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Sat, 22nd July 2017

Anirudh Sethi Report

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Latest Posts

Moody’s say measures from China’s financial work conference are credit positive

US rating agency Moody’s out with a note on China 21 July

  • highest level endorsement by Xi and top policy makers of measures are credit positive for sovereign
  • scrutiny from highest levels of govt on financial stability, SOE leverage, pace of debt growth in economy, among SOEs is likely to slow
  • forecast debt will continue to rise, inc for govts, household and non-financial corps#

Meanwhile EURUSD 1.1630, AUDUSD 0.7896, GBPUSD 1.2970 USDJPY 111.96

US-China honeymoon clearly over as dialogue runs aground

 imageDespite recent shows of cooperation, Washington and Beijing seem to once again be drifting apart after failing to achieve much of substance on trade or North Korea at a bilateral meeting here Wednesday.

Not long after the so-called Comprehensive Economic Dialogue began, the U.S. Treasury Department called off a news conference planned for that day. The dearth of room for compromise was apparently clear from the start.

 “We will end the theft of American prosperity,” President Donald Trump said at a roundtable with American manufacturing executives. Half a year after taking office, he remains far from delivering on such key promises as replacing predecessor Barack Obama’s health care law, while Russia and other controversies have made Trump one of the least popular American presidents this far along in his term.

Hoping instead for headway on the trade deficit, the administration pushed China to reform its steel, information technology and financial sectors and to open up its markets. But Washington failed to draw out any concrete assurances Wednesday. The most that came from the dialogue was an American statement that “China acknowledged our shared objective to reduce the trade deficit.”

Bill Gross : It won’t take an inverted yield curve to kick off a recession

Bill Gross sounds alarms

The yield curve is the ultimate signal and an inverted yield curve is the ultimate recessionary signal.

At the same time, the Fed has been actively trying to skew the bond market through its QE programs. So maybe those signals aren’t as clear as they used to be.

Bill Gross argues that the spread between T-Bills and the 10-year yield doesn’t need to go sub-zero to indicate a recession is coming.

“Since the current spread of 80 basis points is far from the “triggering” spread of 0, economists and some Fed officials as well, believe a recession can be nowhere in sight,” he writes in his latest Investment Outlook. “Perhaps. But the reliance on historical models in an era of extraordinary monetary policy should suggest caution.”

imageGross argues that the front end is the most important and that rates rising 85 bps is small in magnitude but it’s also a doubling of the rates people are paying. Because of that, he argues that it’s more dangers.

“Today’s highly levered domestic and global economies which have “feasted” on the easy monetary policies of recent years can likely not stand anywhere close to the flat yield curves witnessed in prior decades. Central bankers and indeed investors should view additional tightening and “normalizing” of short term rates with caution,” he writes.

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)

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.

EURUSD breaches 1.1600 level. Trades above topside trend line.

Racing higher

image
The EURUSD has raced above the 2017 high at 1.15826, the natural 1.1600 level,  and also above the old trend line (that line was breached on Tuesday but failed).  The pair has also moved above the 2016 high price at 1.16156. The high just peaked at 1.1630.  We are quickly back to 1.1615 currently after the trigger of the stops.
Support will now be eyed at the 1.1600 area and then the old 2017 high at 1.15826.