.33%.
In the EM FX space, BRL (+1.9% vs. USD), KRW (+1.3% vs. USD), and THB (+0.9% vs. USD) have outperformed this week, while ARS (-3.0% vs. USD), PLN (-1.4% vs. EUR), and ILS (-0.4% vs. USD) have underperformed.

US Urges All Nationals In North Korea To “Depart Immediately”, Bans Tourists From Visiting

Dennis Rodman will be disappointed to learn that the US is set to ban all citizens from traveling to North Korea, according to two agencies that operate tours there. Koryo Tours and Young Pioneer Tours said the ban would be announced on 27 July to come into effect 30 days later, the BBC reported. “After the 30-day grace period any US national that travels to North Korea will have their passport invalidated by their government.” The ban comes one month after US student Otto Warmbier died following his imprisonment by the Kim regime.

China-based Young Pioneer Tours, which had taken Warmbier to North Korea, and Koryo Tours said the ban will come into force on July 27 – the anniversary of the end of the Korean War – with a 30-day grace period. Koryo Tours added that the Swedish embassy in Pyongyang, which handles consular affairs for the United States in the North, informed it of the ban, but did not say how long it would last. The U.S. embassy in the South Korean capital, Seoul, did not immediately respond to a request for comment.

Rowan Beard said that the 30-day grace period would “give leeway for any [Americans] currently in the country as tourists or on humanitarian work”. Simon Cockerill, of Koryo Tours, said: “It remains to be seen what the exact text is, but the indication is it’s just a straight up ban on Americans going.” Mr Cockerill told the BBC the agency would still conduct tours and take Americans until the ban came into effect.

Overnight US Market :Dow Closed -29 points

S&P small loss. Dow down a bit

The Nasdaq close up for the 10th day in a row.  It is a new record as well, but the gain was only +0.08% on the day.
The S&P could not close in the black today and therefore did not make new record highs.  The loss was only minimal  The index fell by -0.38 points ore -0.02% on the day.
The Dow was in the red for most of the day.  It ended the day, down -28.97 points or -0.13% on the day.
Visa earnings after the close beat.
Microsoft also beat at 24.7B rev vs 24.27B and EPS $0.98 vs $0.71.  The stock is up 1.54% in after close trading (BTW it was a record close for the stock)

Greece Brain Drain: 33% Of Unemployed Looking For Jobs Abroad Vs 11% In 2015

The  Unemployment Rate in Greece is down to 21.7% in April from a record 27.9% in July of 2013 and a record low of 7.3% in May of 2008.


Despite the falling rate, the percentage of those unemployed seeking jobs abroad has risen from 11% in 2015 to 33% this year.

The message seems to be “get me the hell out of here”.

The Greek Reporter notes Brain Drain Gathers Pace as One in Three Greeks Looks for a Job Abroad.

 According to the annual survey by the firm Adecco titled “Employability in Greece,” the brain drain phenomenon has been increasing over the last three years.

In 2015 only about 11% of unemployed respondents said that they were actively looking for a job abroad. This figure increased to 28% in 2016 and reached 33% this year.

The responses show that the unemployed have different reasons to seek work abroad. Whereas in 2005, the main reason was the prospect of a better wage, in 2016 and 2017 the main reason given were better career opportunities.

The study conducted for the third year running, in collaboration with polling company LMG, was based on a sample of 903 people from the age of 18 to 67.

According to other findings, 37% of respondents say that they have been out of the labor market for at least 12 months.

One Way Or Another – Venezuela Will Send Oil Prices Up

In a desperate bid to survive its economic meltdown, Venezuela is lobbying other OPEC members to agree to steeper oil production cuts, a move that would likely lead to higher oil prices.

Venezuelan officials have reached out to their counterparts in Iran, Russia and Saudi Arabia to press them on more collective action, according to Argus Media. If there was enough interest, the next step would be an “extraordinary meeting,” which would weigh the option of cutting deeper.

 The rumors about deeper OPEC cuts have been floating around since June, when oil prices collapsed into the low-$40s. The markets have grown deeply pessimistic about the health of the oil market, and doubt the OPEC cuts will balance the market by the end of the compliance period in March 2018.

But the behind-the-scenes effort from Venezuelan officials is notable, if only because the South American OPEC members was one of the earliest and most aggressive supporters of the original deal to reduce output. In 2016, for months the more powerful members of the cartel rebuffed Venezuelan pleas, but in the end they agreed to reductions in November after oil prices continued to wallow below $50 per barrel.

The deal pushed prices above $50 for a period of time, but after six months of restraint, the market is back in sub-$50 territory.

However, the urgency for higher prices is more acute now for Venezuela. Protests have spread nationwide in the South American nation as the economy contracts at a torrid rate. Violence is becoming more widespread, and the nation is suffering from political gridlock and economic and social disaster.

Over the weekend, the opposition organized an informal referendum, which attracted more than 7 million votes, to oppose anti-democratic moves by the government. The vote demonstrated widespread anger and opposition towards the government’s upcoming effort to consolidate power in a July 30 vote to rewrite the constitution, a move that would weaken competing institutions like the National Assembly. The referendum opposing the July 30 vote was not recognized by the government, but it was a show of force for the opposition.

There is no way out of the downward economic spiral for Venezuela in the short run without significantly higher oil prices.

Morgan Stanley Q2 profit up +11.4%

The earnings reporting season continues with US bank  Morgan Stanley 19 July

  • revenue $9.5bln vs $9.13bln exp
  • EPS $0.87 vs 0.76 exp vs 0.75 prev
  • FICC sales and trading revenue $1.24bln vs 1.20 exp
  • investment banking revenue rose 25% to $1.53bln

MS are the 6th largest US bank by assets and performing well it would appear.

US Bancorp also reporting:

  • adj EPS $0.85 vs 0.84 exp
  • revenue $5.49bln vs 5.47bln prev

China holdings of US Treasuries climb to $1.1 Trillion

China’s holdings of US Treasuries climbed to the highest level since the country ceded its status as America’s largest creditor nation to Japan last year.

China’s ownership of US government bills, notes and bonds rose by $10bn from a month prior to $1.1tn in May, according to new figures released by the Treasury Department in Washington on Tuesday. The figure nonetheless remains more than $140bn below year ago levels.

The rise helped close the gap with Japan as the largest US creditor to $9.1bn, its lowest since September 2016. Japan’s holdings of Treasuries increased by $4.4bn from a month earlier to $1.11tn.

The country’s reserves have been closely scrutinised after the renminbi weakened last year. China has worked to curtail capital outflows and along with a drop in the US dollar, the renminbi touched an eight-month high on Monday.

WTI Crude Sinks After Surprise Crude Inventory Build

WTI has roller-coastered higher since last week’s ‘bullish’ API report and rose today for the 6th of the last 7 days (on Saudi cut hype). While many eyes are on record high shale production, the recent trend in inventory draws remains key but API upset that dream briefly as Crude saw an unexpected build (+1.628mm vs -3.5mm exp). Gasoline and Distillates saw major draws (much bigger than expected) and Cushing saw its first build in 8 weeks.


  • Crude +1.628mm (-3.5mm exp)
  • Cushing +608k
  • Gasoline -5.448mm (-1.3mm exp)
  • Distillates -2.888mm

Goldman Sachs Q2 revenue fails to meet expectations

US investment bank Goldman Sachs out with Q2 earnings report 18 July

  • revenue $7.89bln vs 7.97bln exp
  • EPS adjusted $3.95 vs $3.51 exp

Revenue not matching expectations but EPS better

Q2 earnings also out for:

Bank of America:

  • revenue $23.07bln vs 22.7bln exp
  • EPS adj $0.46 vs $0.4 exp

Lockheed Martin:

  • revenue $12.7bln vs 12.4bln exp
  • EPA adj $3.23 vs $3.11 exp

Data better overall.

Meanwhile GBPUSD survives a test of 1.3000 as EURGBP fails to hold above the 0.8880 area I’ve been highlighting