Sat, 22nd July 2017

Anirudh Sethi Report


Latest Posts

All Eyes on ECB -An Update

It was ECB President Draghi’s speech in the central bank conference in Portugal on June 27 that began the current market phase.  He seemed to acknowledge the obvious, which that ECB officials may be as surprised as any one with the market’s dramatic response to the assessment reflationary forces are at play.
The day before Draghi spoke, the 10-year German Bund yield traded near 23 bp.  It peaked a week ago near 62 bp.  The yield has eased a bit in what appears to be consolidation ahead of the ECB meeting.  This is part of the overall tightening of financial conditions was the market’s reaction function to Draghi’s comments.   The Bloomberg measure of financial conditions has tightened by 50 bp this month.  Conditions are the tightest since the end of 2014.
Macro-fundamental conditions have not changed much in recent weeks.   The euro area is enjoying a cyclical expansion, and growth continues to exceed trend.  However, inflation remains lower than desired, and wage growth remains modest.  If last month, the ECB’s analysis allowed Draghi to conclude that the movement to price stability required continued extraordinary accommodation, then nothing since suggests otherwise.  If anything, the tightening of financial conditions and would suggest less, not more future inflation.
Draghi has a particularly difficult job.  On the one hand, the ECB wants to prepare investors that asset purchases are not permanent and the economic conditions that warranted the unorthodox measures are not as intense as they were previously, and the downside risks to growth and inflation have been neutralized.  On the other hand, it is premature to conclude that an exit is at hand, or that the patient, the eurozone economy, and prices, can be taken off life-support.  

Volvo profit lifted by rising sales in China, Europe

Volvo Cars reported a 21 per cent rise in operating profit in the first half of the year on the back of rising sales in China and Europe.

Six-month operating profit rose from SEK5.6bn to SEK6.8bn, while revenues climbed from SEK84.2bn to SEK99.1bn.

The company is heading for its fourth year of record sales, as it tries to convince potential investors that the company is a fully fledged premium carmaker ahead of a potential stock market listing.

Its operating profit margin rose from 6.6 per cent to 6.8 per cent, though is still lower than the 10 per cent often posted by German premium rivals Audi, BMW and Mercedes.

The company flagged market share gains in Europe and China for rising sales, which climbed 8.2 per cent to 277,641 cars.

In Europe, Middle East and Africa sales rose 6.6 per cent, while in China they were up by 27.6 per cent.

FITCH : China Signals Commitment to Tighter Financial Regulation

Fitch commentary on last weekend’s National Financial Works Conference (NFWC) in China

  • Could signal rising potential for a more decisive shift in policy focus away from hitting high growth targets, but there is still uncertainty over whether the drive to address risks will continue to take priority if the economy slows
The main policy announcement to come out of the conference was the creation of a cabinet-level regulatory committee that will coordinate the efforts of the four main financial regulators
  • The current fragmented framework makes it more difficult for regulators to monitor banks and non-bank financial institutions (NBFIs), and to fully address the contagion risks from increased cross-holding of complex financial products. A more unified approach could enhance regulatory oversight and help to limit contagion risks. This would be positive for the long-term stability of China’s financial system and economy.
Financial stability was clearly prioritised in the NFWC statement
  • said China should create “an austere regulatory atmosphere”
  • also took a strong tone on accountability for debt excesses, with local officials now to be held liable for risks created during their tenure even after they have left office
  • This focus is consistent with other recent statements by officials, as well as new guidelines to enhance bank supervision and the facilitation of higher market interest rates by the PBOC to squeeze out speculative activity in the shadow banking sector

BOJ announce: No change to monetary policy, upgrade economic outlook

The Bank of Japan July monetary policy meeting has finished – statement out now. Pretty much as expected.

Maintains short-term interest rate target at -0.1 pct

Maintains 10-year jgb yield target around zero pct

Pushes back timing for hitting 2 pct inflation target (likely to see inflation reach 2 pct around fiscal 2019)

Leaves unchanged pledge to buy JGBs so that its holdings increase at annual pace of around 80 trln yen

BOJ’s quarterly report:

Recent moves in CPI have been relatively weak

Rise in medium to long term inflation expectations has been lagging behind somewhat

Inflation expectations projected to rise as firms gradually raise wages, prices

CPI  likely to continue uptrend, increase toward 2 pct

  • Projected rate of increase in CPI is lower mainly for the first half of 3 year projection period in BOJ’s quarterly report
  • Risks to economy, prices are skewed to downside
  • Momentum toward hitting price target is maintained but not yet sufficiently firm
  • BOJ to make policy adjustments as appropriate with view to maintaining momentum toward achieving price target

ADB upgrades emerging Asia’s growth outlook to 5.9%

The Asian Development Bank on Thursday upgraded its outlook for emerging Asia’s growth rate of gross domestic product for this year to 5.9% from the previous figure of 5.7%, citing better-than-estimated Chinese economic growth.

The GDP growth rates in 2015 and 2016 were 6.0% and 5.8%, respectively.

 The key driver for the upgrade is China, up 0.2 points to 6.7%, backed by increased domestic consumption and exports. The Chinese government earlier announced that January-June GDP growth was 6.9%.

The previous outlook was published in April. On Thursday, the ADB also upgraded the growth outlook for 2018 to 5.8% from 5.7%.

The ADB’s outlook covers 45 countries and regions in the Asia-Pacific region, and excludes developed nations.

Tennis Legend Boris Becker Bankrupt, Burns €100MM Fortune With Help of “Nigerian Investments”

Boris Becker was a legend on the tennis court, unfortunatly when it comes to investing, he appears to have shared an advisor with Johnny Depp.

According to claims in the German media, Boris Becker may have lost his roughly €100 million fortune in part because of questionable investments in the Nigerian oil industry. Ever since the 49-year-old former tennis star was declared bankrupt in a London court last month, there has been rampant speculation over how he managed to squander a personal fortune estimated at roughly €100 million.

Now, according to Germany’s Spiegel, Becker’s business dealings went far deeper than celebrity endorsements and media appearances. The magazine claims he made investments in the Nigerian oil and gas industry, and at one point considered a single investment of more than $10m (£7.6m).


BREAKING : Japan earthquake – northern Japan & Tokyo

Fukishima also shaken (reports). Earthquake reported at a 4 on Japan’s 7 point scale

  • Japan’s public broadcaster with the news (NHK)
  • Northern Japan quake, felt in Tokyo
  • There has been no tsunami alert issued, said to be no tsunami threat
  • Magnitude 5.6 quake says NHK, Pacific Tsunami Warning Center says magnitude 5.8, hit Honshu (Japan’s main island)
More early reports:
  • Depth 52km
  • 97 km SE of Sendai-shi, Japan