SHANGHAI, August 26 -- China's currency on Monday (Aug 26) slid to its lowest point in more than 11 years as concerns over the US trade war and the potential for global recession weighed on markets.
The onshore yuan fell to 7.1487 to the US dollar, its weakest point since early 2008, in Asian trading. Global economic tensions have intensified in recent days with the US and China raising tariffs on each other's imports, and President Donald Trump calling on US businesses to pull out of China. The yuan is not freely convertible and the Chinese government limits its movement against the dollar to a two percent range on either side of a figure that the central bank sets each day to reflect market trends and control volatility. The People's Bank of China has set that rate steadily weaker in recent weeks and set it on Monday at 7.057 to the dollar. Allowing the yuan to depreciate makes Chinese exports cheaper and offsets some of the burden of punitive US tariffs. The yuan breached the key 7.0 threshold against the dollar earlier in August, days after the US announced plans to impose fresh tariffs on Chinese imports from September 1.
BEIJING, August 17 -- China has decided to lower real interest rates through market-oriented reform measures to address the financing difficulties facing small businesses.
China will take market-oriented reform measures to meaningfully reduce real interest rates and ease financing difficulties, the State Council's executive meeting chaired by Premier Li Keqiang decided on Friday. The Chinese government puts high emphasis on work related to lowering real interest rates and financing costs for businesses, particularly private, micro and small firms. Since the beginning of this year, the overall financing interest rate in China has steadily declined. "Thanks to the measures taken by various sides since early this year, real interest rates have been lowered to a certain degree. While borrowing was made less expensive, the difficulty in accessing financing has become more acute," Li said at the meeting.
Attendees at the Friday meeting pointed out that it is important to keep liquidity reasonably sufficient, and take reform measures to notably lower real interest rates. It was decided at the meeting to reform and improve the loan prime rate (LPR) mechanism. An above-five-year LPR will be made available in addition to the current one-year LPR to serve as pricing references for new bank lending. The purpose is to catalyze further reductions in real interest rates. It is important to make lending rates and fees more open and transparent. Charges by financial institutions will be strictly regulated and intermediate agencies will be urged to cut fees. "The lowering of real interest rates should be carried out in an open and transparent manner. There needs to be continuous progress in reducing financing costs to deliver tangible benefits to businesses," Li said. It was agreed at the meeting that a combination of monetary and lending policy tools will be implemented to facilitate a greater role by the guarantee system and reduce financing costs for the real economy. "The central bank needs to take a multi-pronged approach and employ a mixture of tools to ensure meaningful reductions in real interest rates," Li said. The meeting also decided to enhance lending support for creditworthy enterprises with market potential and ensure that loans will not be discontinued for no good reason. Financing woes of micro and small firms must be effectively addressed. Evaluation and supervision will be strengthened to guide banks in expanding market, innovating businesses models and delivering better services for the real economy. "We must earnestly address the financing difficulties of micro and small firms. Otherwise, employment could be affected given the large number of these companies," Li stressed.
TOKYO, August 13 -- Asian shares slumped on Tuesday (Aug 13) as fears about a drawn out US-China trade war, protests in Hong Kong and a crash in Argentina’s peso currency drove investors to safe harbors like bonds, gold, and the Japanese yen.
MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 1 per cent. Chinese stocks fell 0.8 per cent, while Hong Kong’s main market index tumbled more than 1 per cent to a seven-month low.
“The protests in Hong Kong are negative for stocks, which were already in an adjustment phase because there is talk that the trade war will trigger a recession,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co. Hong Kong’s airport, the world’s busiest cargo airport, reopened on Tuesday, which could ease some concern about the immediate economic impact of protests over the past two months. The protests began in opposition to a bill allowing extraditions to mainland China but have quickly morphed into the biggest challenge to China’s authority over the city since it took Hong Kong back from Britain in 1997. Japan’s Nikkei was also hit hard, down a sharp 1.5 per cent and on course for its biggest daily decline in a week.
US stock futures were 0.13 per cent higher in Asia, but that did little to ease the mood. Stocks in Singapore shed 1.1 per cent to reach their lowest since June 6 after the government slashed its full-year economic growth forecasts. The city state is often seen as a bellwether for global growth because of its importance as a key trade hub. The selling in regional markets came as Wall Street stocks took a beating on Monday, with the S&P 500 losing 1.23 per cent.
Sentiment was already weak due to increasing signs that the United States and China will not quickly resolve their year-long trade war. Markets were hit with further turbulence after protesters managed to close down Hong Kong’s airport on Monday. Traders were also on edge after market-friendly Argentine President Mauricio Macri suffered a mauling in presidential primaries, increasing the risk of a return to interventionist economic policies. Benchmark 10-year Treasury yields were near the lowest in almost three years, gold was pinned close to six-year highs, and the yen was within a whisker of a seven-month peak versus the dollar in a sign of the heightened anxiety in financial markets already battered by global growth woes. “Long-term rates will continue to fall, and stocks will adjust lower, but this is temporary. Major central banks are cutting rates, which will eventually provide economic support,” Mitsubishi UFJ’s Ishigane said. Analysts said that trading could be subdued as many investors are off for summer holidays. Yet, there was no shortage of gloomy news for investors looking to catch their breath from several months of market ructions. The Argentine peso collapsed overnight, falling to 55.85 to the dollar, after voters snubbed Macri by giving the opposition a surprisingly bigger-than-expected victory in Sunday’s primary election. The Merval stock index crashed 30 per cent and declines of between 18-20 cents in Argentina’s benchmark 10-year bonds left them trading at around 60 cents on the dollar or even lower. Refinitive data showed Argentine stocks, bonds and the peso had not recorded this kind of simultaneous fall since the South American country’s 2001 economic crisis and debt default.
The grim backdrop was enough to push investors into safe-havens, and US Treasury yields dropped across the board on Monday as trade worries and political tensions supported safe-haven assets. In Asia on Tuesday benchmark 10-year Treasuries yields fell to 1.6471 per cent. On August 7 yields had skidded to 1.5950 per cent, the lowest since October 3, 2016. Spot gold rose 0.33 per cent to US$1.516.42 per ounce, near the highest in six years. The yen last fetched 105.37 per dollar, and was within striking distance of 105.03, its strongest since the January 3 flash crash. The Swiss franc, which along with the yen is considered a safe haven in times of trouble, traded at 0.9697 per dollar , near its highest in a year. Oil prices edged slightly lower in Asian trading as expectations that major producers will continue to reduce supplies ran into worries about sluggish economic growth. US West Texas Intermediate futures fell 0.33 per cent to US$54.75 a barrel.
BEIJING, August 10 -- The International Monetary Fund (IMF) released a report on Friday in Washington showing the yuan was broadly stable against the basket of currencies despite the yuan/dollar depreciation.
"Despite the RMB/USD depreciation, the RMB was broadly stable against the basket and depreciated in real effective terms by about 2½ percent since the last Article IV. Estimates suggest little FX intervention by the PBOC (The People's Bank of China)," the report said. The report is based on the Executive Board of the IMF the Article IV consultation with China, which was concluded on July 31, 2019. "The bilateral RMB/USD rate depreciated relatively rapidly from mid-June to early August 2018, when measures to counter depreciation pressure – the 20 percent reserve requirement for FX derivatives (a capital flow management measure (CFM)) and the countercyclical adjustment factor (CCAF) in the daily trading band's central parity formation – were reintroduced," the report said. "At about US$3.2 trillion, China's foreign currency reserves remain more than adequate to allow a continued transition to a floating exchange rate," the report said. The Trump administration labeled China a currency manipulator on Monday, after yuan fell past 7 against the dollar. Jeffrey Sachs, economics professor at Columbia University, said, "The IMF report makes clear that there has been absolutely no currency manipulation and that China's external balance has been appropriate,".
"The US Treasury action declaring China a currency manipulator was blatantly arbitrary, capricious and political, based on Trump's tweets rather than on objective analysis," said Sachs. Based on the press releases of IMF, China's economic growth stabilized in early 2019 and is expected to moderate to 6.2 percent and 6.0 percent in 2019 and 2020, respectively. The IMF Executive Directors acknowledged China's recent reform progress, in particular, in reducing financial sector fragilities and continuing opening up of the economy. They noted the highly uncertain external environment and emphasized that successfully shifting from high-speed to high-quality growth requires continuing with deleveraging and strengthening rebalancing efforts while adjusting macroeconomic policies to respond to rising trade tensions. The directors welcomed the Chinese government's commitment to multilateralism and a rules-based trading system. In this regard, they saw scope for China to work constructively with trading partners to better address shortcomings in the international trading system. They agreed that tensions between China and the United States should be quickly resolved through a comprehensive agreement that avoids undermining the international system, according to the report.
WASHINGTON, August 7 -- North Korea has raised up to $2 billion for its weapons of mass destruction programs through cyberattacks on cryptocurrency operators and overseas banks, a report compiled by a panel of the U.N. sanctions committee on the country showed Monday.
"Democratic People's Republic of Korea cyber actors, many operating under the direction of the Reconnaissance General Bureau, raised money for its WMD programs with total proceeds to date estimated at up to 2 billion U.S. dollars," the panel of independent experts said in the report, according to a portion obtained by Kyodo News. "In particular, large scale attacks against cryptocurrency exchanges allowed the DPRK to generate income in ways that are hard to trace and subject to less government oversight and regulation than the traditional banking sector," the report said. The DPRK is the acronym for North Korea's official name. According to the report, the panel looked into at least 35 cases of cyberattacks in 17 countries including Chile, India, Malaysia, South Africa and South Korea. The investigation showed "a marked increase in the scope and sophistication of cyber activities including attacks in violation of the financial sanctions," it added. The findings underscore that cash-strapped North Korea has resorted to cyberattacks as a means to acquire foreign currency amid continued international sanctions.
Additionally, the panel said in the report that North Korea's Munitions Industry Department -- a designated entity involved in supervising the country's nuclear and ballistic missile programs -- has been using its subordinate corporations to place IT workers abroad to earn foreign currency. Despite international sanctions, North Korea "enhanced its overall ballistic missile capabilities" through missile launches in May and July, the report said. Pyongyang also continued to violate sanctions "through illicit ship-to-ship transfers" in procurement of WMD-related items and luxury goods, and "as a primary means of importing refined petroleum," it said. The sanctions committee operates under the mandate of the U.N. Security Council.
BANGKOK, August 7 -- The depreciation of the Chinese yuan will affect the baht and Thailand’s export values for the rest of the year, which will force the Bank of Thailand to come up with measures to manage the currency, economists say.
“The baht will fluctuate and even depreciate when foreign investors take their money out in response to the Bank of Thailand’s move to bring down the balance in non-resident accounts from Bt300 million to Bt200 million per person. However, the currency should appreciate again as Thailand is a safe haven for investors due to its high-foreign currency reserve and a public debt that is only 40 per cent of the gross domestic product,” Dr Somchai Pakapaswiwat, an economist and independent academic, told The Nation on Tuesday. However, he said, when the baht appreciates against the US dollar, it will also rise against the Chinese yuan, which will have a direct impact on Thai exports, because Chinese products will become cheaper. “China may also dump its products in the Thai market, especially if Chinese goods work out to be cheaper than local products,” Somchai said. He added that since the trade war has now become a currency war, it will have an adverse effect on all countries, which is why the South Korean won has also dropped against the greenback. Somchai believes the central bank may launch other measures to manage the baht, especially since it is appreciating over currencies from countries that are direct export competitors. Research by the Siam Commercial Bank’s Economic Intelligence Centre shows that the baht has risen 5.1 per cent against the dollar since January 1, while the yuan has dropped 2.3 per cent. “Recent events in the US-China trade war will definitely have negative ramifications on Thai exports,” said Supant Mongkolsuthree, chairman of the Federation of Thai Industries. He added that labelling China as a currency manipulator may lead to a further escalation in the ongoing trade war and set off risks such as the tariff impact spilling over to Thailand, a slowdown in the global economy and currency volatility. Currently, most Thai exporters use the US dollar as the currency for cross-border trading, Supant said. Hence, he said, to reduce risks induced from volatile currencies, we must promote the use of local currencies in cross-border trade.
Recent tensions between the US and China will likely contribute to a hardening of positions from both sides, said Martin Petch, vice president of Moody’s Sovereign Risk Group. “It also increases the likelihood of US tariffs on Chinese products to rise beyond current levels, followed by further retaliatory measures by China,” he continued. “Unless negotiations between the US and China resume rapidly, this latest development is likely to create negative spill-over effects in both China, the US and globally, and particularly in Asia.” Furthermore, he cautioned, market expectations of further yuan devaluation may force other currencies to drop, particularly those with strong trading ties to China. Meanwhile, the Thai National Shipping Council’s chairman Ghanyapad Tantipipatpong said the private sector was worried about the yuan depreciation, but had yet to evaluate its impacts on Thai exports. She added that preliminary estimates show that a weaker yuan will increase the price of goods exported from Thailand by 10 per cent. She added that the council will monitor the export market in the last quarter to see if the yuan depreciation has had any impact. The council's vice chairman Visit Limlurcha agreed that a weaker yuan will automatically make Thai export products, especially electronics, more expensive. Ghanyapad also said the council wants related state agencies to stop the baht from getting any stronger, because if the baht appreciates beyond the Bt30 to a US dollar mark, it will have an adverse impact in the export market. The council has also drawn up a strategy for the government, and one of its recommendations is for the Commerce Ministry to set up a war room to closely monitor the export situation and enhance the sector. Moreover, the ministry should look for new promising export markets and hold off on increasing the daily minimum wage.
TOKYO, August 6 -- Global stocks extended already substantial losses on Tuesday (Aug 6), after Washington designated Beijing a currency manipulator in a rapid escalation of the United States-China trade war, but losses were pared after China set its daily yuan fixing stronger than expected, tempering fears of a currency war.
Safe-haven assets, including bonds and some currencies such as the yen and Swiss franc, benefited as investors scurried to avoid risk. US Treasury Secretary Steven Mnuchin said on Monday that the government had determined China is manipulating its currency, and that Washington would engage the International Monetary Fund to eliminate unfair competition from Beijing. “Officially labelling China a currency manipulator gives the United States a legitimate reason to take even more steps,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “The markets are now scrambling to factor in the possibility of the United States imposing not only an additional 10 per cent of tariffs on Chinese imports, but the figure being raised to 25 per cent. This is likely to be a protracted trade war without a quick resolution.”
US President Donald Trump vowed last week to impose a 10 per cent tariff on US$300 billion (S$414 billion) of Chinese imports from Sept 1, adding that it can be raised beyond 25 per cent. Some economists reckon the global economy could slip into recession in the coming months if the tariff is increased to 25 per cent. The Trump administration’s dramatic move against China hastened the risk aversion seen in global markets this week. On Monday, Beijing let the yuan breach 7-per-dollar on Monday for the first time since late 2008 in response to the latest US tariffs, which are expected to further aggravate trade tensions between the world’s two largest economies.
On Tuesday, the offshore yuan fell to as low as 7.1397 per dollar in early Asian trade on Tuesday before pulling back to 7.0785 after China's central bank set its daily currency fixing back above the 7 level to the US dollar. The slightly firmer-than-expected morning benchmark rate of 6.9683 was still the weakest since May 2008. The People's Bank of China (PBOC) also said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short-selling of the currency. US stock-index futures rebounded, erasing earlier declines. S&P 500 Index futures contracts expiring in September rose as much as 0.7 per cent as of 1.06pm in Tokyo as the yuan steadied, after falling as much as 1.9 per cent. Dow Jones Industrial Average contracts ascended 0.6 per cent while those on the Nasdaq 100 added 0.5 per cent. Asia stock markets markets plunged on opening before paring their losses after China's latest yuan fixing. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.85 per cent after brushing its lowest since January. Tokyo opened nearly 3 per cent lower before recovering to end the morning 2 per cent down. Hong Kong fell 2.4 per cent while Shanghai and Sydney shed 2.6 per cent. Manila and Wellington were also down around 2 per cent.
In Singapore, the Straits Times Index opened down 1.5 per cent before recovering some ground to trade 19.55 points or 0.6 per cent lower at 3,174.96 by the midday break.
FRANKFURT, August 6 -- More and more fierce critics go to the European Central Bank: The low interest rates ruined allegedly Germany savers. Behind this is fundamental mistrust of the common currency.
For a while it had become quiet around the European Central Bank (ECB) and its president Mario Draghi. But three events have recently ensured that the furor of the public or published opinion on the ECB's low-interest-rate policy rages again with full force. Draghi's implicit announcement to re-launch the Federal Reserve's controversial bond-buying program and increase the penalty rates commercial banks must pay when they park money with the ECB. The early end of the era of the Italian and the inauguration of the former IMF head Christine Lagarde, who comes from France, where they allegedly do not have so with solid finances. Lawsuits against banking union and bond purchase program before the Federal Constitutional Court, which make the monetary policy of the ECB on the topic in the evening news. Those who read business press these days, can not avoid the impression that the ECB and Draghi had conspired against all the banks and savers in Germany shortly before his retirement, so that they would keep him in as bad a memory as possible. Sometimes it is said that the ECB, which is by definition independent, needs the Constitutional Court "urgently to take a shot at the bow" - whatever that means.
Elsewhere there is talk that the penalty interest "felt" meet all 83 million people in the country - knowing that so far only about 30 of the approximately 1800 German banks have introduced penalty interest on call money or checking accounts, and that only for wealthy with deposits 100,000 euros or even higher. The newspaper "Börsenzeitung", as the central organ of the financial center of Frankfurt, even states that under Draghi a "brutal redistribution" from private to state took place and the ECB had "released the commercial banks". In fact, the assets of the Germans in Draghi's term has grown dramatically to now more than six trillion euros - and not as insinuated shrunk. Moreover, most banks still generate profits that are sufficient enough to pay their executives significantly above-average salaries, which applies not only to Deutsche Bank, but also to the German savings banks, which are widely pampered in Germany.
Trump has frequently accused China of artificially devaluing its currency in order to support its exports -- charges long denied by Beijing. The US president jolted global stock markets last week when he issued the threat of more tariffs just a day after US and Chinese trade negotiators revived talks aimed at ending the year-long dispute. The extra 10% duties Trump threatened to implement from Sept 1 would mean he has now targeted virtually all of the $500 billion in goods America buys from China every year.
China on Friday threatened to retaliate to any new tariffs slapped on by the US -- it has already imposed its own duties on $110 billion in American goods, almost all of the products it imports from the US. The yuan is not freely convertible and the government limits its movement against the US dollar to a two% range on either side of a central parity rate which the People's Bank of China (PBOC) sets each day to reflect market trends and control volatility. The daily central rate was at 6.9225 per dollar on Monday, 0.33% weaker from Friday. "It appears that the tariffs hike suggests the return of tit-for-tat moves and a suspension of trade talks, and the PBOC sees no need to keep the yuan stable in the near term," Ken Cheung, a senior currency strategist at Mizuho Bank said. In a statement Monday morning, the PBOC said it would "resolutely crack down on short-term speculation and maintain stable operation of the foreign exchange market and stabilise market expectations." It went on to say that it had the "experience, confidence and ability to keep the RMB exchange rate basically stable at a reasonable and balanced level."