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Mon, 26th June 2017

Anirudh Sethi Report

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Archives of “May 7, 2017” Day

Yuan falling out of favor in global trade

Overseas use of the yuan for trade and other payments has fallen dramatically as government efforts to stem capital outflows sideline Chinese President Xi Jinping’s ambition to take the currency global.

Yuan trade settlement had surged after Beijing first allowed it in 2009, with the proportion of Chinese cross-border trade settled in the currency peaking at 27% in 2015. But its share fell to 19% in 2016, marking the first year-on-year decline, and slumped further to 14% in January through March of this year. Excluding trade with Hong Kong, where the yuan is often used, would likely push the figure even lower.

 The decline is not limited to trade. Cross-border yuan settlements in Shanghai totaled 441.3 billion yuan ($63.9 billion) in the January-March quarter, down 23% from a year earlier, data from the People’s Bank of China shows. This figure encompasses trade as well as other payments ranging from capital transactions to costs for studying abroad. Settlements have fallen by more than half on a quarterly basis since July-September 2015, when they reached 1 trillion yuan.

The yuan was used for just 1.8% of international payments in March, ranking sixth behind the U.S. dollar, euro, pound, yen and Canadian dollar, according to the Society for Worldwide Interbank Financial Transactions, or SWIFT. The Chinese currency had placed fourth in August 2015 with a 2.8% share, overtaking the yen.

Overseas yuan holdings are shrinking as well. In Hong Kong, the largest yuan hub outside mainland China, yuan deposits hit a six-year low of 507.2 billion yuan at the end of March. This represents a drop of nearly half from 1 trillion yuan in December 2014.

This trend stems mainly from stepped-up capital controls. The Chinese government has gradually imposed stricter curbs since 2015, aiming to rein in outflows and the ensuing softening of the yuan. A measure implemented last November made advance approval necessary for currency conversions or overseas transfers — including in yuan — exceeding $5 million.

Macron, Le Pen: What to Expect From French Presidential Election

A woman walks near election campaign posters for French centrist presidential candidate Emmanuel Macron, left, and far-right candidate Marine Le Pen, in Saint Jean Pied de Port, southwestern France, Friday May 5, 2017

Marine Le Pen has repeatedly underscored her desire to mend fences with Russia so that Europe has a peaceful future ahead. She lashed out at the Western sanctions against Russia as “stupid” and recognizes Crimea as part of the Russian Federation.

She believes that France should maintain equally good relations with both the US and Russia, that it has no reasons for waging a cold war with Moscow and needs closer diplomatic, trade and strategic relations with Russia, which she calls “a great country.”

Emmanuel Macron also wants to rebuild relations with Russia and engage into intense and frank dialogue, even though Paris’ vision does not totally correspond with that of Moscow.

Unions and alliances

France’s possible exit from the European Union was the centerpiece of Le Pen’s agenda ahead of the first round vote in April. She has since softened her anti-EU rhetoric a bit and now says she wants to supplant the EU with a “European alliance of free and sovereign states.”

Marine Le Pen said her first order of business on setting foot in the Elysee Palace will be to propose negotiations to radically overhaul what she described as “a totalitarian union,” and announce referendums on EU membership and on withdrawing from the European Union.

An Update for Forex ,Crude Oil -Positions

It was feast or famine in the adjustment of speculative positions in the currency futures market during the CFTC reporting period ending May 2. Speculators either made large adjustments or very small adjustments, and little in between.  
Speculators covered 17.7k previously sold euro contracts to reduce the gross short position 161.1k contracts. It has been reduced by around 46k contracts over the last few weeks.  The gross long position edged 1.6k contracts higher to 159.4k.  It has fallen by around 16k contracts in the past few weeks.  The net position was reduced primarily due to buying related to short-covering and now net short by 1.7k contracts, the least since June 2014.
Speculators liquidated 11.0k long yen futures contracts to 37.5k contracts.  The gross short speculative position fell to 68.0 contracts, a 7.4k decline.  The result was the net short yen position increased to 30.5k contracts from 26.9k. 
The Canadian dollar was very much in play.  Some bulls tried picking a bottom and added 14k contracts to the gross long position, which stood at 66.6k contracts at the end of the statement period.  The bears were still in control.  They added another 19.1k contracts to the gross short position.  It stands at 114.3k contracts, which is the most since at least 1993.  
It has been a rapid accumulation of gross short contracts.  It has doubled, for example, since the end of March.  The gross short position has increased for three weeks in a row and eight of the last nine.  Some of these late shorts are in weak hands.  The key reversal posted in spot before the weekend warns of their vulnerability.  This vulnerability is best understood by looking at gross positions, not net.  
 
Outside of a 9.6k contract reduction of the gross short sterling position, speculators did not make any other gross position adjustments of more than 5k contracts.  Nearly a third of the 16 gross positions we track were adjusted by less than one thousand contracts.  
Overall, speculators showed a penchant for reducing the gross short currency exposure.  The only exceptions were Mexican pesos and Canadian dollars.  There did not appear to be a clear pattern among the gross long position adjustments.  
The bears in the oil market pressed their advantage while some bulls bought into the weakness.  The bears added 50.6k contracts to their gross short position, lifting it to 257.5k contracts, the largest of the year.  Almost 12k contracts were added to the gross long position.  It stands at 630.7k contracts. The net long position fell by 38.7k contracts to 373.1k.  
The bears in the 10-year Treasury note futures tried picking a top ahead of the FOMC meeting and US jobs data.  They added 38.7k contracts so the gross short position was lifted to 6506k contracts.  The longs stayed pat, adding a mere 4k contracts to round up the gross long position to 830.4k contracts.  The net long position fell to a little less than 180k contracts from 214.6k.

A Problem Emerges: Central Banks Injected A Record $1 Trillion In 2017… It’s Not Enough

Two weeks ago Bank of America caused a stir when it calculated that central banks (mostly the ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record.”