In all the drama surrounding the French elections, few noticed the PBOC’s announcement that China’s FX reserves rose for the third straight month in April, increasing by $20.45 billion to $3.03 trillion, more than the $11 billion expected and the single biggest monthly increase in three years going back to April 2014, on the back of a weaker dollar and increasingly more draconian capital controls on outflows.
Cited by the WSJ, some economists attributed April’s increase to a dollar that continued to decline in the past month especially after Trump said the U.S. currency “is getting too strong.” The value of other currencies in China’s reserve basket, including the euro, the British pound and Japan’s yen, similarly played a significant role in the rise, said Yan Ling, an economist with China Merchants Securities.
Besides USD softness (USD has weakened against the CFETS basket by over 2% year-to-date through April) and perhaps stronger RMB sentiment, the capital flow management measures introduced over the last several months have also contributed to the slowdown in outflows, Goldman speculated in a Sunday note. That could reverse, as there may be incremental relaxation of the capital account as the flow situation has improved and an overly tight capital account could hinder legitimate international trade and the authorities’ long-term RMB internationalization goals.
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 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.
India’s foreign exchange reserves rose by USD 889.4 million to USD 369.887 billion during the week ended April 14, helped by increase in foreign currency assets, the Reserve Bank said.
They had declined by USD 956.4 million to USD 368.998 billion in the previous reporting week.
The reserves had touched a life-time high of USD 371.99 billion in the week to September 30, 2016.
Foreign currency assets (FCAs), a major component of the overall reserves, surged by USD 881 million to USD 346.248 billion in the reporting week, RBI said.
Expressed in US dollar terms, FCAs 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 unchanged at USD 19.869 billion, the apex bank said.
The special drawing rights with the International Monetary Fund was up by USD 3.1 million to USD 1.446 billion.
India’s reserve position with the Fund, too, rose by USD 5.3 million to USD 2.323 billion, RBI said.
The International Monetary Fund has delivered another hike to its UK growth forecast, reversing nearly all of the downgrade it pencilled in after last summer’s Brexit vote.
In its latest assessment of prospects for global growth, the Washington-based fund predicted the UK economy will grow this year by 2 per cent, an increase of 0.5 percentage points from the forecast it made in January. The IMF also upgraded its UK growth forecast for next year, from 1.4 per cent to 1.5 per cent.
The world economy will grow faster than previously expected this year thanks to increased trade, investment and manufacturing said the IMF, which also warned the threat of protectionist policies meant “the balance of risks remains tilted to the downside”.
The revision came primarily due to better than expected economic news from Europe, China and Japan and a broad-based recovery in global manufacturing since the middle of 2016.
Before the UK’s EU referendum last year, the IMF forecasted that the UK economy would grow 2.2 per cent in 2017. But it cut the forecast to 1.3 per cent last July, weeks after the Brexit vote, and downgraded its forecast further, to 1.1 per cent, in October.
When it comes to Nigeria’s currency, mind the gap, again: the spread between the official and parallel market rates for the naira is widening once more.
During a more than two-week run, the naira strengthened to a six-month high of 390 per dollar on the black market – close to one of the multiple official exchange rates, but still far off the interbank rate of around 305 to the dollar.
However, the naira is weakening once more on the black market, slipping below 400 to the dollar, to 405 to the dollar on Monday, according to traders.
In the absence of adequate supplies of dollars in the official market, businesses and individuals have been forced to buy hard currency on the black market, stoking demand there and eventually weakening the naira to a record low of 520 in February. Analysts said the gap between the official rate of just over 300 to the dollar and the black market one indicated the scale of unmet demand for hard currency in Africa’s most populous nation.
Nine months after it voted in a referendum to leave the European Union, the U.K. on Wednesday formally notified the EU that it is breaking away from the single market. Next up … at least two years of negotiations toward the exit.
A chief concern for Asian financial institutions is whether the U.K. can keep its “passporting” rights, which allow lenders, insurers and other providers to sell financial services across the EU.
In a sign of the erosion of confidence in London as a European financial center, HSBC is aiming to boost its presence in Asia, which contributed 48.6% to the group’s 2016 revenue and hosts 53% of its workforce. While the bank is slashing as many as 25,000 jobs worldwide to achieve its cost savings target of $6 billion by the end of 2017, it is planning to add 1,000 employees at its Chinese retail and wealth management arm.
“We aim to grow our business in China’s Pearl River Delta and the ASEAN region, and we continue to strengthen our leadership position in the internationalization of China’s renminbi currency,” the bank said in its annual report.
KB Kookmin Bank, the flagship banking unit of South Korea’s KB Financial Group, is moving to downgrade its U.K. operations. The Seoul-based lender says there is little reason to keep its British outpost now that the U.K. is about to kick off Brexit negotiations. It has filed papers with the U.K. financial regulator to change the status of its business in the country and is awaiting a response.
S&P up +0.73%. Nasdaq up +0.60. Dow up 0.73%
- The S&P rose by +0.73%
- The Nasdaq index increased by +0.60% and the
- Dow industrial average rose by +0.73%.
- Spot gold was down by -$3.00 to $1251.30
- WTI Crude recovered to $48.37 (up $0.64)
- 10 year yield rose to 2.416% up 3. 7 bps
Nasdaq unchanged. Dow down about -0.04%
- 2 year yield fell -2.6 bp to 1.288%
- 5 year yield fell -3.1 bp to 1.986%
- 10 year yield fell -3.7 bp to 2.462%