A new report from Standard Chartered estimates capital flows out of China totalled almost $730bn in 2016, a near-record level.
Analysts Shuang Ding and Lan Shen estimated outflows had moderated in December to $66bn, down from November’s $75bn.
Beneath the headline figure foreign direct investment flows turned positive for the first time in eight months with a $3bn inflow, while non-FDI outflows remained unchanged from the previous month at $69bn.
The analysts estimated December’s outflows brought the annual total for 2016 to $728bn, close to the previous year’s record high of $744bn.
They also estimated China’s foreign exchange reserves had fallen $41bn last month to end the year at $3.01tn as depreciation of the euro, yen and pound against the greenback. That reduced the dollar value of China’s holdings in those currencies by about $13bn.
Until last night’s Trump statement that the US dollar is overvalued, it was smooth sailing for Wall Street’s momentum chasers, who happily piled into what until recently was Wall Street’s most crowded trade. How crowded?
For the latest answer, we go to the latest just released monthly Fund Managers Survey conducted by BofA’s Michael Hartnett who shows that according to Wall Streeters themselves, the dollar is the most crowded trade by orders of magnitude. In fact, in January the number of respondents who said the “Long USD” is the most crowded trade has risen from 35% in December to a whopping 47%, the highest response rate in the last few years of the survey. Far behind, in second and third place, are “short government bonds” and “long high quality/minimum vol” both at 11%.
What makes this observation paradoxical is how reflexive it is, because in the same report BofA writes that contrarians note “long US dollar seen as most crowded trade by a country mile”, and adds that the percentage of investors who think USD is overvalued is the highest in over a decade, or since Nov’06 (net 22%).
Still, they refuse to sell… until now. Because now that the president-elect has publicly taken the other side of the trade, we urge readers to take a second look at RCB’s warning that the “Pain Trade”, i.e. the inversion of Long-USD positions, has begun.
India’s foreign exchange reserves declined by $935.2 million to $359.671 billion in the week to December 23 on account of fall in foreign currency assets, the Reserve Bank said on Friday.
In the previous week, the reserves had fallen by $2.380 billion to $360.606 billion.
They had touched a life-time high of $371.99 billion in the week to September 30, 2016.
Foreign currency assets (FCAs), a major component of the overall reserves, dipped by $933.2 million to $335.970 billion in the reporting week.
FCAs, expressed in US dollar terms, include the effects of appreciation/depreciation of non-US currencies such as the euro, pound and the yen held in the reserves.
Gold reserves remained steady at $19.982 billion in the reporting week, the RBI said.
The special drawing rights with the International Monetary Fund decreased by $0.9 million to $1.427 billion, while India’s reserve position with the Fund too declined by $1.1 million to $2.290 billion, the data showed.
With Trump’s border tax adjustment looking increasingly likely, the stock market – as JPM has warned in recent days – is starting to fade the relentless Trumponomic, hope-driven rally since election day instead focusing on the details inside the president-elect’s proposed plans. And, as explained earlier in the week, if the border tax proposal is implemented, economists at Deutsche Bank estimate the tax could send inflation far above the Federal Reserve’s 2% target and drive a 15% surge in the dollar.
While this would be bad for stocks, as a 5% increase in the dollar translates into about a 3% negative earnings revision for the S&P 500 all else equal, a surge in inflation would also wreak havoc on bond prices, and send interest rates surging, at least initially, before they subsquently plunge as a result of a rapidly tightening, deep “behind the curve” Fed unleashes a curve inversion and recessionary stagflation becomes the bogeyman du jour.
The jolly chaps and chapesses at Danske Bank have the euro all mapped out for next year
Danske see EURUSD bottoming at 1.0200 in their 1 month forecast.
“In the short term, on the one hand there will be downward pressure on the US monetary base from the higher federal funds target and from the impact of new banking regulation with US banks set to be required to have an LCR of 100% by 1 January 2017. On the other hand, deposits on the US treasury account may fall at the beginning of next year after a resuspension of the debt ceiling, which will tend to increase the monetary base. Overall, this is likely to be marginally positive for USD and weigh on USD FX forward points vis- à-vis EUR and the Scandinavian currencies on top of the impact of the repricing of the path of Federal Reserve rate hikes, e.g. keeping the 3M EUR/USD basis spread around the present 70-80bp, and thus maintaining a significant negative carry on short USD positions.”
The Bank of Japan revised its economic outlook for the first time in 19 months during the two-day policy meeting that ended Tuesday. But that is apparently the only step the central bank is taking at this time.
“The headwinds seen in the first half of this year have ceased,” BOJ Gov. Haruhiko Kuroda told reporters following the meeting. Markets were riled by heightened concerns directed at emerging economies at the beginning of 2016, only to be shocked in June by Britain’s referendum to exit the European Union. The BOJ was forced to loosen its policy in July, raising its target for exchange-traded fund purchases.
During the second half of 2016, the economic landscape has slowly brightened, beginning with U.S. readings. The Japanese economy has followed suit with increased exports and production. Consumption also recovered from a slump caused by a soft stock market and inclement weather at the beginning of the year.
“Japan’s economy has continued its moderate recovery trend,” the BOJ said in a statement published after the meeting. The central bank had previously qualified that view by highlighting sluggish exports and production.
The price of copper has sunk to its lowest level in almost a month after the London Metals Exchange reported the biggest one-day rise in 15-year in inventories of the red metal.
Copper for delivery in three months dropped $116, or 2 per cent, to $5,525 a tonne after the LME said stocks has increased by 38,400 to more than 345,000 tonnes,
Since hitting 213,000 tonnes on December 8th, inventories have surged by 60 per cent as refined copper has moved out of China and into LME licensed warehouses in Asia.
The copper market has been roiled several times this year by large movements of stock.
Some analysts believe the latest movements are driven by cheap freight and storage incentives, which have encouraged Chinese traders to deposit stock in LME warehouses. Others say the stock has been placed there by a large commodity trader as part of a complex trading strategy.
But there are other explanations. In a recent report Standard Chartered flagged a significant build-up in unreported copper stocks outside, which it puts at almost 500,000 tonnes since the end of July.
Fresh guidelines issued by the Reserve Bank of India on Monday on limiting cash deposits of demonetised bank notes have added to the confusion. The central bank issued guidelines where it said that individuals will only be able to deposit demonetised bank notes above ₹5,000 only once till the remainder of the deposit deadline i.e. December 30, 2016.
On the surface, the guideline appears to be one that will hit the remaining black money hoarders in a single blow. However, the government hasn’t been able to plug laundering and cash leaks at banks. Therefore, the common person, who would’ve planned to deposit the money at a later stage, for various reasons like possibly to beat the early queues, would be hit unnecessarily.
Since the time demonetisation was announced, RBI has played a less than stellar role in managing the currency exchange and currency distribution process. Regular guidelines coming at regular intervals put the country in a state of confusion as to what will follow next and the damage control seems to be never-ending.
Global financial repression has picked up steam. Australian citizens are likely the next victim.
AU News reports Government Floats $100 Note Removal.
SAY goodbye to the $100 note.
Australia looks set to follow in the footsteps of Venezuela and India by abolishing the country’s highest-denomination banknote in a bid to crack down on the “black economy”.
Speaking to ABC radio on Wednesday, Revenue and Financial Services Minister Kelly O’Dwyer flagged a review of the $100 note and cash payments over certain limits as the government looks to recoup billions in unpaid tax.
“The whole point of this crackdown on the black economy is to make sure we close down any potential loopholes,” she said. Despite the broad use of electronic forms of payment, Ms O’Dwyer warned there are three times as many $100 notes in circulation than $5 notes.
“It does beg the question, ‘Why?’” she said.
There are currently 300 million $100 notes in circulation, and 92 per cent of all currency by value is in $50 and $100 notes.
A report by UBS recommended Australia scrap the $100 note. According to UBS, benefits may include “reduced crime (difficult to monetise), increased tax revenue (fewer cash transactions) and reduced welfare fraud (claiming welfare while earning or hoarding cash)”.
“From the banks’ perspective there would likely be a spike in deposits — if all the $100 notes were deposited into banks (ignoring hoarded $50 notes), household deposits would rise around four per cent,” the report said.