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Investorsshakenasrenminbi’sreputationas‘one-waybet’sours
Lastweektherenminbididsomethingithasnotdoneforyears–itshockedthemarket.
Duringthefinalthreetradingsessionsoftheweek,theChinesecurrencydroppedasmuchas1.3percentagainsttheUSdollar,markingitsbiggestthree-dayfallsince2011.Therenminbiisnow0.6percentweakeragainstthedollarthanitwasatthestartoftheyear.
Whilethepercentagedeclinemayappearsmallcomparedwithsomeoftherecentdouble-digitswingsinotheremergingmarketcurrenciessuchastheArgentinepesoorKazakhtenge,amoveofsuchmagnitudeintherenminbiishighlyunusual.
Itcouldalsospelltroubleforinvestors.Afteryearsofultra-lowvolatilitythankstothemanagedpegagainstthedollar,therenminbihasoftenbeenthesubjectoflarge,highly-leveragedpositionsforinvestorsviewingitasaneffectiveone-waybet.ANZ’sPatrickPerret-Greensaidthesell-offhadleftsomespeculativeinvestorswitha“verybloodynose”.
MitulKotecha,FXstrategistatCréditAgricoleCIB,saidthatlastweek’smovecouldbeasignalofashiftinChinesecurrencypolicy.
“Themarketwasextremelylong,andwe’veseenabigshakeoutofthesepositions”,saidMrKotecha.“Theywanttotryandatleastprovokemoreriskandmoreuncertaintyintakingthistrade.Theyaregoingtokeepengineeringvolatilityuntilthatbecomesthecase.”
Thesharpmovefollowsaperiodduringwhichtheoffshorerenminbiratehasbeentradingatanincreasingpremiumtotheonshorerate.Thatsplit–apermanentfeatureofthemarket–issomethingmadepossiblebyChina’sstrictcontrolsonitscapitalaccount.
GlobalinvestorsusuallytakebetsonthecurrencythroughitsHongKongiteration,knownbytheshorthandCNH.WithinChina,companiesandinvestorsusetheofficialonshorerate,orCNY.
Earlylastweek,theCNHratehadreacheditsbiggestspreadovertheCNYratesince2010,suggestingthatinternationalenthusiasmfortherenminbihadovertakenthatfromwithinChinaitself.
CurrencyanalystssaythiswideninggapmayhaveproddedthePeople’sBankofChinaintoaction.Thecentralbanksetsthedailyfixingratearoundwhichtherenminbiispermittedtofallorgain1percentaday,andlastweekitguidedtheonshorecurrencyweakerthroughhigherfixes.
SomebelievethatthemovebythePBoCtodampappreciationexpectationsispartofitswider,long-heldaimofintroducingmoretwo-wayvolatilityintothemarket.
Itcouldalsobeanattempttobringtheonshoreandoffshoreratestogetherbeforethecentralbankwidensthedailytradingband,somethingithaspromisedtodosoon.ThebandwaslastchangedinApril2012,whenitwasdoubledfrom0.5percent.
“Thisisatacticalmovebythecentralbanktointroducemorevolatilitybeforewideningthetradingband.Theyarecreatingconditionsforthattohappen,”saidShuangDing,ChinaeconomistatCiti.“Ifthecurrencycontinuestoappreciateandthereisverylittlevolatility,itwillonlyfuelspeculationofmoreappreciation.”
WeakereconomicdataoutofChinamayalsohaveplayeditspartinthesell-off.LastweekHSBC’sflashindexofmanufacturingactivityfelltoitslowestlevelinsevenmonths,asignthatthecountry’sexportengineisyettofireupthisyear.SentimenttowardsChinahasalsobeenhitbygrowingtroublesinthecountry’svastshadowbankingsector.
Manyanalystsbelievethelonger-termstoryofrenminbiappreciationremainsintact.HSBCstillexpectstherenminbitoreachRmb5.98againstthedollarbytheendoftheyear,equivalenttoabouta2percentgainfromMonday’sspotrate.
Andunlikeinpreviousperiodsofrenminbiweakness–suchasinthesummerof2012–thismostrecentbouthasnotbeenaccompaniedbylargecapitaloutflowsfromthecountry.
Ifanything,theoppositeistrue–themostrecentdatashowthatmoneycontinuestopourin,withChina’stradesurplusgrowingby$32bninJanuary.
However,somebelievethattheapparentshotacrossthebowbythePBoCmeansthatthedaysoflowvolatilityarefinallycomingtoanend.
“Basedonhowthe[offshorerenminbi]hasbeentradingoverthepastcoupleofdays,itiscleartomethattheChinesecurrencyisnolongerasafehaven,”SociétéGénérale’sBenoitAnnewroteinareport.
TwoUKbanks'divergingfortunes,thelatestEU-Greecebankingspat,andUSholdingcompanyrequirementsforforeignbanksFeb24,2014-3:
43pm
ThebankingteamdiscussesthevaryingfortunesofHSBCandRBS,thelatestspatbetweentheEUandGreeceoverthetreatmentoftheGreekbankingsystem,andDeutscheBankrevealssomedetailsabouthowitwillcopewiththenewobligationforforeignbanksoperatingintheUnitedStatestohaveaUSholdingcompanies.PatrickJenkinsisjoinedbyMartinArnold,bankingeditor;SamFleming,financialpolicycorrespondent;DanielSchäfer,investmentbankingcorrespondent,andPeterSpiegel,Brusselsbureauchief.
Whytheeuroinflationnumberisworsethanitlooks
February24,20145:
33pmbyClaireJones
inShare0
January’seurozoneinflationnumber,outearlieronMonday,showedpricepressuresinthecurrencyblocarenotquiteassubduedasfirstfeared,registering0.8percent—atouchhigherthanEurostat’sinitialestimateof0.7percent.
It’shardlyagamechanger:
inflationisstilllessthanhalfthe2percenttarget.ButtheslightlybetterfigurewillreducepressureontheEuropeanCentralBankalittleafteritfacedrenewedcallstoeasepolicyfollowingthereleaseoftheflashestimate.
However,thedetailofthismorning’sreleasesuggestdisinflationarypressuresmightbeevenworsethanfeared.ThisexcellentchartfromMarchelAlexandrovichofJeffriesInternationalshowswhy:
OneofMarioDraghi’sfivereasonsforwhytheeurozoneisnotabouttoenteraJapan-stylelostdecade,wherebusinessesandhouseholdsreininspendingbecauseofsuspicionspriceswilltumble,isthatfallingpricesinthecurrencyblocarefarlessbroadbasedthatinAsia’ssecond-largesteconomy.
Here’swhathehadtosayearlierthismonth:
MarioDraghi:
TheinflationaryexpectationscontinuetoremainfirmlyanchoredandwedonotseemuchofasimilaritywiththesituationinJapaninthe1990sandearly2000s.Ifwelookatthedefinitionofdeflation,thatisabroad-basedfallinprices,self-feedingontoitselfandhappeninginavarietyofcountries.Wedonotseethat.Justtogiveyouanotherpieceofinformation:
duringtheperiodofdeflationinJapan,over60%ofallcommoditiesexperiencedadeclineinprices;thepercentagesfortheeuroareaaveragearemuchlower.
Onthisscore,thebreakdownonthecomponentsoftheinflationbasketcontainedinEurostat’sreleasethismorningisworrying.MrAlexandrovich’schartshowsthatdeflationisbecomingmorebroadbasedacrossthebloc,andinallbutoneoftheeurozone’slargesteconomies.
Thatdoesn’tmeanthattheeurozoneisturningJapanesejustyet—deflationremainsfarlessbroadbasedthanitwasthere.Butitdoesnotbodewell.
SouthSudan’sfactionsvieforcontrolofoilfields
©AFP
SoldiersstandnearanoilrefineryinMelut,UpperNilestate,SouthSudan
WarringfactionsinSouthSudanarebattlingforcontrolofthecountry’sdwindlingoilproductioninasignbothsideshavegivenuponfalteringpeacetalksandareinsteadseekingamilitaryandeconomicstrangleholdoverthecash-strappedcountry.
Oilcompanieshaveevacuatednon-essentialstafffromfieldsinUpperNilestatefollowingrenewedheavyfightinginMalakal,theregionalcapital,overthepastweek.
Malakalliesabout150kmsouthofthefieldsinUpperNilestatethatpumpthebulkofthecountry’scrude.OilproductionwashitearlierinthecrisiswhentherebelsinlateDecembertookcontrolofUnitystate,theotheroil-richregion.
OilexecutivesworrytheforcesloyaltoRiekMachar,therebelleader,willmovebeyondMalakal,tryingtoencirclethefieldstogainleverage.Theysaidhoweverthatadirectattackagainstthefieldswasunlikely.
AnaidetoMrMacharsaidthefightingwasheadingtowardstheoilfieldsofAdarandPaloich,inUpperNilestate.“Therecanbenoworkbecauseofthefighting.Thatwillstoptheoil,”theaidesaid.TheFinancialTimescouldnotindependentlyverifytheclaimabouttherebelmovementsnorthofMalakal.
ColonelPhilipAguer,spokesmanforSouthSudan’sarmy,insistedthefieldsweresofarsafeinspiteofrebelthreatsto“eitherdivertorclosedowntheoilindustry”.Hisgovernmentlastweekintervenedtooverturnalocalstatedirectivetoshutdownthefields.
Butanindustryexecutivefamiliarwiththesituationdescribedamoreworryingscenario,withoilgroupsoperatingthefieldsinUpperNile,includingChinaNationalPetroleumCompanyandMalaysia’sPetronas,evacuatingsomestafffromPaloich.“Theyareliftingasmanynon-essentialworkersastheycan,”theexecutivesaid.
Industryofficialssayoiloutputhasfallentoabout150,000barrelsperday,down40percentfrombeforethestartoftheconflict,whichhaskilledthousandsanddisplaced900,000people.
Theoutputdrop–andworriesoffurthershutdowns–isforcingregularbuyersofSouthSudaneseoilsuchasChinatoseekalternatives,triggeringarushforcrudesofsimilarqualityinAngola,ChadandasfarawayasArgentina.Thecrisisisalsocontributingtohigherglobaloilpricesofaround$110abarrel.
Regionalandinternationalmediatorsrushedtonegotiateaceasefireaftertheworld’snewestcountrysplitintwoinmid-Decemberfollowingahigh-levelpoliticalfalloutoutbetweenPresidentSalvaKiirandMrMachar,hissackedvice-president.ButtheshakyJanuarydealquicklyfellapartasfightingflared.
Eachofthetwop