Most Asia FX set for 2016 losses; yuan depreciates most since 1994

SINGAPORE - Asian currencies rose on the last trading day of 2016 on Friday, but most were set to post annual losses as the U.S. dollar climbed on expectations of higher interest rates next year.

Emerging Asian currencies were generally higher on the day, with the dollar losing some steam after the euro briefly soared on stop-loss buying in thin year-end trading.

"This is more a position adjustment rather than something fundamentally changing in the background," said Sim Moh Siong, FX strategist for Bank of Singapore.

"Our view is still for Asian currencies to weaken over the course of next year," he said.

While Asian currencies could rebound early in 2017 if the dollar retreats, such a pull-back could provide an opportunity to buy the greenback on dips, Sim added.

Investors are waiting to see if U.S. President-elect Donald Trump will quickly push expansionary fiscal policies once he is sworn in on Jan. 20, which would boost expectations for higher inflation and interest rates.

The Chinese yuan was the worst performer among major Asian currencies in 2016, and market watchers expect it to recoil further next year if the dollar continues to climb.

The yuan is down nearly 6.6 percent against the dollar in 2016, putting it on track for its biggest annual fall since China established its foreign exchange market in 1994.

Concerns about capital outflows and a slowdown in China's economy have weighed on the yuan along with the stronger dollar, and investors are also worried about a potential increase in U.S.-China trade tensions under the incoming Trump administration.

The Taiwan dollar is on track for an yearly gain of 2.7 percent, making it the best performing emerging Asian currency in 2016.
The Taiwan dollar had gained a boost earlier this year, helped by large foreign investor inflows into Taiwanese equities.

Overseas investors, however, have pulled money out of Taiwanese equities in the fourth quarter, and that has weighed on the Taiwan dollar as of late.

Emerging Asian currencies have declined broadly since early November as U.S. bond yields jumped on expectations that Trump's proposals for infrastructure spending and tax cuts will boost economic growth and inflation.

Worries about Trump's stance on trade have also weighed on the currencies of export-dependent countries in Asia.

source: news.abs-cbn.com

China forex regulator tightens controls to stem outflows: sources

SHANGHAI/HONG KONG - China is stepping up measures to stem capital outflows after the yuan currency skidded to more than eight-year lows, taking aim at outbound investment, sources said on Tuesday.

The State Administration of Foreign Exchange (SAFE) has begun vetting transfers abroad worth $5 million or more and is stepping up scrutiny of major outbound deals, including those with prior approval, sources with knowledge of the new rules said.

Capital outflows through both legal and illegal channels have added pressure to the yuan's slide. The Chinese currency has lost nearly 6 percent of its value against the dollar so far this year.

Sources said the forex regulator told banks about the new rules on Monday, the same day the government said it would stick to its "going out" strategy of encouraging outbound investment.

SAFE did not respond to a Reuters request for comment.

"Previously, only forex transfers worth $50 million or more needed to be reported to SAFE. Now, the threshold has been drastically lowered to $5 million, and covers both foreign currency and yuan," said one of the sources with direct knowledge of the rules.

"All we can do is to ask clients to be patient, and tell them that the transaction is being vetted by SAFE for authenticity and may not be approved."

The fresh restriction applies to transfers abroad under the capital account, for transactions such as portfolio or foreign direct investment.

The source said that even if an outbound investment had already obtained approval to buy foreign exchange, but the money had not been fully transferred, the remainder of the quota was now subject to further approval if it exceeds $50 million, which is regarded as a "large sum".

Two other sources confirmed the new rules.

Chinese state-owned banks were seen selling dollars in the onshore foreign exchange market for a second straight day on Tuesday, in what traders said appeared to be a bid to support the yuan.

The yuan has rebounded around 0.5 percent in the past few sessions.

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Global markets: Weak China trade data hits equities, US dollar

NEW YORK - Global equity markets slumped to a three-month low on Thursday after disappointing Chinese trade data renewed concerns about the world's second-largest economy, but rebounding oil prices and the dollar's market role led US stocks to pare losses.

At their lows, Stocks on Wall Street fell almost 1 percent, and in Europe a bit more, following data that showed Chinese imports in dollar terms had contracted and exports dropped by a sharper-than-expected 10 percent.

The unexpected trade figures pointed to weaker Chinese demand both at home and aboard while deepening concerns over the latest depreciation in China's yuan currency, which hit a fresh six-year low against a firming US dollar.

"If the Chinese economy is struggling, it is a problem for the global economy and you're seeing that reflected in the capital markets, whether it be the strength in the dollar or the volatility in equities," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Oil prices rebounded. After an initial bearish reading of a US Energy Information Administration report, traders soon focused on sharp inventory drawdowns in distillates, including diesel and heating oil, and a decline for gasoline.

The reversal in oil prices helped turn markets that have traded inversely to the dollar. In recent weeks, the dollar has strengthened on growing expectations of a Fed rate hike, which had weakened stocks, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"As you've seen the dollar pull back today and oil rally off its lows, the two of those combined have seen some macro money rotate into long equity positions," James said.

"That's why the (stock) market has rallied off its lows."

The Dow Jones industrial average closed down 45.26 points, or 0.25 percent, to 18,098.94. The S&P 500 fell down 6.63 points, or 0.31 percent, to 2,132.55 and the Nasdaq Composite slid 25.69 points, or 0.49 percent, to 5,213.33.

In Europe, the FTSEurofirst 300 index of leading regional shares closed down 0.91 percent to 1,323.95. MSCI's all-country world stock index of equity markets in 46 countries fell to lows last seen on July 12 before paring some losses to trade 0.46 percent lower.

In London, mining stocks BHP Billiton and Rio Tinto fell 4.4 percent and 4.9 percent, respectively, due to the trade data from China, the world's biggest metals consumer.

The dollar tumbled from a seven-month high as risk appetite took a turn for the worse on the soft Chinese data, which rattled markets that expect the Fed to boost rates by year-end.

The US currency also fell from a more than two-month high against the yen and Swiss franc, two safe-haven currencies that benefit in times of political or financial stress.

The dollar was last down 0.54 percent against the yen at 103.62 yen. The euro fell briefly below $1.10 for the first time since July, but quickly recovered to trade 0.40 percent higher on the day at $1.1050.

A hard landing in China, if that were to occur, would pose a bigger problem to the global economy than a "hard exit" by Britain from the European Union because of China's greater economic size and trade profile around the world, Arone said.

China concerns could also deter the Federal Reserve from raising US interest rates in December, as minutes released Wednesday from a September policy meeting suggested, he said.

Oil prices initially fell more than 1 percent after US government data reported the first domestic crude inventory growth in six weeks, a build above market expectations.

Brent crude rose 22 cents to settle higher at $52.03 per barrel, while U.S. West Texas Intermediate crude rose 26 cents to settle at $50.44.

The weak Chinese data pushed investors to buy safe-haven government debt after two straight days of selling.

The 10-year note rose 8/32 in price to yield 1.7481 percent.

Europe's benchmark government bond yield retreated from one-month highs after the latest signals from the world's central banks soothed fears that monetary stimulus could be petering out.

German 10-year yields - the euro zone's benchmark - fell 3.6 basis points to 0.03 percent, pulling back from a one-month high hit on Wednesday, according to Tradeweb.

source: www.abs-cbnnews.com

China's forex reserves fall to 5-year low in September

BEIJING - China's mountain of foreign exchange reserves dropped around $19 billion in September to a five-year low, government data showed, with the central bank spending heavily to defend its currency against capital outflows.

The world's largest currency hoard fell to under $3.17 trillion, the People's Bank of China (PBOC) said on its website Friday, below median analyst forecasts of $3.18 trillion in a Bloomberg News survey.

It was the third straight month of declines and brought China's reserves to their lowest level since April 2011, Bloomberg said.

Analysts said the decline indicated China was selling foreign exchange to buy its yuan currency amid capital flight spurred by slowing growth in the world's second largest economy.

The data came days after the yuan's official entry into the International Monetary Fund's elite SDR basket of currencies, a symbolic coup for Beijing policymakers who are seeking to expand international use of the currency.

In the months preceding the currency's formal inclusion, China's central bank spent "heavily" to keep the yuan's value stable, roughly $27 billion last month, said Julian Evans-Pritchard of Capital Economics.

But "with the inclusion of the renminbi in the SDR basket now complete, the PBOC may no longer feel the need to intervene as heavily to counter capital outflows", he said, adding that US Federal Reserve rate hikes could increase depreciation pressure on the yuan in coming months.

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China's yuan joins elite club of IMF reserve currencies

China's yuan joins the International Monetary Fund's basket of reserve currencies on Saturday in a milestone for the government's campaign for recognition as a global economic power.

The yuan joins the U.S. dollar, the euro, the yen and British pound in the IMF's special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.

The IMF is adding the yuan, also known as the renminbi, or "people's money", on the same day that the Communist Party celebrates the founding of the People's Republic of China in 1949.

"The inclusion into the SDR is a milestone in the internationalisation of the renminbi, and is an affirmation of the success of China's economic development and results of the reform and opening up of the financial sector," the People's Bank of China said in a statement.

China will use this opportunity to further deepen economic reforms and open up the sector to promote global growth, the central bank added.

The IMF announced last year that it would add the yuan to the basket, so actual inclusion is not expected to impact financial markets. But it puts Beijing's often opaque economic and foreign exchange policy in the international spotlight as some central banks add yuan assets to their official reserves.

Critics argue that the move is largely symbolic and the yuan does not fully meet IMF reserve currency criteria of being freely usable, or widely used to settle trade or widely traded in financial markets. U.S. Republican presidential nominee Donald Trump has said he will formally label China a currency manipulator if he wins November's election.

China stunned investors by devaluing the currency last year and the yuan has since weakened to near six-year lows, adding to worries about already feeble global growth.

Some China watchers also fear that Beijing's commitment to further market opening and financial sector reforms will fade after its diplomatic success, despite repeated reassurances from Beijing it will continue with the process.

U.S. Treasury Secretary Jack Lew said on Thursday the yuan was "quite a ways" from true global reserve currency status. The new IMF status recognises the "enormous" change in China in the last 10 years that had made the yuan more open, but Beijing still had work to do to make its currency and its economy more market-driven, he said.

"Being part of the SDR basket at the IMF is quite a ways away from being a global reserve currency," he said.

Capital Economics said inclusion of the currency in the IMF's SDR basket will have minimal impact on foreign demand for yuan assets, so "offers little support" for the currency.

"If anything, the risk is that official intervention to keep the renminbi stable ahead of its inclusion will subsequently be paired back, allowing for renewed deprecation," it said in a research note.

The IMF on Friday fixed the relative amounts of the five currencies in the basket for five years, based on their average exchange rates over the past three months. (Reporting by Nathaniel Taplin; Additional reporting by Ben Blanchard; Editing by Neil Fullick)

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Asian shares in for worst week in 4 years on panic over China

TOKYO - Asian shares are on course to post their biggest weekly fall in more than four years as investors dumped risk assets on fears over China's economy and its turbulent financial markets.

China announced late on Thursday it suspended its new stock market circuit breaker introduced only on Monday as the system failed to reduce market volatility, with some market players even saying it backfired.

The People's Bank of China (PBOC) also wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar.

The action was somewhat ironic since it was the PBOC that triggered the slide early Thursday by fixing the yuan at a much lower rate than many expected.

That left dealers at a loss to know what the central bank might do at Friday's fixing.

"The sharp drop has led to speculation that China is letting go of the reins on the CNY (yuan), or perhaps targeting faster depreciation to reach an 'equilibrium' level," wrote analysts at Barclays, while conceding that no one was really sure.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 percent, extending this week's loss to 7.4 percent, which would be its biggest fall since September 2011.

Japan's Nikkei .N225, which is in its worst start of year in 20 years, fell 1 percent to a three-month low and is likely to post its biggest weekly fall since March 2011.

"There is lots of negative news from China, North Korea and indeed almost all of the emerging markets... After last year's good performance we were bound to see a pull-back. Companies will remain cautious in their outlook when they present Oct – Dec 2015 earnings," said Hannah Cunliffe, senior portfolio manager at Union Investment in Frankfurt.

"The Nikkei will trade below its 2015 high for most of this year," she said.

The picture is similarly gloomy on Wall Street, with the S&P 500 losing 2.4 percent on Thursday, with 40 percent of the stocks in the benchmark trading 20 percent or more off of their highs, the definition of a bear market.

After the U.S. market close, two Apple suppliers added to growing worries about slowing shipments of iPhone 6S and 6S Plus by cutting their revenue estimates for the third quarter.

That news put fresh pressure on many Apple suppliers in Asia, although the immediate focus is on the Chinese yuan and Chinese shares.

In commodities Brent crude LCOc1 settled down 48 cents at $33.75 on Thursday, after sliding to a low of $32.16, a level last seen in April 2004.

A plunge in oil revenues is seen hurting many oil producing countries such as Saudi Arabia.

In a sign of Riyadh's dire fiscal position, Saudi Arabian deputy crown prince Mohammed bin Salman told The Economist magazine it is considering whether to sell shares in state oil giant Saudi Aramco.

With risk appetite severely hurt, investors are flocking to low-risk assets such as bonds, gold and traditional safe-haven currencies.

The 10-year U.S. Treasuries yield fell to a 2 1/2-month low of 2.119 percent on Thursday and last stood at 2.156 percent.

Gold rose to a two-month high of $1,113.2 XAU=, a gain of 4.9 percent so far this year.

The yen stood near Thursday's 4 1/2-month high of 117.33 yen, last trading at 117.64 yen. The euro was little changed at $1.0917.

The Australian dollar, often used as a liquid proxy for China trade, licked wounds at $0.7016, having fallen to a three-month low of $0.6981, which represented a 4.2 percent fall from the end of last year.

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Central bank says may increase holdings of Chinese yuan assets

The Philippine central bank on Wednesday said it may increase its holdings of Chinese yuan assets to diversify its sources of foreign exchange reserves after the International Monetary Fund (IMF) added the renminbi to its reserves basket.

Policymakers may also consider purchasing more yuan bonds, including those of longer tenors, as they become available, Bangko Sentral ng Pilipinas Governor Amando Tetangco told Reuters in a mobile phone message.

On Monday, the IMF admitted China's yuan, also called the renminbi, into its benchmark currency basket, in a victory for Beijing's campaign for recognition as a global economic power.

source: www.abs-cbnnews.com

IMF poised to put Chinese yuan in elite currency basket

WASHINGTON - The International Monetary Fund is expected to approve inclusion of China's yuan in its SDR basket of elite currencies on Monday, rewarding Beijing's strong pursuit of the global status.

The IMF executive board is scheduled to meet Monday to decide on the recommendation by staff experts earlier in November to include the yuan, also known as the renminbi, alongside the US dollar, euro, Japanese yen and British pound in the grouping.

While not a freely traded currency, the SDR (special drawing right) is important as an international reserve asset, and because the IMF issues its crisis loans -- crucial to struggling economies like Greece -- valued in SDRs.

China, now the world's second-largest economy, asked last year for the yuan to be added to the grouping of world reserve currencies, but until recently it was considered too tightly controlled to qualify.

It is extremely rare that the executive board, which represents the IMF's 188 member nations, opposes the recommendation of its own experts. IMF Managing Director Christine Lagarde said in mid-November that she supported the experts' finding that the yuan had met the requirements to be a 'freely usable' currency" -- a key hurdle for SDR status.

If accepted, the decision would not take effect before September 30, 2016, to allow users more time to prepare. The last time the SDR basket was modified was in 2000, when the euro replaced the German deutschemark and the French franc.

The remaining question is the yuan's weight in the basket. It could be 10 percent to 16 percent, but the lower estimate is more likely due to the Chinese currency's limited convertibility.

The basket composition is reviewed every five years. At the last rebalancing in 2010, the dollar accounted for 41.9 percent, the euro 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.

That weighting revision was based on the value of the exports of goods and services by country or currency zone, and the amount of reserves denominated in the respective currencies held by other IMF members.

DIPLOMATIC SUCCESS

The entry of the yuan is, above all, a major diplomatic success for Beijing, which will see its money graduate to the inner circle of the world's most important currencies.

The vote of the United States, the largest IMF stakeholder, will be closely watched, as will US political reactions. US officials have long accused China of keeping the yuan artificially low to gain a trade advantage, making its exports relatively cheaper.

The US Treasury Department, in an October 19 report, said that the yuan "remains below its appropriate medium-term valuation."

Paradoxically, China's unexpected devaluation of the yuan last August received good marks from the IMF because it reinforced the currency's movements with market forces and opened the door to future revaluation.

Beijing on Wednesday announced an initial group of foreign central banks has been allowed to enter the Chinese currency market, which likely will promote further internationalization of the yuan in global trading.

Credit rating firm Fitch says it does not expect the yuan's inclusion in the IMF basket "to lead to a material shift in demand for renminbi assets globally in the short term." However, it said, over time the emergence of the yuan as a global reserve currency could support China's credit rating.

An IMF decision to include the yuan among its elite currencies risks angering some lawmakers in the US Congress amid fierce maneuvering for the 2016 presidential election.

Congress, for example, has repeatedly refused to ratify a 2010 IMF reform that would give greater weight to the emerging-market powers, the so-called BRICS - Brazil, Russia, India, China and South Africa.

source: www.abs-cbnnews.com

China's yuan now world's 5th biggest payment currency

HONG KONG - China's yuan broke into the top five as a world payment currency in November, overtaking the Canadian dollar and the Australian dollar, global transaction services organisation SWIFT said on Wednesday.

After nearly a year firmly positioned at seventh spot, the yuan reached a record high share of 2.17 percent in global payments by value and is in sight of the Japanese yen, which has a share of 2.69 percent.

The U.S. dollar, euro and British pound remain the top three world payment currencies.

"It is a great testimony to the internationalisation of the RMB and confirms its transition from an 'emerging' to a 'business as usual' payment currency," Wim Raymaekers, Head of Banking Markets at SWIFT said in a statement.

The rise of various offshore yuan clearing centres around the world, including eight new agreements signed with the People's Bank of China last year, was an important driver fuelling this growth.

Global yuan payments increased by 20.3 percent in value in December compared to a year earlier, while the growth for payments across all currencies was 14.9 percent for the same period, SWIFT said.

Over the last year, yuan payments grew in value by 102 percent compared to an overall yearly growth for all currencies of 4.4 percent.

China is expected to make another push for the inclusion of the yuan in the International Monetary Fund's in-house currency basket in a review later this year - and this time round its G20 partners may be willing to listen.

The main argument against its inclusion in the Special Drawing Rights, a basket of yen, dollars, pounds and euro used as the IMF's in-house unit of account, is that the yuan is far from freely "usable" or convertible. But that argument has been gradually weakening as yuan offshore trading surges.

source: www.abs-cbnnews.com

Pollution, smoking, roads, obesity kill 4.7m Chinese a year

PARIS - Air pollution, smoking, obesity and accidents, especially on the road, kill at least 4.7 million Chinese a year and cost the country tens of billions of dollars, researchers said on Friday.

In an overview published in The Lancet, they said China had in some respects made great strides in health, boosting the average lifespan from 40 years in 1950 to 76 years in 2011 and rolling back many infectious diseases.

On the other hand, the risk of premature death and sickness from pollution, smoking, road crashes and "lifestyle" ailments is worse than before.

The trio of Chinese and US experts said China had the chance of learning from rich countries which had already been down this path, a by-product of rising prosperity.

"Many of these risks can be lowered by interventions with shown effectiveness," they said.

"China has the opportunity to avoid repetition of the full toll of preventable disease burdens suffered by high-income countries from non-communicable diseases."

The research, led by Jeffrey Koplan, a professor at Emory University in Atlanta, provides the following snapshot, which includes figures that have been published previously:

-- Air pollution: A million deaths annually are attributable to inhaling indoor smoke from solid fuels, and another 1.2 million from inhaling fine particulate matter outdoors.

The economic cost from particulate air pollution among urban dwellers was 341 billion yuan ($55 billion, 42 billion euros) in 2006, according to the paper.

-- Smoking: 1.4 million premature deaths each year, costing 41 billion yuan annually on the basis of values for 2000.

-- Road fatalities: China has more than 800,000 deaths annually from accidents, which are "mainly" accounted for by road accidents, according to the report. (Separately, the United Nations estimated 275,000 road deaths in China in 2010).

Accidents of all kinds are the leading cause of death in the 1-39 age group and cost 65 billion yuan in medical expenses alone, said the study.

-- Obesity: 363,000 fatalities each year attributable to high body-mass index, a condition linked to heart disease, diabetes and other ailments. The cost -- in 2003 -- was 21 billion yuan.

source: www.abs-cbnnews.com

Asian currencies mostly steady amid China slowdown

BANGALORE - Emerging Asian currencies are expected to mostly hold steady in the coming year as the global economic recovery gathers pace and the outlook for risk improves, but a slowdown in China remains a key concern, a Reuters poll showed.

After deep losses in 2013, most developing market currencies have gained so far this year, suggesting less anxiety about the Federal Reserve's stimulus-tapering and stronger global growth expectations.

Still, most currencies are either expected to hold steady or remain soft over the course of the coming year while the Chinese yuan will likely recoup after a rare weak spell.

Beijing engineered a steep depreciation in the yuan in February and March to strike at speculators betting on one-way appreciation. Market confidence in long-term financial reforms, however, will continue to attract capital inflows and add to upward pressure on the Chinese currency.

Thursday's poll of more than 50 foreign exchange analysts showed the People's Bank of China (PBOC) may let the yuan firm to 6.20 in a month against the dollar, 6.05 in six months and appreciate to 6.00 in a year.

A slew of weaker-than-expected data out of China this year has sparked worries over the health of the world's second-largest economy and countered optimism about global growth.

"China growth factor dominates most currencies and could be a catalyst for renewed weakness in emerging markets," wrote Mark McCormick, FX strategist at CA-CIB, in a note.

A slowing Chinese economy bolsters the case for more stimulus steps and reinforces the view that yuan appreciation will be restrained to support exports. The government has unveiled targeted measures, including scrapping taxes for small firms, offering more help for ailing exporters and boosting investment in urban infrastructure and railways.

Tapering and expectations that U.S. interest rates will start to climb from the second half of 2015, could add pressure on emerging market currencies although analysts say this has been largely priced in. Only a radical change would lead to another sell-off of emerging market assets.

"There is also an emerging notion that limited room for higher-adjusting Fed monetary policy expectations is likely to keep the greenback capped from the current levels," wrote Manuel Oliveri, FX strategist at Credit Agricole, in a research note.

SOFT TO STEADY COURSE

Most vulnerable among Asia's emerging market currencies are the Indonesian rupiah and Indian rupee. The rupiah led losses last year with a fall of 21 percent against the dollar while the rupee INR= weakened slightly more than 11 percent.

Investors are still concerned that both countries are highly dependent on foreign money to fund their large current-account deficits as growth falters.

Southeast Asia's largest economy appears to have turned a corner this year with its current-account deficit narrowing, but Indonesia is confronting weaker exports due to soft commodity prices and high consumption.

So far this year, both currencies are leading gains in the region but were seen weakening against the dollar in a year.

Indeed, the rupee's recent rally is set to reverse course as upbeat sentiment ahead of a general election wears off and economic growth remains slow.

The poll showed the rupee will likely weaken to 60.61 in one month, 61.50 in six months and 62.00 in a year, while the rupiah is expected to trade at 11,434 in one month, 11,772 in six months and 11,800 in 12 months.

The Taiwan dollar, Malaysian ringgit, Philippine peso, Thai baht  and Singapore dollar - after losing against the dollar in 2013 - were expected to hold steady over the next year.

The South Korean won will likely hold steady over the next 12 months, but a weaker Japanese yen could weigh on the currency as it hampers prospects for Korean exports.

While weak currencies exacerbated import costs for regional countries during a time of tepid domestic demand, analysts now expect that to help boost exports on the back of a stronger recovery in the United States.

source: www.abs-cbnnews.com