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Wed, 23rd August 2017

Anirudh Sethi Report

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Posts Authored by: “Nayal Khan”

European Indices closed.FTSE closed Positive ,Rest all Negative

UK FTSE up 0.8%. German Dax down -0.2%.

The major European stock indices are ending the day with mixed results:
  • German Day is down -0.2%
  • France’s CAC is down -0.4%
  • UK FTSE is up 0.8%
  • Spain’s Ibex is down -0.2%
  • Italy’s FTSE MIB is down -0.2%
  • Portugals PSI20 is up 0.2%
In the European debt market, yields are lower mostly lower:
  • Germany 0.533%, unchanged
  • France 0.779%, -2.2 bp
  • UK 1.207%, +1 bp
  • Spain 1.489%, -7 bp
  • Italy 2.12%, -7 bp
  • Portugal 3.01%, -5.5 bp
  • Greece 5.263%, unchanged.

ECB leaves key interest rates and QE on hold

ECB interest rate announcement now out 20 July

  • main refinancing rate 0.0%
  • marginal lending facility 0.25%
  • deposit facility  -0.4%
  • asset purchase target EUR 60bln

ECB statement:

  • sees rates at present level well past end of QE
  • QE running until end of Dec or beyond if needed
  • QE to run until inflation path

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Germany issues revised travel guidance for Turkey

German foreign ministry out with a statement 20 July

  • warns German citizens to be more careful
  • Turkey not always informing govt of arrests of German citizens in timely dashion
  • consular access not always guaranteed

“People who are travelling to Turkey for pvt or business reasons are urged to exercise increased caution, and should register with German consulates and the embassy even for shorter visits”

Foreign minister Gabriel takes it one stage further:

One can’t advise anyone to invest in a country when there is no legal certainty and where companies, completely respectable companies, are presented as terrorists and there are already examples of expropriation”

I therefore don’t see how we can still guarantee German company investments in Turkey, if as has happened, arbitrary expropriations for political reasons have not only been threatened but have already taken place.”

Lest we forget on-going concerns on matters closer to home in Europe as Turkish president Erdogan continues to cast his influence.

EURUSD unfazed for the moment with EURUSD holding 1.1500 and EURGBP climbing further to 0.8880 ahead of the ECB

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Eurozone May construction output mm -0.7% vs +0.3% prev

Eurozone May construction output report 19 July

  • yy 2.6% vs 3.3% prev revised up from 3.2%

Soggy EZ construction tones as we head into ECB meeting.

EURUSD 1.1527 after the dip to 1.1515 but EURGBP 0.8848 after earlier 0.8857 highs.

EURJPY 129.16 still on the back foot as USDJPY falls back to 112.00

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US Fed to hike interest rates by 25bps in Q4 2017

So says the results of another Reuters poll published today 18 July

  • another 25bps in Q1 2018
  • 55 from 85 economists say the Fed will announce balance sheet normalization plan in Sept
  • US GDP to grow annualised 2.7% in Q2 vs 3.0% in previous poll (June)
  • core PCE inflation f/cast to average 1.5-1.6% each remaining quarter of 2017 vs 1.6-1.7% prev

Meanwhile USDJPY has moved up through 112.20 to post 112.32 with some yen selling notable again. GBPUSD 1.3102 and EURUSD 1.1518 with GBPJPY up to 147.20 and EURJPY 129.39

AUDUSD 0.7910 down from 0.7924 but AUDJPY 88.85 near session highs still.

Europe Starts Freezing Britain Out Of EU Contracts

Diplomatic relations between the UK and EU are fast approaching zero degrees Kelvin.

One day after Theresa May not only cemented, but allowed herself Brexit negotiating breathing room with her stunning, yet cunning decision to announce snap elections which would only boost the leverage of her party, Brussles has retaliated and as the FT reports, Brussels is starting to “systematically shut out British groups from multibillion-euro contracts” while urging companies to migrate to one of the 27 remaining EU members.

The Brussels note suggests that tensions between the UK and EU mey deteriorate to the point where even Bremainers may turn on Brussels:

 In an internal memo seen by the Financial Times, top European Commission officials have told staff to avoid “unnecessary additional complications” with Britain before 2019, highlighting an administrative chill that is biting even before Britain leaves the bloc.

 It explicitly calls on EU staff to begin encouraging the UK-based private sector to prepare for the “legal repercussions” of Brexit and consider the need “to have an office in the EU” to maintain their operating permits. Agencies are also told to prepare to “disconnect” the UK from sensitive databases, potentially on the day of Brexit.

Titans of oil world meet in Houston after two-year price war

The biggest names in the oil world come together this week for the largest industry gathering since the end of a two-year price war that pitted Middle East exporters against the firms that drove the shale energy revolution in the United States.

When OPEC in November joined with several non-OPEC producers to agree to a historic cut in output, the group called time on a fight for market share that drove oil prices to a 12-year low and many shale producers to the wall.

Oil prices are about 70 percent higher than they were the last time oil ministers and the chief executives of Big Oil met in Houston a year ago at CERAWeek, the largest annual industry meet in the Americas.

The ebullience as both sides enjoy higher revenues will be a welcome relief from the gloom of a year ago, near the depths of the price war.

“The oil market has been rebalancing and the powerful forces of supply and demand have been working,” said Dan Yergin, vice chairman of conference organizer IHS Markit and a Pulitzer Prize-winning oil historian.

“The mood will be different this year.”

Cash No Longer King: Europe Accelerates Move To Begin Elimination Of Paper Money

In the shadow of Donald Trump’s spree of controversial actions, the European commission has quietly launched the next offensive in the war on cash. These unelected bureaucrats have boldly asserted their intention to crack down on paper transactions across the E.U. and solidify a trend that has been gaining momentum for years.

The financial uncertainty amplified by Brexit has incentivized governments throughout Europe to seize further control over their banking systems. France and Spain have already criminalized cash transactions above a certain limit, but now the commission has unilaterally established new regulations that will affect the entire union. The fear of physical money flowing out of the trade bloc has manifested a draconian response from the State.

The European Action Plan doesn’t mention a specific dollar amount for restrictions, but as expected, their reasoning for the move is to thwart money laundering and the financing of terrorism. Border checks between countries have already been bolstered to help implement these new standards on hard assets. Although these end goals are plausible, there are other clear motivations for governments to target paper money that aren’t as noble.

BOJ on edge after Trump claims devaluation

While Bank of Japan officials see no grounds for Donald Trump’s accusation of currency devaluation, they still worry that the bank’s unique measure to control long-term rates could become the next target as the president continues his rhetorical battles.

“I have no idea what he is saying,” said one baffled BOJ official after learning about the criticism Trump leveled against the central bank. 

 Bond investors seem similarly perturbed. Yields on 10-year Japanese government bonds temporarily rose 0.025 percentage point Thursday, hitting 0.115% — the highest since the BOJ announcement of negative interest rates Jan. 29, 2016. The climb also reflects market anxiety over whether the central bank will continue buying up JGBs at the current pace.

BOJ Gov. Haruhiko Kuroda refuted Trump’s accusation in the Diet on Wednesday, saying Japan’s monetary policy is designed to defeat persistent deflation and not to keep the yen weak. “We discuss monetary policy every time Group of 20 finance ministers and central bankers meet,” he said. “It is understood among other central banks that [Japan] is pursuing monetary easing for price stability.”

In fact, U.S. monetary policy is chiefly responsible for the yen’s depreciation against the dollar. The Federal Reserve in 2015 switched to a tightening mode after keeping interest rates near zero for years, judging quantitative easing to have worked its expansionary magic on the economy. The gap between American and Japanese rates is now the widest it has been in around seven years, encouraging heavier buying of the dollar — the higher-yielding currency — than the yen.