Showing posts with label FOREX = CURRENCY. Show all posts
Showing posts with label FOREX = CURRENCY. Show all posts

Saturday, August 2, 2014

Rising Dollar Pushes Commodities Down While China Drives Industrial Metals Up

The US dollar rose 2.20% in July, primarily due to the Euro’s decline. A combination of weak economic news and falling Eurozone assets are having a negative impact on its common currency as well as European stocks. 
Dollar Etf_opt
US Dollar ETF rising in July
After a few months of flatness, the dollar made a big move, hitting a 6-month high. This surge had a negative impact on commodities. The CRB commodity index experienced a 5% decline in July, losing part of the ground gained this year.
CRB Commodities Index declining in July
CRB Commodities Index declining in July
A rising dollar has historically been bad for commodities and therefore this is also negative for industrial metals. However, industrial metals kept gaining ground this month thanks to stronger demand coming from China.
While global tensions (especially in Europe) made developed markets struggle, emerging markets had a very good month. Chinese stocks rose 10% in July, breaking out to the highest level in three years. The good news for China is very good for industrial metals as China is the biggest user of these commodities.
China iShares (FXI) hitting 3-year high
China iShares (FXI) hitting 3-year high
What This Means For Metal Buyers 
Industrial metals performed well in July thanks to positive news from China. However, commodities lost some ground to a rising dollar. A stronger dollar could have a depressing effect on industrial metal prices. The performance of industrial metals through the rest of the year will strongly depend on these two factors.
Source : Agmetalminer.com

The Best And Worst Performing Assets In July 2014 And YTD

Up until the last day of July, everything was going great: stocks were solidly up for the month, the DJIA was on the verge of 17,000, and the wealth effect was flourishing, if not the economy. Then yesterday happened, and everything changed: not only did the S&P turn red for the month, but the DJIA slid to red for 2014. So what is the best performing asset class in July? With the PBOC now openly unleashing QE in its economy, no surprise that it was the Shanghai Composite, which returned over 8%, if virtually nothing since 2009. However, don't expect this to last: for China real estate is orders of magnitude more important than the stock market to boost the wealth effect.
As for the best returning assets class in 2014 YTD: don't laugh - it's still Spain and Italy. Expect the day of reckoning for Europe's periphery to be fast, unexpected and very brutal.
From Deutsche Bank:
The last 48 hours have made a big difference to returns in July with a sell-off in rates, credit, equities and commodities changing the month dramatically over this period and leaving a few more markets down for 2014 now.

DM equities were tipped into negative territory for July while EM stocks had enough outperformance through the rest of the month to largely stay in positive territory despite the weakness in Russian equity markets. China was the key outperformer with the Shanghai Composite (+8.8%) posting its best monthly total return performance since December 2012. The rally in China also benefitted Hong Kong equities with the Hang Seng (+7.3%) recording its biggest monthly gain in two and a half years. Back to the DM world, the Stoxx 600 and S&P 500 were -1.6% and -1.4% respectively – with the former probably negative impacted by the BES-driven weakness in Portugal (-10.5%).

A poor month for the DAX (-4.3%) and CAC (-4.0%) has pushed them both into negative total return territory for the year at -1.5% and -1.2%, respectively. The FTSE was down -0.1% on the month keeping it in slightly negative territory for the year (-0.3%) although dividends have helped YTD total returns stay in the green. The DOW is also down YTD now.

Moving on to Fixed Income, it was a mixed month for core rates with Europe outperforming Treasuries. This is perhaps not surprising with core European rates flirting around their all time lows whilst USTs suffered a dip following the strong GDP print just a day before month end thus giving up about half of all of the month's earlier strong gains. Turning to Credit, it was modest month for IG total returns but nevertheless IG still did better than HY with US HY (-1.7%) underperforming on the ETF outflow story. Staying in fixed income but moving to EM, the overall benchmark was down 0.6% with strength in Asia (+1.3%) neutralising the weakness in Latam (-0.7%) and EEMEA (-1.3%).

The commodity complex had a very weak month with Corn, Wheat, and Brent all down -16%, -6%, and -5% respectively. Incidentally this also came during a fairly encouraging month for the Dollar bulls with the Greenback appreciating about 2% against a basket of major currencies.

To sum up the year to date performance so far, the European peripheral complex is still the key winner with the IBEX (+12%), FTSEMIB (+11%), Spanish Bonds (+10%) and BTPs (+10%) topping our performance ranking chart and returning about twice as much as the S&P 500 (+6%). EM equities have also done surprisingly well this year with a +8% gain to date. The latest July performance in China has also bumped both the Shanghai Composite (+7%) and the Hang Seng (+9%) into our top 10 list. Core DM rates are still in positive territory, though not surprisingly with Bunds (+6%) outpacing Treasuries (+3%). On the other end of the spectrum, the Nikkei (-3%) remains a key laggard while Russia (-5%) is feeling the heat from the ongoing geopolitical volatility. Generally commodities are amongst the worst performers this year largely led by softs.
Visually, the month of July
The Best And Worst Performing Assets In July 2014 And YTD

And YTD:
The Best And Worst Performing Assets In July 2014 And YTD

Wednesday, July 16, 2014

China's Renimbi / Yuan Updates.

China's Renimbi / Yuan Updates Till July 2014
Did you notice in the last few months, that China has been establishing agreement after agreement with various major financial centres around the world, so that payments could be settled using the Chinese yuan? That's right. It would appear that world leaders have been in a race to make certain the yuan stopped at their country next. 
March 2014
China's Renimbi / Yuan Updates.
"Germany's Bundesbank and the People's Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market.
Germany's financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication."
April 2014
Bank of England and People's Bank of China Agree on London Yuan, Clearing Hub, International Business Times, April 14
China's Renimbi / Yuan Updates.
"Britain and China have signed a deal to set up a yuan clearing service in London, marrying future financial transactions between the Bank of England and People's Bank of China...
Chancellor George Osborne has been focusing on the world's second largest economy and has been keen to open a yuan trading hub in the capital city as the currency poses stiff competition to the US dollar as a global medium of exchange."
May 2014
China's Renimbi / Yuan Updates.
"China and Russia signed off on a huge gas deal worth as much as $400 billion Wednesday that heralds a pivot east for Russian business amid ongoing tensions with the West over Ukraine, though few details of the deal were made public.
The 30-year gas-export contract, seen as a move by Russian President Vladimir Putin to aggressively shift the country's commercial interests east amid mounting sanctions from the United States and Europe, was signed as the Russian leader has enjoyed a warm welcome in China, where the two countries have inked a raft of agreements during his ongoing, two-day visit."
June 2014
Russia considers yuan, ruble for Chinese gas deals; Government Had Considered Using the U.S. Dollar, UPI, June 26
"The head of the accounting department at Russian energy company Gazprom says there's no risk in using either Chinese or Russian currencies for gas transactions.
'In regard to using the yuan or rubles in accounting, we are basically ready for that, we think that this is completely normal,' Gazprom finance chief Andrei Kruglov said. 'There are no risks for Gazprom, except for minor transaction expenses.'"
China's Renimbi / Yuan Updates.
"China will designate a clearing bank in Sydney for overseas trading of its yuan currency, a top Australian official said on Thursday as Beijing seeks to make the tightly-controlled unit more international.
Chinese President Xi Jinping is due to visit Australia in November for a summit of the G20 group of nations, and Hockey said the two countries hope to reach a free trade agreement before the end of the year."
China's Renimbi / Yuan Updates.
"China's central bank said it has signed agreements for yuan clearing arrangements with France and Luxembourg, with the aim of promoting greater use of its currency overseas....
Yuan clearing in France and Luxembourg would allow companies and financial institutions to use the currency for cross-border transactions, as well as promote liberalization of trade and investment, PBoC said.
China's Renimbi / Yuan Updates.
European countries are competing to become the dominant hub for yuan business in the continent."
July 2014


South Korea, China Agree to Direct Trade in National Currencies, RT, July 4

China's Renimbi / Yuan Updates.
"South Korea and China have agreed to create a market for direct trading of the yuan and won, which is hoped, will help reduce the pressure of the US dollar, as well as cut foreign exchange costs and boost bilateral investment.
The memorandum of understanding (MOU) between China's central bank and the Bank of Korea to create a yuan clearing system was signed during Chinese President Xi Jinping's visit to South Korea on Thursday. The leaders of both countries pledged to sign an agreement by the end of the year... The establishment of a won-yuan market may make bilateral trade easier, and reduce the pressure of the US dollar on the Korean currency.
China also provided South Korea with a $12.8 billion quota to invest in national capital markets, the same amount the UK and France have been granted."
China Signs Currency Deals, Except in the U.S., Wall Street Journal, July 10
"In recent years, China has signed a flurry of currency deals with countries around the world. One notable absence: the U.S.
The Chinese government has been pushing for a greater role for the tightly controlled yuan in global trade, investment and finance, as part of its effort to revamp the country's creaky financial system and to one day challenge the U.S. dollar's dominance in the international monetary system. To promote the yuan on the world stage, Beijing has been trying to foster yuan-trading hubs outside the mainland by making it easier for foreign banks to obtain the yuan as well as to clear yuan-denominated transactions.

BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks

As we suggested last night, the anti-dollar alliance among the BRICS has successfully created a so-called "mini-IMF" since the BRICS are clearly furious with the IMF as it stands currently: this is what the world's developing nations just said on this topic "We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness."

BRICS Leaders and Countries
As Putin explains, this is part of "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies." Initial capital for the BRICS Bank will be $50 Billion - paid in equal share among the 5 members (with a contingent reserve up to $100 Billion) and will see India as the first President. The BRICS Bank will be based in Shanghai and chaired by Russia. Simply put, as Sovereign Man's Simon Black warns, "when you see this happen, you’ll know it’s game over for the dollar.... I give it 2-3 years."
  • BRICS MINISTERS SIGN DEVELOPMENT BANK AGREEMENT
  • INITIAL SUBSCRIBED CAPITAL OF BRICS BANK IS $50 BLN: STATEMENT
A quick take on existing monetary policy.
  • MONETARY POLICY MUST BE CAREFULLY CALIBRATED: BRICS STATEMENT
The punchline, however, is that using bilateral swaps, the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.
We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion.This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.... The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. 
Incidentally, the role of the dollar in such a world is, well, nil.
For those who have forgotten who the BRICS are, aside from a droll acronym by a former Goldman banker, here is a reminder of the countries that make up 3 billion in population.
BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks GDP
Key excerpts from the Full statement:
We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness. The IMF reform process is based on high-level commitments, which already strengthened the Fund's resources and must also lead to the modernization of its governance structure so as to better reflect the increasing weight of EMDCs in the world economy. The Fund must remain a quota-based institution. We call on the membership of the IMF to find ways to implement the 14th General Review of Quotas without further delay. We reiterate our call on the IMF to develop options to move ahead with its reform process, with a view to ensuring increased voice and representation of EMDCs, in case the 2010 reforms are not entered into force by the end of the year. We also call on the membership of the IMF to reach a final agreement on a new quota formula together with the 15th General Review of Quotas so as not to further jeopardize the postponed deadline of January 2015.

BRICS, as well as other EMDCs, continue to face significant financing constraints to address infrastructure gaps and sustainable development needs. With this in mind, we are pleased to announce the signing of the Agreement establishing the New Development Bank (NDB), with the purpose of mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies. We appreciate the work undertaken by our Finance Ministers. Based on sound banking principles, the NDB will strengthen the cooperation among our countries and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to our collective commitments for achieving the goal of strong, sustainable and balanced growth.

The Bank shall have an initial authorized capital of US$ 100 billion. The initial subscribed capital shall be of US$ 50 billion, equally shared among founding members. The first chair of the Board of Governors shall be from Russia. The first chair of the Board of Directors shall be from Brazil. The first President of the Bank shall be from India. The headquarters of the Bank shall be located in Shanghai. The New Development Bank Africa Regional Center shall be established in South Africa concurrently with the headquarters. We direct our Finance Ministers to work out the modalities for its operationalization.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion.This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements. We appreciate the work undertaken by our Finance Ministers and Central Bank Governors. The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures.
Goodbye visions of an SDR-world currency. As for the USD...
BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks

Tuesday, July 15, 2014

Anti-Dollar Alliance Prepares Launch Of BRICS Bank (Brazil, Russia, India, China and South Africa)

Anti-Dollar Alliance Prepares Launch Of BRICS Bank
Three months ago we discussed in detail the growing anti-dollar hegemony alliances that were building across the BRICS countries (Brazil, Russia, India, China and South Africa). Their efforts at the time, to create a structure that would serve as an alternative to the IMF and the World Bank (which are dominated by the U.S. and the EU), appear to be nearing completion. As AP reports, Brazil's President Dilma Rousseff and Russia's Vladimir Putin have discussed the creation of a development bank to promote growth across the BRICS and hope to produce an agreement on the proposed institution at this week's BRICS Summit.
Brazil's President Dilma Rousseff and Russia's Vladimir Putin have discussed the creation of a development bank to promote growth in Brazil, India, China, Russia and South Africa.

Rousseff received Putin in the presidential palace in Brasilia on Monday, a day before leaders of the five emerging BRICS nations meet in the northeastern city of Fortaleza.

Rousseff told reporters the bank would top the summit's agenda, adding she hoped the event would produce an agreement on the proposed institution.

She said the five countries "are among the largest in the world and cannot content themselves in the middle of the 21st century with any kind of dependency."

Brazil and Russia also signed bilateral accords on air defense, gas and education
The leaders who will be present (not so many big fans of the US there)...
Anti-Dollar Alliance Prepares Launch Of BRICS Bank


They seem serious:
  • *BRICS DEVELOPMENT BANK KEY TO FOSTER GROWTH IN GROUP: BORGES
  • *BRICS BANK AT 1ST TO FINANCE EXCLUSIVELY INFRASTRUCTURE:BORGES
  • *RUSSIA'S PUTIN SAYS COOPERATION WITH CHINA IS GROWING
  • *PUTIN SAYS RUSSIA TO PROMOTE CURRENCY SWAP WITH CHINA: XINHUA
As we concluded previously, as RBTH reports, it seems the BRICS are not slowing down efforts to create their own IMF-alternative...
Anti-Dollar Alliance Prepares Launch Of BRICS BankThe BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. "Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory," Lukov said.

It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries' economies.

...

The creation of the BRICS Development Bank has a political significance too, since it allows its member states to promote their interests abroad. "It is a political move that can highlight the strengthening positions of countries whose opinion is frequently ignored by their developed American and European colleagues. The stronger this union and its positions on the world arena are, the easier it will be for its members to protect their own interests," points out Natalya Samoilova, head of research at the investment company Golden Hills-Kapital AM.
Perhaps the following sums it all up perfectly...
Economists warn the IMF's legitimacy is at stake, and they say U.S. standing abroad is being eroded.
"Eroded" indeed...
*  *  *
If the current trend continues, soon the dollar will be abandoned by most of the significant global economies and it will be kicked out of the global trade finance. Washington's bullying will make even former American allies choose the anti-dollar alliance instead of the existing dollar-based monetary system. The point of no return for the dollar may be much closer than it is generally thought. In fact, the greenback may have already past its point of no return on its way to irrelevance.
Just in Modi to press for equal shareholding in proposed BRICS bank TOI
India will press for equal shareholding for its five member countries in the proposed $50 billion BRICS Development Bank so that no shareholder dominates.

Monday, June 23, 2014

BofA Blasts Sell Bonds, Sell Gold, Buy Dollars

"After several weeks, Gold is setting up for a sell, US Treasuries are set to resume their bear trend, and the USD is set to resume its bull trend. Get ready..." is the ominous warning BofAML's Macneil Curry sets forth in his technical treatise this weekend. Despite the plethora reasons for rates to go lower for longer (and treacherous market conditions expected ahead) and the various fundamental and technical drivers of recent precious metals strength, Curry says it's time.

Via BofAML's Macneil Curry,
Over the course of the past several weeks, some of our core views and themes have fallen into short term corrective mode. Specifically, we are referring to our bearish US Treasury view and our bullish US $ view (most notably against €, CHF and many EMFX, as well as gold and silver). In the week ahead, we look for these trends to re-emerge and do so in a manner that should provide some excellent low risk, high reward trade setups. Beginning with US Treasuries, we likely look to sell 10yr notes into the 2.53%/2.49% zone for the Apr-04 highs at 2.82% and beyond. In FX, we will likely look to re-initiate €/$ shorts into the 1.3676/3735 zone for a resumption of its medium, potentially long term bear trend and in $/ZAR we will likely look to re-buy near the 50d (10.5357) for a resumption of its long term bull trend and new 2014 highs (now 11.3915). Finally, gold is fast approaching the 1334/72 topping zone from which we look for significant weakness to and through 2013 lows at 1180.
Chart of the week: US 10yr Treasury yields to resume higher
BofA Blasts Sell Bonds, Sell Gold, Buy Dollars
In our view, the bear trend is about to resume. Intra-day charts say the 2wk consolidation is in its final stages. We will likely look to sell one last push lower, ideally to 2.53%/2.49%, for a resumption of the larger bull trend to 2.82% & beyond. 
Get ready to sell EURUSD...
BofA Blasts Sell Bonds, Sell Gold, Buy Dollars
The choppy range of the past several weeks has been frustrating, but now evidence says the medium, if not long term bear trend is about to resume. We will likely look to go short on one last squeeze to 1.3676/1.3735 for a resumption of the larger downtrend to 1.3104 and below. NOTE: we may also look to buy $/CHF
...and buy USDZAR
BofA Blasts Sell Bonds, Sell Gold, Buy Dollars
The impulsive advance (seen clearly on intra-day charts) following the test and hold of the 50wk avg/3yr t/line (10.3867/10.3778) says that $/ZAR has resumed its l/term uptrend. We will look to re-enter longs into the 50d (10.5337) for new 2014 highs
Setting up for a sell in gold
BofA Blasts Sell Bonds, Sell Gold, Buy Dollars
In last week’s KrystalBull we wrote that “the medium term trend has turned higher” for gold but that “gold bulls should not get too enthusiastic. AT BEST, we think it can reach the 1334/1374 area (measured move and yearlong contracting range highs) before topping and substantial weakness”. The strength of last week’s move caught us off guard and says that the 1334/1374 topping zone could be reached much more quickly than anticipated. We will look to go short into this zone. As can be seen from the chart below, gold is close to resuming its almost 3yr downtrend after a year of consolidation, with targets seen for a test and break of the 2013 lows at 1180.

INFOGRAPHIC: History of US money

Starting from 1775 when colonialists created their own continental currency, a infographic shared by Ghergich.


History of U.S. Money


by Ghergich.

Thursday, June 19, 2014

Why the rupee is on a slippery slope

Why the rupee is on a slippery slope
The currency is the worst performer in the emerging markets after the Iraq crisis broke out
Rising crude prices are once again exerting pressure on the Indian rupee. The currency moved below the 60 mark against the dollar on Monday and is currently threatening to cross 60.5. That the fate of the rupee is closely linked to crude prices is not a secret; import of petroleum and oil products make up over 35 per cent of India’s merchandise imports.
The rupee is down 1.75 per cent after the Iraq crisis broke out, making it the worst performer in the emerging market currency basket in this period.
The inelasticity of demand for petroleum products within the country, coupled with the inability of the government to adjust domestic supply in line with demand at short notice, renders the country vulnerable to sudden spikes in global crude prices. Brent crude prices moved from $109 on June 11 to the current $113.5 — up 4.3 per cent.
But besides crude prices, there are other reasons why the rupee will continue to be under duress this calendar.
Foreign capital flows

The rupee’s surge since the beginning of this calendar year has largely been due to foreign institutional investors buying Indian equity and debt. These investors net purchased $10 billion of Indian equity and $9.9 billion of debt, anticipating a change in the government at the Centre.
But while foreign investors in equity could be taking a bet on the economic revival and consequent change in company earnings, debt investors are more fickle and their investments are closely linked to the currency and interest rate differentials between various countries.
It was observed last year that as the rupee plumbed the low of 68.8 in August, FIIs had pulled out $12 billion between June and December 2013. Such situations have the potential to develop into a vicious cycle. As rupee depreciates on FII outflow, other FIIs, too, follow suit, selling debt as they do not wish to suffer forex losses, leading to further rupee depreciation.
These short-term foreign investors also tend to take money back to their home countries in periods when risk-aversion soars. If the Iraq conflict escalates, money will flow back to destinations such as the US, as over half of the global foreign investors are from that country.
Current and capital account
Of late, there  has been much rejoicing as the current account deficit for the December 2013 quarter declined to $4.2 billion, thanks to the regulators clamping down on gold imports. But RBI has recently relaxed some of these restrictions, enabling jewellers to import gold easily. This is expected to increase India’s gold imports. Increase in crude prices will widen this gap further.
The current account deficit in recent years has been bridged with the aid of net receipts in the capital account; mainly FDI and FII flows. In periods of turbulence, the entire balance of payments can turn adverse as flows in the capital account too turn negative.
Reserves

The foreign exchange reserve, currently at $312 billion, is not too comfortable either. While this is 13 per cent higher than the low of $275 billion hit in September last year, it is still below the peak of $320 billion hit in August 2011. The reserves are sufficient to service only eight months of imports. This is still below the import cover of 10 months that is preferred.
There are other worries too in the form of expanding external debt and fear of rising inflation as the poor monsoon leads to crop failure. The proposals in the Union Budget will also be keenly watched by global investors to gauge the government’s resolve on the reforms front. Any disappointment there can send equities crashing, sending the currency further lower.
It is to be seen how much the elevated Indian interest rates and the additional liquidity unleashed by the ECB will mitigate these factors.

Monday, June 9, 2014

PBOC Hits Panic Button: Strengthens Currency By Most In 20 Months

On the heels of growing contagion concerns regarding shadow banking collateral and the "rehypothecation evaporation" and this weekend's 'odd' Chinese trade data (big drop in imports, no doubt impacted by dramatic commodity invoicing swings), the PBOC has fixed the Chinese currency 0.36% in the last 2 days... the biggest strengthening in the currency since October 2012. It is unclear for now exactly what is going on but we suspect the panic button outflows as banks pull credit and unwind CCFDs are forcing China's hand to offset CNY selling pressure... and of course China does it in grand style. 
China's biggest trade surplus since Jan 09... as imports tumbled 1.6% (against expectations of a 6% rise)
PBOC Hits Panic Button: Strengthens Currency By Most In 20 Months

After weeks of weakening and comments on rising volatility and flexibity to tamp down the carry trade fervor, China has gone to the other extreme...
PBOC Hits Panic Button: Strengthens Currency By Most In 20 Months

Whether this is to kill off the last of the momentum-chasing muppers now following the CNY weakenin trend is unclear but one thing is certain, the coincidence of such a violent move with the rising credit contagion concerns in the warehouse probes is extremely interesting.

Barclays provides some more color:
Barclays expects depreciating CNY and recent govt probe into commodity financing to continue to discourage commodity imports for arbitrage purposes, according to note yesterday; despite sizable trade surplus and FDI, PBOC’s FX purchase slowed markedly in recent mos., suggesting reduced capital inflows from other channels and signs of capital outflows
First we are told this...
  • *CHINA CASH CRUNCH IN JUNE LAST YR UNLIKELY TO REPEAT: LIAN PING
  • *CHINA'S OVERSUPPLY OF PROPERTY MAY LAST FOR 1 YEAR: LIAN PING
Which likely means that is exactly what they are worried about... and then Premier Li is starting to worry...
  • *PREMIER LI SAYS DOWNWARD ECONOMIC PRESSURE RELATIVELY LARGE
  • *LI URGES GOVT TO RESOLVE PROBLEMS OF FINANCING, EXPORTS
  • *LI KEQIANG URGES GOVTS TO ENSURE CHINA TO MEET ECONOMIC GOALS
  • *LI KEQIANG SAYS HE WORRIES ABOUT IMPLEMENTATION OF POLICIES
And then there's this...
  • *CHINA MAY LAND SALES FALL 49% TO 62.2M SQUARE METERS: SOUFUN
So - not good then!?
And then copper crashes to Friday's lows...
PBOC Hits Panic Button: Strengthens Currency By Most In 20 Months

Thursday, June 5, 2014

ECB Decision-Day Guide (In 5 Simple Questions)

As we have heard numerous times this year already, tomorrow may be 'another' most important day of the year/cycle as Mario Draghi and his band of merry men at the ECB appear to be finally cornered (by market exuberance, macro weakness, and excess positioning) into "doing" something as opposed to just talking about it. While we have discussed the ins and outs of the potential for a small focused ABS bailout QE,negative rates, and why whatever Draghi does tomorrow will have minimal impact on the real economy; Bloomberg provides a quick and easy guide to the five things to watch for from Mario Draghi today.

1. Which interest rates will Draghi cut, and how far?
While all but two of 60 economists surveyed by Bloomberg News predict a cut in the main refinancing rate from the current record-low 0.25 percent, they’re divided over the size of the reduction. Twenty one economists predict the ECB will lower its benchmark by 10 basis points to 0.15 percent; 34 analysts forecast a cut by 15 basis points to 0.10 percent. Three expect the rate to fall even further.
The majority of economists in a separate survey predict the ECB will become the first major central bank to introduce a negative deposit rate, with 32 of 50 analysts saying the rate will be cut to minus 0.10 percent and 12 forecasting a reduction to minus 0.15 percent. Such a move would weaken the euro, which has appreciated 4 percent against the dollar in the past 12 months. Only six economists see the ECB keeping the deposit rate at zero.
2. Which non-standard measures is Draghi debating?
Policy makers are contemplating a package of measures, and analysts from Goldman Sachs Group Inc. to Nomura International Plc expect a rate cut to be complemented by tools aimed at reigniting credit supply. “The combined use of several monetary-policy instruments is conceivable,” Executive Board member Peter Praet said in an interview with Die Zeit.
Longer-term loans to banks conditional on increased lending to companies may take center stage, with a program modeled on the Bank of England’s Funding for Lending Scheme being one option officials have discussed. Other measures up for debate include the suspension of sterilizing crisis-era bond purchases, changes in reserve requirements and collateral policy and an extension of the fixed-rate, full-allotment regime currently scheduled to be in place until July 2015, under which banks can borrow as much cash as they like against eligible collateral.
3. How serious is the threat of deflation in the euro area?
Inflation, which the ECB aims to keep just under 2 percent, has remained below 1 percent since October and slowed to 0.5 percent last month. In March, the ECB predicted it won’t return toward its goal until the end of 2016. Draghi is set to unveil new staff projections on prices, growth and unemployment that may force the ECB further into uncharted territory.
4. What can the ECB do later in the year if the situation worsens?
Draghi said on April 24 that large-scale asset purchases would be justified if the medium-term outlook for inflation worsens. Any program would target a mix of assets to reduce “term premia across markets and jurisdictions,” Executive Board member Benoit Coeure said on April 13.
The ECB and Bank of England have called on regulators to ease rules on asset-backed securities in Europe. That would provide a broader range of funding options for companies and create assets the ECB could buy to supply liquidity.
5. What else is on the ECB’s agenda?
Draghi may be quizzed on the progress the ECB has made on minutes. Officials started drafting trial versions earlier this year and are debating a reduction in the frequency of rate-setting meetings once they start publishing the accounts.
Developments in the ECB’s comprehensive assessment of the banking system may also be a topic in the press conference, in particular in how it may take account of rising legal costs after U.S. authorities threatened to levy a $10 billion dollar fine on BNP Paribas SA for breaching trade sanctions. In addition, the place of Dexia SA, the bailed-out French-Belgian lender, in the Comprehensive Assessment may be raised, after the ECB supervisors decided to exempt it from a stress test.
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And so while they are the key five questions... here is what the world is hoping for / expecting...ECB Decision-Day Guide (In 5 Simple Questions)