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Fri, 20th January 2017

Anirudh Sethi Report

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Archives of “foreign exchange market” Tag

China’s 2016 capital outflows estimated at over $700bn

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.

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.

Bitcoin Surges Above $1,000 As China Unveils New Capital Controls

As noted yesterday, for the first time in three years, and only the second time in history, bitcoin rose above $1,000 in Yuan-denominated Chinese trading, however it was limited to the lower side of this “round number” psychological barrier in US trading, as BTC flirted with $999.99 for most of the day on the popular Coinbase exchange, without crossing it.

Overnight, however, Chinese demand proved too great and US markets had no choice but to arb the difference. So with Bitcoin trading in China at an implied price of over $1,050 at this moment, bitcoin finally soared above $1,000 in the US as well, trading just around $1,024 on Coinbase as of this moment.

 

India : Forex Reserves Fall By $935.2 Million To $359.67 Billion

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.

Bitcoin Soars To 3 Year Highs As China Turmoils

With Chinese liquidity markets turmoiling, bonds crashing, and gold premiums soaring, it appears growing concerns over capital controls tightening has sent Chinese fleeing into Bitcoin as a way to escape the mainland restrictions. Bitcoin is up over $30 today to its hghest since Dec 2013

We first warned of this ‘outlet’ for Chinese capital in September 2015 when Bitcoin was trading around $200… its just topped $830…

BOJ taking ‘a step forward,’ says Kuroda

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.

New RBI guidelines on cash deposits of demonetised notes add to confusion

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.

Emerging Markets: An Update

  • China will raise the sales tax on small cars to 7.5% in 2017.
  • New methodology used by Turkstat to measure Turkish GDP has led to significant upward revisions.
  • Turkish authorities are growing more concerned about the weak lira.
  • Fitch moved the outlook on Chile.
  • Chile’s central bank shifted to an expansionary policy bias.
  • Colombia selected Juan Jose Echavarria to be the new central bank governor.
  • Fitch revised the outlook on Mexico’s BBB+ rating from stable to negative.
  • Banco de Mexico hiked rates by a larger than expected 50 bp.

In the EM equity space as measured by MSCI, Hungary (+4.3%), Russia (+3.2%), and Turkey (+2.3%) have outperformed this week, while Brazil (-3.8%), China (-3.6%), and Chile (-3.5%) have underperformed.  To put this in better context, MSCI EM fell -2.3% this week while MSCI DM fell -0.1%.

In the EM local currency bond space, Poland (10-year yield -15 bp), Korea (-4 bp), and Czech Republic (-4 bp) have outperformed this week, while the Philippines (10-year yield +41 bp), Indonesia (+32 bp), and Hong Kong (+32 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 12 bp this week to 2.59%.

In the EM FX space, RUB (+1.4% vs. USD), HUF (+0.9% vs. EUR), and PLN (+0.7% vs. EUR) have outperformed this week, while CLP (-2.7% vs. USD), EGP (-2.7% vs. USD), and ZAR (-1.7% vs. USD) have underperformed.
 
China will raise the sales tax on small cars to 7.5% in 2017.  The tax will be increased further to 10%, according to the Finance Ministry.  The government cut this tax rate from 15% in October 2015 after lobbying from China’s auto association.  Automakers had asked for the tax cut to be made permanent.

Responses to the Fed’s FOMC: ‘upbeat and more hawkish than anticipated’

ANZ with the latest Global Macro Insight, focusing on the Federal Reserve’s FOMC announcement on Wednesday

In brief from the document:
  • The FOMC was upbeat and more hawkish than anticipated
  • After an extended period of downgrades to the dot plot, the FOMC modestly tweaks up the profile. Three 25 bps hikes are now expected in2017 up from two.
ANZ on the market implications (bolding is mone):
  • This announcement should have a persistent impact on the USD.
  • While the tilt was not overly hawkish, with the Fed adding just one hike to the entire profile, it did mark the first time that the Fed has hiked rates without the accompanying message being dovish.
  • As such, the reaction function in FX markets was a bit different to previous moves and upside to the USD could be more lasting.
  • While the JPY has still underperformed, the AUD and NZD are also significantly weaker on the day. We also note that the equity market has softened on the announcement, and this marks a change in the recent behaviour of markets where the USD and equities were rallying together. This likely reflects a renewed focus on the rising cost of funds, and the fact that markets now need to weigh the balance between better growth prospects, and the policy response to that improvement. As such, looking ahead, the risk that the AUD and NZD begin under-perform other G10 currencies is rising.

China says they will further advance supply-side structural reforms in 2017

Reuters reporting statement published on Xinhua 9 Dec

  • will further open its economy in 2017
  • will work proactively to attract foreign investment
  • certain that China will complete its key economic targets for 2016

PBOC also announces that China will start direct trading between yuan and 7 currencies from 12 Dec inc

  • PLN
  • SEK
  • TRY
  • MXN
  • NOK
  • DKR
  • HUF

CFETS the part of the PBOC that runs the interbank FX market says the aim is to facilitate bilateral trade and investment with these countries and lower exchange rate costs.

Previously the US $ has been used to determines the cross rate for the yuan against these ccys.

Overnight US Market :Dow closed +35 points

The Dow and Russell 2000 hit new closing highs Tuesday as stock indexes turned positive in the afternoon and stayed there, helped by shares of telecommunications companies such as Verizon, Sprint and AT&T.

The Dow Jones industrial average gained 35 points, or 0.2%. That’s up about 36 points to 19,251.78, its new all-time closing high.

The Russell 2000 soared 1.1%, up 15 points. Its new closing high: 1,352.67.

Also gaining were the S&P 500 and the Nasdaq composite, ending up 0.3% and 0.5%, respectively.

Sprint and T-Mobile shares climbed sharply after President-elect Donald Trump said in a tweet that Japanese company Softbank, which owns the majority of Sprint, was going to invest $50 billion in the U.S. to create 50,000 jobs over the next four years. However, it’s not clear if Softbank’s announcement is new.

U.S. government bond prices rose slightly. The yield on the 10-year Treasury note fell to 2.39% from 2.40% late Monday. In foreign exchange trading, the dollar rose to 114.06 yen from 113.75 yen. The euro fell to $1.0718 from $1.0770.

Italy’s stock market jumped 4.2%, a day after slipping in the wake of the failure of a constitutional referendum that forced the resignation of that country’s premier. France’s CAC 40 added 1.3%, Britain’s FTSE 100 was up 0.5% and Germany’s DAX rose 0.8%.