Sat, 22nd July 2017

Anirudh Sethi Report


Archives of “Thermodynamics” Tag

Emerging Markets: An Update

National Bank of Hungary meets Tuesday and is expected to keep policy steady.  The bank has been loosening policy quarterly via unconventional measures, which it just did at its June meeting.  Further easing is possible at the September meeting.  CPI rose only 1.9% y/y in June, the lowest since December and below the 2-4% target range.
Malaysia reports June CPI Wednesday, which is expected to rise 3.8% y/y vs. 3.9% in May.  Although the central bank does not have an explicit inflation target, falling price pressures should allow it to keep rates steady into 2018.
South Africa reports June CPI Wednesday, which is expected to rise 5.2% y/y vs. 5.4% in May.  If so, this would be the lowest rate since November 2015 and would remain in the 3-6% target range.  SARB then meets Thursday and is expected to keep rates steady at 7.0%.  However, we think the weak economy will lead the bank to start an easing cycle in H2 2017.  That leaves September 21 and November 23.
Poland reports June industrial and construction output, real retail sales, and PPI Wednesday.  Consensus for y/y readings are 3.9%, 9.8%, 6.0%, and 2.1%, respectively.  The economy remains robust, but price pressures are falling and so there is no urgency to hike rates.  CPI rose only 1.5% y/y in June, the lowest since December and at the bottom of the 1.5-3.5% target range.
Taiwan reports June export orders Thursday.  Exports and export orders have slowed a bit in recent months and so bears watching.  The mainland economy appears to be holding up well, which should be reflected in Taiwan data.

Emerging Market :An Update

EM FX closed last week on a mixed note, with markets struggling to find a compelling investment theme. The US jobs data this week could provide some more clarity on Fed policy.  We still think markets are still underestimating political risk in the big EM countries, including Brazil (Moody’s outlook moved to negative), Mexico (election in state of Mexico), South Africa (ANC debates Zuma’s fate), and Turkey (ongoing crackdown on opposition).
Bank of Israel meets Monday and is expected to keep rates steady at 0.10%.  CPI rose 0.7% y/y in April, below the 1-3% target range.  With the shekel remaining firm, the central bank is likely to keep rates steady whilst continuing to buy USD/ILS.  
South Africa reports April money and private sector credit data Tuesday Both are expected to pick up modestly from March.  It reports April trade data Wednesday.  Q1 unemployment will be reported Thursday, and is expected at 27.0% vs. 26.5% in Q4.  SARB kept rates steady last week.  Next policy meeting is July 20.  If current trends persist, we think it will give a stronger signal that it could cut rates in H2.  Results of the ANC meeting are not yet known as of this writing.
Chile reports April IP Tuesday.  Central bank releases its minutes Friday, while April retail sales will also be reported.  The economy remains weak while price pressures remain low.  While the bank signaled that the easing cycle is over for now, we do not see tightening until 2018.  Next policy meeting is June 15, and rates are likely to remain steady at 2.5%.

19 Ways to boost your motivation and personal effectiveness

1. Get an accountability buddy. Not only does having an accountability buddy help you stay on track to achieve the results you want, they are also a great source of motivation and keeping you effective too. To find out more about having an accountability buddy read 1o reasons to have an accountability buddy and How To Find An Accountability Buddy

2. Protect yourself from energy draining and toxic people. They will suck the life out of you and have a negative impact on your motivation and effectiveness.

3. Surround yourself with positive, constructive, solution focussed people who fuel your fire. It will give a tremendous boost to your energy levels which has a fairly hefty knock on effect to your motivation and effectiveness.

4. Create a powerful vision for your life, work and relationships. Keep focussed on it and visualise achieving it each and every day. It will help you keep motivation going when you experience setbacks, obstacles or when the brown stuff hits the fan.

5. Get fresh air – every day. Amazing the difference this makes. Try it.

6. Spend time in nature and the great outdoors. Fabulous stress buster and as stress is a motivation and effectiveness drainer this is worth doing.

7. De- clutter your mental and physical space.

8. Do more things that give you mental and physical energy. Do less of the things that drain your mental and physical energy. For a practical tip on how to do this read this.

9. Have a strong action plan and work that baby consistently!

Emerging Markets: An Update

EM FX gained a little traction on Friday, but capped a week of steady losses.  As the US election and FOMC meeting next month get closer, we believe markets and risk appetite will remain volatile.  So far, September data from the US does not suggest any urgency to hike in November, and so we continue to believe that December is most likely for another hike.
Looking at individual countries, South Africa political risk remains high as the feud between Gordhan and Zuma plays out.  The Turkish central bank meets, and any jawboning by the government could weigh on the lira.  On the other hand, Brazil is likely to continue outperforming, as COPOM is likely to follow up recent fiscal consolidation efforts with the first rate cut of this cycle.
Brazil reports August retail sales Tuesday.  COPOM then meets Wednesday and is expected to cut rates 25 bp to 14.0%.  Mid-October IPCA inflation will be reported Friday, which is expected to rise 8.3% y/y vs. 8.78% in mid-September.  Last week’s cut in fuel prices won’t show up yet, but does suggest falling price pressures ahead.  Along with progress on the government spending cap bill, we think developments support a potential 50 bp cut this week.

Colombia reports August retail sales and IP Tuesday. 
The former is expected at –0.5% y/y and the latter at +3.0% y/y.  The economy has softened from both fiscal and monetary tightening, but the recent bounce in oil prices (if sustained) will help boost growth.  Inflation peaked and has fallen to 7.3% y/y in September.  This is the lowest since December, but remains above the 2-4% target range.  We think easing is unlikely until we are well into 2017.

Ed Seykota on Trading Heat

Ed Seykota:

Seasoned traders know the importance of risk management. If you risk little, you win little. If you risk too much, you eventually run to ruin. The optimum, of course, is somewhere in the middle.

Placing a trade with a predetermined stop-loss point can be compared to placing a bet: The more money risked, the larger the bet. Conservative betting produces conservative performance, while bold betting leads to spectacular ruin. A bold trader placing large bets feels pressure — or heat — from the volatility of the portfolio. A hot portfolio keeps more at risk than does a cold one. Portfolio heat seems to be associated with personality preference; bold traders prefer and are able to take more heat, while more conservative traders generally avoid the circumstances that give rise to heat. In portfolio management, we call the distributed bet size the heat of the portfolio. A diversified portfolio risking 2% on each of five instrument & has a total heat of 10%, as does a portfolio risking 5% on each of two instruments.

Our studies of heat show several factors, which are:

1. Trading systems have an inherent optimal heat.

2. Setting the heat level is far and away more important than fiddling with trade timing parameters.

3. Many traders are unaware of both these factors.

ALERT-Unilever still cautious, sees no sign of improving global economy

Underlying sales growth at Unilever remained steady at 4.7 per cent in the second quarter despite consumer demand remaining “weak” in many market but the consumer goods giant behind brands such as Dove soap and Persil laundry detergent has taken a further knock from unfavourable currency movements.

Second quarter underlying revenue growth was in line with the previous three months and slightly higher than the 4.5 per cent growth anticipated by analysts.

But actual sales fell 2.6 per cent over the first half as a whole to €26.3bn, continuing a trend from the first three months when the weakness of emerging market currencies against the euro affected the company’s reported results. Net profit rose 2 per cent in the first half to €2.7bn.

Unilever struck a cautious tone, highlighting that sales volumes have slowed further – underlying volume growth was 1.8 per cent in the second quarter from 2.6 per cent in the first quarter. It said:

Consumer demand remained weak and in the markets in which we operate volumes have slowed further, with market volume growth low in emerging markets and negative in Europe and in North America.

Paul Polman, chief executive, said:

PetroChina confirms big drop in 2015 profits

China’s largest oil company PetroChina warned in January that its net profit for 2015 could be as much as 70 per cent lower than in the previous year. Looking on the bright side, the knock has turned out at just under 67 per cent.

In a statement to the Hong Kong stock exchange today, it said net profits were Rmb35.5bn ($5.46bn) in 2015, down from Rmb107bn in the previous year. It is of course in good company; Shell and BP have also announced large drops in profits stemming from the collapse in oil prices.

PetroChina noted that its revenues for the year were 24.4 per cent lower, while operating costs were chopped by 22 per cent, and added:

In 2015, the global economic recovery slowed down, the downward pressure on China’s economy continuously intensified, the overall supply in the oil and gas market was sufficient and the international oil prices kept dropping at a low level. Despite the complicated and severe domestic and international economic environment, the Group adhered to steady development

Global PMI Summary: 60% Of Nations Weakening

As PMI manufacturing surveys are released around the world, we get an early read on the state of glkobal manufacturing. As the below table shows, out of the 25 countries that have reported so far, 8 reported improvements in their manufacturing sectors in September, while 15 recorded a weakening, and 2 remained unchanged.

A reading above 50 reflects expansion, while below 50 indicates contraction.

Thermodynamics and the Market

Does Prigogine’s principle have any predictive market implications?

Well if you move from thermodynamics to information theory entropy, and consider the information content of market prices, then there are two clear analogies:

1. There should be local, transient edges (Prigogine, market prices self-organizing to minimize the rate of information loss).

2. Those edges are decaying (Second Principle, “Changing cycles”).