Tag Archives: PBOC

China cuts yuan fix in biggest move since devaluation

Yahoo, May 04, 2016

The People's Bank of China has set the value of the yuan at 6.4943 to $1.0, weakening 0.59 percent from the fix of 6.4565 the previous day

The People’s Bank of China has set the value of the yuan at 6.4943 to $1.0, weakening 0.59 percent from the fix of 6.4565 the previous day

China’s central bank on Wednesday fixed the yuan currency nearly 0.60 percent weaker against the US dollar, according to the national foreign exchange market, the biggest downward move since devaluing the unit in August last year.

The People’s Bank of China set the value of the yuan — also known as the renminbi (RMB) — at 6.4943 to $1.0, weakening 0.59 percent from the fix of 6.4565 the previous day, according to data from the Foreign Exchange Trade System.

China only allows the yuan to rise or fall two percent on either side of the daily fix, one of the ways it maintains control over the currency.

Analysts said the weaker fix was in line with strength in the US dollar on Tuesday, as financial authorities seek to make trading more market oriented.

The dollar rose against most of its peers Tuesday as global growth worries swept equity markets and pushed oil prices lower, boosting demand for the safe-haven US currency.

“To maintain a stable currency market, the RMB weakened accordingly,” Liu Xuezhi, an analyst at the Bank of Communications, told AFP.

Wednesday’s cut came after China on Friday raised the yuan-dollar exchange rate by 0.56 percent from the previous day, the biggest increase in almost 11 years.

“I think China wants to keep the market guessing on its fixings,” Mitul Kotecha, head of Asia FX and rates strategy at Barclays in Singapore, told AFP.

“It remains difficult to forecast on each day,” he said, adding that would help prevent speculation on the currency, a Chinese policy goal.

The world’s second-largest economy rattled global investors with a surprise devaluation last August, when it guided the normally stable yuan down nearly five percent over a week.

The yuan was quoted at 6.5000 at 4:30 pm (0830 GMT) on Wednesday, down 0.40 percent from Tuesday’s close of 6.4743, according to the Foreign Exchange Trade System.

Source

Money is flying out of China

CNN Money, Dec 7, 2015

Money is flying out of China

China’s big cash pile is dwindling.

On Monday, China’s central bank reported $3.4 trillion in foreign exchange reserves, the lowest level since early 2013. November was one of the biggest drops ever.

Many investors are trying to get at least some of their money out of the country. Many Chinese see better opportunities abroad, whether it’s real estate in New York or London, pricey art, or stocks and bonds in other countries.

Exact data is hard to come by from China, but Capital Economics forecasts that November set a record for people moving money out of China — so-called capital outflows.

“Today’s data suggest that capital outflows picked up sharply last month,” says Julian Evans-Pritchard, chief China economist for research firm Capital Economics.

All the evidence suggests that money has been flowing out of the country at a rapid pace since August when China stunned the world with a surprise devaluation of its currency, the yuan. The Chinese government simply declared that all of a sudden, the yuan was worth less.

That caused a major selloff in the Chinese stock market and worries that China’s economy is slowing down even more than the government is letting on.

When money leaves China, it means people are trading their yuan for dollars, euros and other currency. That makes the yuan fall even further in value.

China’s central bank appears to be trying to counterbalance that by using its foreign exchange reserves to buy back yuan. It’s a strategy many countries use, but it makes the “rainy day” reserve fund lower.

The other explanation for the big fall in China’s reserves in November is that the total is reported in U.S. dollars. The dollar gained in value against most other currencies last month, which means any euros or yen China held would look less valuable.

“It seems reasonable to assume that nearly half of the decline in China’s reserves may be traced to the vagaries of the foreign exchange market,” says Marc Chandler, head of currency strategy at Brown Brothers Harriman.

China views capital outflows as a problem. Over $500 billion has left China so far this year, according to U.S. Treasury data through August.

China limits the amount of money an individual can move out of the country to $50,000 per year. But this fall, Beijing even clamped down on the amount of cash its citizens can withdraw from ATMs overseas, another attempt to stop money from leaving the country.

Source

John Rubino: Falling Oil + Rising Dollar = Crisis For A Whole Lot Of People

By John Rubino, Dec 7, 2015

Oil is plunging again, this time in the wake of OPEC’s inability to limit its members’ production. The US dollar, meanwhile, is up on the divergence between Fed tightening and ECB/BoJ/BoC easing.

Dollar and oil Dec 15

This widening gap is a perfect storm for the many, many entities that have borrowed dollars to speculate in foreign currencies or drill for oil. Some examples:

Emerging Market Debt Sales Are Down 98 Percent

(Bloomberg) – The commodity-price slump and the slowdown in China’s economy are crippling developing nations’ ability to borrow abroad, even as international debt sales from advanced nations remain at a five-year high.

Issuance by emerging-market borrowers slumped to a net $1.5 billion in the third quarter, a drop of 98 percent from the second quarter, according to the Bank for International Settlements. That was the biggest downtrend since the 2008 financial crisis and reduced global sales of securities by almost 80 percent, the BIS said in a report.

Emerging-market assets tumbled in the third quarter, led by the biggest plunge in commodity prices since 2008 and China’s surprise devaluation of the yuan. The average yield on developing-nation corporate bonds posted the biggest increase in four years, stocks lost a combined $4.2 trillion and a gauge of currencies slid 8.3 percent against the dollar. Sanctions on Russian entities and political turmoil in Brazil and Turkey also affected sales by companies in those countries.

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Fears rise that junk bond investors are over their skis

(CNBC) – After years of safely reaching for yield through risky assets like stocks and speculative-grade bonds, Wall Street is heading into 2016 rethinking the strategy.

That trend of low defaults has begun to turn the other way, with the trailing 12-month rate rising to 2.8 percent in November, the highest level in three years, according to ratings agency S&P, which expects defaults to climb to 3.3 percent by Sept. 30, 2016.

Moreover, fellow ratings agency Moody’s reported its liquidity stress index in November hit its highest rate since February 2010. Still more troubling is that some of the damage has begun to spill outside the oil, gas and mining sectors, where most of the defaults had been contained.

Fully one-third of oil and gas and mining and metals companies in Moody’s coverage universe are on review for downgrade or have negative outlooks.

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Brazil’s Unprecedented Torrent of Downgrades Is Set to Get Worse

(Bloomberg) – Amid Brazil’s economic and political tumult, the nation’s businesses have seen a record number of downgrades this year — and the total is about to get worse.

Fitch Ratings estimates it may slash the ratings of as many as 10 companies for every one it upgrades in 2016. Fitch said that grim scenario is most likely if it chops Brazil’s grade, an ever-growing possibility as the country’s woes deepen.

A top lawmaker initiated impeachment proceedings against President Dilma Rousseff last week, a move that may further undermine the nation’s finances and exacerbate the worst recession in a quarter century. That spells trouble for companies already finding it hard to obtain financing in the wake of an unprecedented corruption scandal at Brazil’s state oil company.

“You will see companies burning cash,” Fitch’s Carvalho said. “The cross-border market is closed for Brazilian companies, and the local market is selective.”

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Saudi Arabia’s big welfare spending faces the oil abyss

(CNBC) – If Saudi Arabia maintains oil production at current levels amid the oil price crash, then it’s going to have to cut its budget — or it will likely be bankrupt by the end of the decade. The big issue is Saudi Arabia’s big spending ways, especially increased government spending on social welfare programs.

According to the IMF, government expenditures in Saudi Arabia are expected to reach 50.4 percent of GDP in 2015, up from 40.8 percent in 2014. That increase can be attributed to two things: falling oil prices (it’s bringing in less revenue) and an inflated budget (it’s spending more money).

It’s no secret that a large portion of Saudi Arabia’s roughly 30 million people rely on the government for economic support. In February, the newly crowned King Salman doled out a reported $32 billion to the Saudi people in bonuses and subsidies to celebrate his ascension to the throne.

“We are a welfare society, so the population depends a lot on government subsidies, directly and indirectly,” Abdullah Al-Alami, a Saudi writer and economist, recently told The New York Times. “But one day we are going to run out of oil, and I don’t believe it is wise to be pampered and subsidized.”

To summarize, the world is entering a classic credit crunch, in which lending dries up for marginal borrowers first before tightening for core entities like multinational corporations and developed world governments. And it’s just beginning.

Most of today’s crises evolved with oil considerably higher and the dollar somewhat lower, so current conditions are actually a lot worse than those that, for instance, caused emerging market debt issuance to evaporate and shoved Brazil into existential crisis.

And since oil overproduction will likely to continue while the differences in central bank policies are etched in stone for the next few months at least, it’s possible that the performance gap between oil and the dollar will widen going forward. This will turbo-charge today’s crises and add a few more, as oil producing US states hit financial walls and big chunks of the developing world follow Brazil down the drain.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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Fed Sees ‘Moderate’ Growth, Says Considering December Hike

Bloomberg, Oct 28, 2015

yellen_janet

Federal Reserve policy makers said the economy is still expanding at a “moderate” pace and they will consider tightening policy at their next meeting in December without making a commitment to act this year.

Even with a slower pace of recent job gains, “labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington.

The Fed also removed a line from September’s statement saying that global economic and financial developments “may restrain economic activity somewhat,” saying Wednesday only that the central bank is monitoring the international situation.

Chair Janet Yellen and her colleagues have been watching for more labor-market improvement and signs that inflation is rising toward their goal, despite headwinds from overseas, as they debate the first rate increase since 2006. At last month’s meeting, 13 of 17 officials still expected a hike this year provided the economy grew as forecast.

The assessment of the labor market, which said the pace of job gains “slowed and the unemployment rate held steady,” compared with last month’s language citing “solid job gains and declining unemployment.” The U.S. added 142,000 jobs in September, less than the 200,000 economists in a Bloomberg survey had forecast and well below the 205,000 average for the first eight months of 2015.

The FOMC vote was 9-1, as Richmond Fed President Jeffrey Lacker dissented for a second straight meeting, again calling for a quarter percentage-point rate increase.

‘Solid Rates’

Household spending and business fixed investment have been “increasing at solid rates in recent months,” the Fed said, compared with September’s language that those indicators have “been increasing moderately.”

The Fed reiterated that it expects inflation to rise gradually toward its 2 percent goal in the medium term.

Officials have held the benchmark overnight federal funds rate target in a zero-to-0.25 percent range since December 2008.

Investors before Wednesday’s statement saw a 4 percent chance that the Fed would move this month, based on pricing in fed funds futures that assumes a 0.375 effective rate after liftoff. They saw a roughly 35 percent chance of a move in December, as of 11:20 a.m. in Washington.

Subdued inflation has been a hurdle for the central bank as it moves closer to a rate increase. Even as the jobless level has fallen to 5.1 percent, close to policy makers’ 4.9 percent estimate of full employment, inflation has remained well below the committee’s 2 percent goal. The Fed’s preferred gauge of prices rose by just 0.3 percent in the 12 months through August.

Labor Market

In contrast, continued labor-market improvement has been a bright spot for the Fed as it looks to fulfill its dual mandate of maximum employment and stable prices. That makes the September slowdown in job growth a potential source of concern. Even so, several officials have indicated that a slower pace of job gains is acceptable and even desirable as labor-market slack ebbs.

“Looking to the future, we’re going to need at most 100,000 new jobs each month,” San Francisco Fed President John Williams said on Sept. 28 in Los Angeles. “In the mindset of the recovery, that sounds like nothing; but in the context of a healthy economy, it’s what’s needed for stable growth.”

Several important readings on the economy will be released later this week, including the initial estimate of third-quarter growth on Thursday. Economists surveyed by Bloomberg News estimated expansion slowed to a 1.5 percent annualized pace, from 3.9 percent in the previous three months.

The global outlook has proved another stumbling point for policy makers as they assess if the U.S. economy is strong enough to handle a rate rise.

China Slowdown

A slowdown in China has helped to push down commodity prices, which is contributing to low inflation, while still-subdued economic performance in trading partners including Japan and the euro area have driven up the value of the dollar and cut into U.S. exports. The greenback had risen 9.2 percent against the euro and 0.5 percent against the Japanese yen since the start of the year, as of Wednesday at 9:43 a.m. in Washington.

The People’s Bank of China lowered benchmark interest rates last week, its sixth cut in a year, and European Central Bank President Mario Draghi said on Oct. 22 that he will investigate all options for more stimulus in December. That could include extending quantitative easing beyond its current end-date of September 2016, boosting monthly asset purchases from 60 billion euros and cutting the deposit rate. Those moves could brighten the international outlook if they succeed in propping up growth.

Global risk flows both ways: The International Monetary Fund on Oct. 7 told officials to protect their financial systems from possible instability as the Fed prepares to raise interest rates, saying shocks or policy missteps risk derailing the global economy and triggering equity market sell-offs. The fund described the preconditions for a Fed rate rise as “nearly in place.”

Source

John Rubino: Here’s What We’ll Try – And What Will Fail – Next

By John Rubino, Oct 11, 2015

The UK’s Guardian newspaper, of Edward Snowden leaks fame, just published a good overview of the world’s recent financial missteps titled The world economic order is collapsing and this time there seems no way out.

Some excerpts:

The heart of the economic disorder is a world financial system that has gone rogue. Global banks now make profits to a extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level.

The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.

The false boom that follows seems to justify the lending. Property prices rise. Companies and households grow overconfident about their prospects and borrow freely. Economies surge well above their trend growth rates and all seems well until something – a collapse in property or commodity prices – unravels the whole process. The money floods out as quickly as it flooded in, leaving bust banks and governments desperately picking up the pieces.

The result, says the Guardian, is a crisis in three acts. Act one was the 2008 bursting of the housing/derivatives bubble that nearly wiped out the global banking system. Act two was the 2011 euro crisis in which the idea that Greek, Italian and Spanish bonds were equivalent to German paper was abruptly discredited, again nearly wiping out the big banks.

Act three, now in progress, is the bursting of the emerging markets bubble, led by China (great stat: “China manufactured more cement from 2010-13 than the US had produced over the entire 20th century.”)

China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.

Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.

So far so good. But then the Guardian ruins its perceptive analysis by proposing more of the same:

The world needs inventive responses. It needs a bigger, reinvigorated IMF whose constitution should reflect the global balance of economic power and that can rescue the EMEs… It needs western governments to launch massive economic stimuli, centred on infrastructure spending. It needs new smart monetary policies that allow negative interest rates.

This isn’t surprising but it is instructive because it represents the thought process at work in the upper echelons of virtually all the major economies: What we’ve tried has failed, but the fault is with the execution rather than the concept. We didn’t go big enough. We didn’t borrow enough money, we didn’t build enough roads and bridges, we didn’t push interest rates down far enough. So let’s hit the emerging market crisis with everything: bigger multinational institutions making vastly larger development loans, rich-world governments ramping up spending and paying for it with borrowed money, and central banks pushing interest rates down to negative mid-single digits.

For those who view this as the financial equivalent of a junkie doubling the dose of heroin to ensure a permanent high, the question isn’t whether some mutant strain of easy money will save us, but what dosage will turn out to be fatal. And of course which asset classes will benefit from the intervening high.

At the risk of sounding like a broken record, the negative interest rate/high debt/rapid money growth world envisioned by the Guardian looks like a precious metals paradise.

 

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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