Posts Tagged ‘currency’

Fast Europe Open: UK retail sales, Czech Republic GDP

February 16, 2018

View From Hong kong

Financial Times (FT)

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Alice Woodhouse in Hong Kong — 0800 GMT, February 16, 2018

Beware the pollutants in your bathroom cabinet.

Volatile chemicals from everyday consumer items such as cleaning products, aerosols and even perfumes now rival vehicle emissions as a cause of air pollution.

A research team led by the National Oceanic and Atmospheric Administration (NOAA) reached the surprising conclusion after assessing the source of chemicals that reacted in the air to form fine particles and other lung-damaging pollutants in the US city of Los Angeles.

“As transportation gets cleaner, those other sources become more and more important,” said Brian McDonald, the project leader. “The stuff we use in our everyday lives can impact air pollution.”

In markets, Japanese stocks rallied as the rebound in global equities showed little sign of slowing following the sharp sell off last week. The Topix was 1.2 per cent higher although Australia’s S&P/ASX 200 dipped 0.1 per cent. Markets in China, Hong Kong, South Korea, Singapore, Taiwan and Vietnam were closed for the lunar new year.

Meanwhile, the dollar resumed its downward trajectory with the dollar index, a measure of the greenback against a basket of peers, falling 0.3 per cent to 88.305, a three-year low. The yen strengthened further to ¥105.75, a 15-month high.

Futures tip the FTSE 100 to open 0.5 per cent higher, while the S&P 500 is set to open up 0.2 per cent.

Corporate earnings and updates for Friday include Air France, EDF, Danone, Renault and Allianz. The economic calendar believes three is the magic number (all times London):

08.00: Czech Republic Q4 gross domestic product
08.20: European Central Bank’s Benoit Coeure speaks in Macedonia
09.30: UK retail sales


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Czech Republic

The economy had a strong showing in 2017: Growth picked up pace in three consecutive quarters, and indicators suggest the momentum carried over into the final quarter. Industrial production and retail trade turned in positive results again in November, albeit moderating from the prior month. Furthermore, the manufacturing PMI continued climbing throughout the quarter, clocking a multi-year high in January. However, while consumer confidence improved in January, business confidence slipped. Politically, the sailing is less smooth. President Milos Zeman, an ally of Russian president Vladimir Putin, won a second term on 27 January; he is one of the few allies of Andrej Babiš, who has been prime minister since December. Babiš, who lost a no-confidence vote on 10 January, has been unable to garner majority backing to form a government. However, the Communist Party agreed to restart talks over possible support of a Babiš-government. The combination of Zeman and Babiš could, however, strain relations with the EU further as both men oppose further EU integration.

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China’s Outlook Seems Darkest From a Distance — China’s import-export machine roars back to life

February 9, 2018


By Enda Curran and Ye Xie

Some China-based investors say observers abroad are missing a healthy pickup in the economy.

When it comes to analyzing China, distance seems to make investors’ views of the world’s second-largest economy grow, shall we say, less fond. Whether it’s George Soros (who’s likened China to the U.S. before the 2008 subprime mortgage crisis) or Kyle Bass (who’s said the Chinese economy is built on sand) or Jim Chanos (who’s said, memorably, that China is on a “treadmill to hell”), there’s no shortage of gloomy outlooks. Over-investment, too much debt, bubbly markets, faked data, Ponzi-like financial structures—the litany of looming pitfalls seems inescapable to many investors, especially hedge funds, based in financial hubs from Connecticut to Canary Wharf.

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That negativity is a sharp contrast to the majority opinion held closer to Beijing or Shanghai. There, booming consumption, a pickup in global trade, and an increasingly innovative private sector are fueling bets that China’s generation-long economic miracle still has plenty of room to run, albeit at a slower rate than the average gross domestic product growth of almost 10 percent a year since the early 1980s. “I find it scary how many self-proclaimed US based China experts with real influence have barely lived in China, barely speak Chinese and barely have a clue …” tweeted Shaun Rein, Shanghai-based founder and managing director of China Market Research Group and author of The War for China’s Wallet, on Dec. 26. Later he was on Twitter again, wagering that the “same tired group of China’s watchers will predict China’s collapse for the 40th year in a row… and they’ll be wrong for the 40th time but western media will keep quoting them breathlessly as experts.”

It’s almost time for New Year’s Predictions on China’s economy – my prediction? Same tired group of China’s watchers will predict China’s collapse for the 40th year in a row… and they’ll be wrong for the 40th time but western media will keep quoting them breathlessly as experts

Rein may have a point, but there are plenty of investors across the Pacific who take a longer view on China. Corporate America, for one, has long seen through the fog of gloom. Chicago-based Boeing Co. is building its first overseas “completion center” for 737 aircraft on Zhoushan Island south of Shanghai. In 2016 Walt Disney Co. opened a $5.5 billion theme park in Shanghai—its biggest-ever foreign investment. Tesla Inc. says that within the next several years it plans to begin making automobiles in China, where surging demand for electric cars contributed 15 percent of the company’s revenue in 2016. Meanwhile, in December, the world’s biggest Starbucks—all 30,000 square feet of it, about half the size of a soccer field—opened in Shanghai.

Western banks, which have long coveted the vast Chinese market but had mixed success entering it, are looking at new opportunities now that President Xi Jinping promised to open up the sector to greater foreign competition. UBS Group AG is in discussions to acquire a majority stake in its Chinese securities joint venture, and Morgan Stanley and Goldman Sachs Group Inc. have signaled a desire to take majority stakes in their own Chinese ventures. BlackRock, Fidelity International, UBS Asset Management, and Man Group are among global fund managers expanding in China.

If much of the commentary on China from the West remains bearish, blame Japan. Some analysts and investors base their assessments on the assumption that China is destined to share the fate of Japan, whose three-decade boom hit a wall in the early 1990s. This supposition is questionable. China is still at a much lower stage of development than Japan; on a per-capita basis, China’s GDP in 2016 was less than 40 percent of where Japan was in 1970, according to World Bank Group data. What’s more, China is a vast, multiregional economy—not an island. That means it can keep posting world-beating growth even when some regions do turn down, as happened in 2016 and early 2017 when the industrial northeast slowed as the government pushed through an economic rebalancing that promotes consumption and services.

Illustration: Matt Chase

As China enters the lunar Year of the Dog, the gloomy bears say it’s unlikely that plans to curb loans and credit expansion can succeed without denting growth. Mark Williams, chief Asia economist at Capital Economics Ltd. in London, for instance, thinks government statistics have inflated GDP readings. He reckons China’s GDP growth will slow to 4.5 percent this year, whereas the more than 100-strong research team at China International Capital Corp., the country’s first Sino-foreign investment bank, thinks the economy will actually accelerate to 7 percent.

CICC downplays the negative impact of total borrowing, which has risen to more than 2.5 times China’s GDP and is generally seen as the No. 1 risk factor facing the economy. The investment bank argues that both the state sector and households have more than enough cash on hand should trouble strike. In addition, CICC says, the most indebted sector—corporates—is sitting on cash equivalent to about 40 percent of current debt. That, according to Liang Hong, the company’s chief economist, means that while government reforms to cut debt levels in China are important, they needn’t translate into negative growth.

Another point missed by the Connecticut-set mentality is this: China’s debt is largely self-funded and will remain that way as long as the country hangs on to a healthy current account surplus, according to Michael Spencer, global head of economics at Deutsche Bank AG in Hong Kong. “Hedge funds in New York have been saying for seven years it’s going to be a crisis, but it clearly hasn’t been the case,” he says. “China is not investing New York hedge fund money. It is investing Chinese home savings.”

That’s not to say the China bears don’t have legitimate concerns. The country’s total debt from the government, households, and nonfinancial companies reached 256 percent of GDP in June 2017, already surpassing that of the U.S. (250 percent), according to the Bank for International Settlements. That’s up from 146 percent a decade ago, and it marks a faster pace of debt accumulation than occurred in the U.S. during the period leading to the housing crisis. Even officials in Beijing are taking the possibility of asset-price collapse seriously: Outgoing People’s Bank of China Governor Zhou Xiaochuan in October warned of the risk of a debt-induced Minsky Moment, and Xi has prioritized financial stability through his second term in office.

Confidence in the ability of China’s policymakers to manage the economy wavered in 2015, when an epic stock market crash and bungled exchange rate reform sent global markets into a tailspin. But more than two years on, the clear takeaway from that episode is the need to distinguish market ructions from real economic activity: Economic growth largely held up through that crisis as authorities used levers such as capital controls to stem the fallout.

For all the talk of reform, the central government retains a firm grip on the economy. The heavy fist of the state still often trumps the invisible hand of markets, credit is still channeled from state-owned lenders to state-owned firms, and local governments can still ramp up infrastructure investment at the first whiff of a slowdown. That sort of investment rationale is behind one of Xi’s signature policy initiatives—the Belt and Road initiative that Beijing says will pump $1.3 trillion into roads, ports, and other construction projects designed to connect China to trading partners across Asia and into Europe. While the state and local involvement is a plus for near-term stability, it could also be a tax on the future if capital is misallocated.

Banks are often identified as China’s weakest link. A deep-dive analysis by the International Monetary Fund in 2017 recommended that the nation’s lenders should increase their capital buffers to protect against any sudden economic downturn. Kevin Smith, Denver-based chief executive officer and founder of Crescat Capital LLC, says a banking implosion is inevitable; the only question is when. Smith has held short yuan bets since at least 2014, a position that helped his global macro fund gain 16 percent in 2015 when the PBOC surprised the world with its minidevaluation.

Smith was less fortunate last year when China’s economic recovery and tightening capital controls helped the yuan to rally. His fund lost 23 percent in 2017. The loss cut the fund’s annual return since its 2006 inception to 11 percent, which still outpaced the S&P 500 index’s gain of 8.8 percent during the period. Smith is undaunted. “We remain grounded in our analysis,” he says. “Credit bubbles burst. Ponzis implode. In the end, we believe China will be forced to print trillions of U.S. dollars equivalent of new money to recapitalize its banking system and bail out its depositors.” In that scenario the currency will crash, Smith says, who’s also short on various Chinese equities.

He wasn’t alone in getting the yuan bet wrong last year. Consensus estimates at the start of 2017 forecast the dollar would buy 7.15 yuan by yearend; it ended at 6.50 yuan. Headline economic data don’t tell the story of trends and developments actually taking place on the ground, from the industrial northeast to the high-tech south and the agricultural interior, says Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. And the government’s firm hand on the tiller, he says, needs to be closely watched. “The further away students of China are located, the more easily such nuances get lost, leaving many to focus more on the risks than on the promises of the country’s economic future,” Neumann says.

Because changes across China’s extensive economy tend to be subtle and gradual, it’s often hard to get a feel for the pace of development, according to Mo Ji, Hong Kong-based chief economist for Asia ex-Japan at Amundi Asset Management, who called a bottom to China’s slowdown in late 2015, well before it was a consensus view. She’s been working for the past 13 years with the Nobel laureate economist Joseph Stiglitz on analyzing China’s economy, having first met him when she studied under him for a doctorate at Columbia University. “The further away from China, the more difficult to feel all the real changes,” Mo says.

Stephen Roach may spend a lot of time in Connecticut—he’s a senior fellow at Yale in New Haven—but he’d never be accused of being part of the Connecticut set. A former nonexecutive chairman of Morgan Stanley in Asia, Roach first went to China in 1985 and still travels there four or five times a year. He says there’s a tendency to project the West’s crisis-prone outcomes onto China. “Connecticut-based hedge funds and Washington-based politicians,” he says, “are equally guilty of this long-standing bias.”

Curran is chief Asia economics correspondent in Hong Kong. Xie is a market blogger in New York.


BEIJING (Reuters) – China’s trade machine kicked up a gear in January after stumbling the previous month, with exports and imports both growing much more than expected, pointing to a strong start to the year for global demand.

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FILE PHOTO: Container ship is seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China September 24, 2016. REUTERS/Aly Song/File Photo

Thursday’s robust data, along with last week’s strong manufacturing and service surveys, suggest China’s economy remained resilient at the start of 2018 and may even have picked up some momentum, despite crackdowns on factory pollution and riskier financing that are driving up borrowing costs.

Exports in January rose 11.1 percent from a year earlier, picking up from a 10.9 percent gain in December, official data showed. Analysts had expected growth to cool for a second straight month to 9.6 percent.

Imports surged 36.9 percent, the General Administration of Customs said, the fastest pace since last February and smashing analysts’ forecast of 9.8 percent growth.

China’s import growth had sharply decelerated to 4.5 percent in December, raising fears that its domestic demand was slumping as Beijing forced northern smelters and mills to curtail production to reduce thick winter smog.

Commodities again led the way in January, with China’s crude oil imports hitting a record and iron ore imports at the second highest on record.

The figures left the country with its smallest trade surplus in 11 months at $20.34 billion, compared with December’s $54.69 billion and forecasts for a $54.1 billion surplus in January.

However, data from China in the first two months of the year must always be treated with caution due to business distortions caused by the timing of the long Lunar New Year holidays, which fell in late January 2017 but start in mid-February this year.

Some of the jump in imports may have been due to inventory building ahead of the holidays rather than a pick-up in consumption, though economists said the data was still positive.

“January trade data may be affected by the always changing timing of the Chinese New Year holiday…(but) such strong import data indicates that domestic demand momentum remains healthy going into 2018,” Louis Kuijs, head of Asia economics at Oxford Economics, wrote in a note.

Kuijs expects China’s import growth to slow in coming months due to unfavorable comparisons with high levels last year and an expected slowdown in overall economic activity.

China’s imports surged nearly 16 percent last year, the best since 2011, as a construction boom added to its insatiable demand for raw materials.


China benefited from a global trade boom in 2017, which helped its exports grow at the fastest pace since 2013. The unexpected strength was also one of the key drivers behind the economy’s forecast-beating 6.9 percent expansion last year.

However, while global demand is tipped for another strong year, expectations of growing trade disputes with the United States could weigh on China’s shipments in 2018.

The latest trade data showed China’s goods surplus with the United States, a sore spot in relations between the two nations, narrowed last month, but that is unlikely to appease Washington.

China’s trade surplus with the U.S. was $21.895 billion in January, a customs spokesperson told Reuters, down from $25.55 billion in December.

But its 2017 surplus with the United States was $275.81 billion, topping the previous record in 2015 of $260.8 billion.

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President Donald Trump slapped steep tariffs on imported washing machines and solar panels last month. China is the world’s biggest solar panel producer.

Trump also is considering recommendations on import restrictions for steel and aluminum or other trade sanctions against China over its intellectual property practices.

In response, China’s commerce ministry launched an anti-dumping and anti-subsidy probe into imports of sorghum from the U.S. over the weekend.

The moves have rekindled concerns of a trade war.

“The uncertainty surrounding Sino-US trade ties remains a key potential downside risk in the near term,” said Betty Wang, senior China economist at ANZ in Hong Kong.

Sharp gains in the yuan are also threatening China’s competitiveness, with an official business survey last week suggesting the currency’s appreciation led to a decline in big exporters’ activity last month.

Chinese Yuan Poised for Biggest One-Day Drop Since 2015 Devaluation

February 8, 2018

Slide began about the time new China trade data showed imports grew more than exports in January

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The Chinese yuan dropped 1.1% against the U.S. dollar Thursday, on track for its biggest one-day decline since the Chinese central bank devalued the currency in August 2015.

In recent action, the dollar traded at 6.3287 yuan in the onshore market, putting the Chinese currency on track for a 1.1% loss against the dollar. It fell as much as 1.4% earlier in the session. One dollar had bought 6.2596 yuan at the 4:30 p.m. close of domestic trading Wednesday.

Analysts said it wasn’t immediately clear what sparked the move. The yuan started to slide about 11 a.m. in Asian trading hours. That was about the time China released trade data for January, which showed that Chinese imports grew more than exports last month, leading China’s trade surplus to narrow by more than expected.

As well, the yuan’s strength against the dollar earlier this week had made it an outlier; while it had advanced against the dollar through Wednesday, other global currencies such as the euro and pound had fallen against the greenback.

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The yuan’s drop Thursday eclipsed moves in other major currencies. The euro rose 0.1% against the dollar, while the Japanese yen fell 0.3% against the greenback.

Many fund managers went into the year betting on a stronger yuan, fueled by expectations for further dollar weakness. As the yuan started dropping Thursday, those investors may have been caught off-guard, said Zhou Hao, a Singapore-based economist at Commerzbank AG .

“The market was too one-way and too crowded,” he said.

The pace of the yuan’s rally in recent weeks had surprised many analysts and investors. At its peak this year on Wednesday, it had advanced roughly 4% against the dollar, putting it around its strongest level since China devalued the yuan on Aug. 11, 2015.

Earlier, the Chinese central bank set the dollar’s reference rate at 6.2822 yuan. The currency pair is allowed to trade 2% above and below that level, which is known as the fix.

In the offshore market, where the yuan trades more freely, the yuan fell 0.5% to 6.3485 per dollar.

Write to Saumya Vaishampayan at

U.S. GDP Grew 2.6% at Year End, Extending Strong Stretch — Federal Reserve predicts 2.5% growth again in 2018

January 27, 2018

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U.S. President Donald Trump at the World Economic Forum in Davos, January 26, 2018


By Josh Mitchell
The Wall Street Journal
Updated Jan. 26, 2018 3:32 p.m. ET

Eight years into what has been an unexpectedly slow expansion, the U.S. economy appears to have picked up steam.

Business executives have reported solid quarterly earnings in recent weeks and pointed optimistically to investment and hiring plans for 2018, supported in part by federal tax cuts. Stock prices keep churning higher. And on Friday the Commerce Department reported that U.S. economic output remained on an above-trend path in the final three months of last year.

Gross domestic product—the value of goods and services produced in the U.S.—rose at a 2.6% annual rate in the fourth quarter, the government said. That didn’t match the second and third quarters’ above-3% growth rates, but it exceeded the 2% average that has prevailed since the early 2000s. Output grew 2.5% in 2017 as a whole, the most in three years, and the Federal Reserve predicts 2.5% growth again in 2018.

That puts the economy in unusual territory: not quite booming, but still gaining momentum deep into an expansion. The growth cycle that began in mid-2009 already ranks as the third-longest ever and is set to become the second-longest this spring. Rather than fizzling, the expansion is being spurred on by robust consumer spending and business investment. It isn’t near the vigor of the late 1990s, but that was the last time growth clearly accelerated this deep into an expansion.

“We don’t have a lot of history to guide us here,” said Richard Moody, chief economist of Regions Financial Corp. “It is unusual to see what looks to be a strong acceleration this late in the cycle.”


  • Heard on the Street: Why Consumers Can’t Keep Driving the Economy
  • Fourth-Quarter GDP At a Glance
  • How Hurricanes Hurt and Helped
  • Durable-Goods Orders Rose 2.9% in December
  • U.S. Employers Slowed Pace of Hiring in December
  • Tax Incentive Puts More Robots on Factory Floors

Investors cheered the latest evidence of an economy that won’t quit, driving up the Dow Jones Industrial Average by more than 100 points, or 0.4%, at midday.

President Donald Trump has pledged to return the economy to a growth rate of 3% or more, pinning his agenda on a $1.5 trillion tax cut he signed into law last month, a rollback of environmental, labor, financial and other regulations, and tougher trade positions. By Mr. Trump’s standard, growth didn’t measure up in the fourth quarter, but the pickup that has played out over the past nine months still has given the president something to boast about.

“There has never been a better time to hire, to build, to invest and to grow in the United States,” he said to business and political leaders in Davos, Switzerland Friday. “America is open for business and we are competitive once again.”

While many economists anticipate a further pickup this year, many also say 3% will be difficult to achieve over the long haul given an aging population and meager productivity growth.

Several developments are helping the economy perk up. Among them: Synchronized global economic growth and renewed investment spending by U.S. firms, who had spent years hunkering down. Those factors have converged with low unemployment, tame inflation, low interest rates and a booming stock market to bolster business and household optimism and spending.

Shelving manufacturer B-O-F Corp. of Aurora, Ill., spent about $750,000 to combine two factories into a larger, single plant that opened this year. The company, which builds slanted shelves in cases at grocery and convenience stores, is aiming to boost production capacity by a third with the new plant.

Jamie Knorring, B-O-F’s president, credits the rebound in the housing market with his company’s good fortune, including a fourth quarter that was the company’s best ever.

“When they’re building more houses, they need to build more stores,” he said, adding the company plans additional factory upgrades and equipment purchases this year.

The global upswing is driving sales for Rockwell Automation Inc., the Milwaukee-based maker of factory software and hardware, as companies in a range of sectors look to boost productivity. Rockwell said this week its fiscal first-quarter revenue jumped 7% to $1.6 billion, driven by sales to heavy industry and energy companies.

Through Friday, 26% of S&P 500 companies have reported quarterly results, and out of those 76.69% beat earnings-per-share expectations. The current growth rate for earnings compared with last year is 12.3%.

Firms that earlier in the expansion focused on boosting payrolls while labor was cheap now appear to be renewing investment in facilities and equipment.

Employees perform quality control inspections on 2018 Honda Accord vehicles.Photo: Ty Wright/Bloomberg News

Stronger domestic demand prodded Heartland Produce Co., which sells fresh fruits and vegetables to grocers in the Midwest, to recently add 4,000 square feet to its warehouse in Kenosha, Wis.

“With the economy being stronger and unemployment being low, people have more buying power and they’re spending it at the store,” Heartland President Bill Dietz said in an interview. He said his company might look at opening another facility this year.

Investment in business equipment expanded at an 11.4% annual rate in the fourth quarter after a 10.8% growth rate in the third, the best six-month stretch since a burst of activity in mid-2014, Friday’s economic-output report showed.

While they were investing more, businesses pared back their inventories in the fourth quarter, which helped to reduce output. Inventory rebuilding could boost output in the months to come.

Consumers are driving growth, too. Consumer spending rose at a 3.8% rate in the period, an increase last exceeded in late 2014. Spending on long-lasting items known as durable goods rose at a 14.2% rate, the fastest pace since 2009.

David Alter, 34 years old, spent much of the past decade building his savings and investing in stocks. In December, he bought a car and a second home, in Orlando, Fla., where he just started a new job as a technology manager for a major theme-park company. He said the new job coupled with a big rise in technology stocks he owns gave him the confidence he needed to take on a second mortgage, a fixer-upper for which he just bought a new heating and ventilation system.

“I feel very good on how things are performing,” he said of the economy. “But it does make me worry like when that’s going to stop. It can’t ride up forever.”

There are other reasons for caution. A chunk of the fourth quarter’s growth likely reflected a temporary boost in spending related to a pair of hurricanes that ripped through Texas and Florida last summer. Spending that was halted by the storms—such as restaurant visits by consumers and construction—was simply pushed back into the year’s final stretch. Likewise the storms spurred a temporary boost in spending on repairs and replacement items, like cars.

The global upswing is a two-edged sword for the U.S. Exports are rising, but so are imports. So while consumer spending is on an upswing, many of the goods Americans are buying are being produced abroad. That runs against Mr. Trump’s “America First” agenda. A widening trade deficit subtracted more than a percentage point from growth in the fourth quarter, the Commerce Department said. That came even though the dollar has weakened, a development that should be improving the U.S. trade position by making imports more expensive and exports cheaper.

—Andrew Tangel contributed to this article

Write to Josh Mitchell at

In Global Currency Game, China Is Losing to U.S.

January 26, 2018

Fresh from its battle to defend the yuan last year, China’s central bank is looking at another: how to rein in its recent fast ascent.

Driven by an unexpectedly prolonged softening of the dollar, the Chinese currency has surged to around its strongest level against the greenback since its surprise devaluation in August 2015. The yuan is now on track for its best monthly performance since December 1982, rising 3% against the dollar so far in January.

The yuan’s move is roughly in line with the euro’s 3.9% gain and yen’s 3.4% rise against the dollar thus far in January. The Chinese currency strengthened 0.2% against the dollar Friday, with one dollar buying 6.3227 yuan in recent trade.

Strong YuanThe yuan is poised for its biggest monthlygain in years as the dollar drops broadly.How many Chinese yuan one dollar buysSource: Wind Info
.yuanDec. ’17Jan. ’186.306.356.406.456.506.556.606.65

The yuan’s resurgence is making the currency a policy headache for the Chinese government once again. If it keeps going up, government advisers and analysts say, it could encourage speculative fund flows from overseas and hurt exports amid already rising trade tensions between China and the western world, particularly the U.S.

“This is not what the central bank would like to see,” said Xiao Lisheng, a senior economist at government think tank the Chinese Academy of Social Sciences, referring to the recent fast appreciation of the yuan, also known as renminbi.

“The central bank wants the renminbi to move up and down according to market supply and demand,” he added. “Now it’s basically being held hostage by the dollar index.”

The central bank’s predicament shows how China still has a long way to go before it has a truly market-driven currency. In the past decade, Beijing has moved fitfully to liberalize its rigid currency regime—an effort that culminated in August 2015 when the central bank devalued the yuan by almost 2% and gave market forces more sway over its value.

But as that surprise move backfired, sending global markets reeling, China reinstated its heavy control over the yuan.

Since late 2015, the central bank has embarked on a campaign to keep the yuan from weakening too quickly and to maintain confidence in the world’s second-largest economy. It subjected outbound investments to heavy scrutiny, made bets against the yuan more expensive and burned through $1 trillion in foreign-exchange reserves to support the currency.

Those strategies, helped by a weakening dollar and a rebounding Chinese economy, paid off. The yuan gained 6.7% against the dollar last year according to Wind Info, more than erasing its loss in the previous year.

But along the way, it has remained tightly-controlled and its movement has largely been propelled by how the dollar moves, not by economic fundamentals.

The People’s Bank of China—which sets the yuan’s daily official rate, dubbed the “fixing”—allows the yuan to go up if the dollar weakens and conversely, lets it go down if the greenback strengthens. While predictable, this mechanism encourages one-way bets on the yuan.

A case in point: In anticipation of continued dollar weakness, Chinese exporters have been rushing to convert their dollar earnings into yuan since late last year, reversing a trend of dollar-hoarding.

The current dollar-driven mechanism also means limited options for the central bank.

The PBOC did try to stem the yuan’s rise late last year by reversing a range of measures it had previously put in place to prop it up. That includes scrapping a two-year-old rule that discouraged bets the yuan would fall in value.

Earlier this month, amid the yuan’s resurgence, the central bank tweaked the way it set the yuan’s fixing by halting the use of a so-called “counter-cyclical” factor introduced last May.

The PBOC had since then applied the factor in a way that helped it to curb expectations for the yuan to weaken. Now if the yuan’s continued surge results in abnormal cross-border capital flows, advisers and analysts say, the central bank could re-apply the factor for the purpose of preventing it from rising too fast.

But a step like that would represent a further step back from making the yuan a market-driven currency.

“China has no shortage of policy tools to limit the yuan’s appreciation against the dollar,” said Brad Setser, a senior at the Council on Foreign Relations and a former top U.S. Treasury official. “But a lot of the most powerful tools would require backtracking on key reforms.”

Falling yuan-trading volumes so far in January suggest that the PBOC hasn’t been intervening much to stem the yuan’s rise, said Roland Mieth, emerging-markets portfolio manager at Pacific Investment Management Co. in Singapore.

The average daily trading volume so far this month in China’s domestic currency market is lower than the averages for last year and January 2017, according to central bank data. Intervention can boosting trading volumes, as the central bank instructs Chinese banks to buy or sell the yuan.

Policymakers “tend to react more to a weaker currency than to a stronger currency,” Mr. Mieth said.

Growing trade frictions with the U.S. could also complicate management of the yuan. President Donald Trump had made labeling China a currency manipulator a campaign pledge, but backed down after Beijing’s enormous effort to support the yuan last year. A weaker yuan would make Chinese goods cheaper in the U.S. market.

The lag effects of the yuan’s sharp depreciation in 2016 helped lift Chinese exports last year, with China’s annual trade surplus with the U.S. widening to a record $275.8 billion based on Chinese data.

Going into 2018, the yuan’s surge is starting to rattle Chinese exporters and some officials. But any effort by Beijing to significantly weaken the currency could add fuel to the Trump administration’s case for tougher penalties against made-in-China products.

Sheng Songcheng, a senior adviser at the central bank, said he expects “relative stability” in the yuan’s exchange rate this year.

Many investors expect the yuan to strengthen further against the dollar, largely driven by their belief that the dollar’s broad-based pullback is not done yet. Still, some investors say they’ve started to hold on to their bullish yuan bets for shorter periods of time this year, taking profits when possible given how much the currency has already risen.

“Just because the move has been so strong, we’re happy to take some chips off the table and reduce our overweight,” said Wilfred Wee, a portfolio manager at Investec Asset Management in Singapore.

Investors and analysts, meanwhile, expect market intervention to remain a key part of the PBOC’s arsenal.

“I do expect the PBOC to remain quite involved in the foreign-exchange market,” said JC Sambor, deputy head of emerging-market fixed income at BNP Paribas Asset Management. The yuan “has never been a free floating currency and it will not be any time soon.”

WSJ Editor-in-Chief Gerard Baker talked to U.S. Treasury Secretary Steven Mnuchin about his recent controversial comments about the benefits of a weak dollar, trade policies and tax cuts. They met at the annual World Economic Forum in Davos, Switzerland.

Dollar Hits New Low After Mnuchin Says Weakness Aids Trade

January 24, 2018

Some market participants say an end to the dollar’s drop may not be imminent

Image result for Mnuchin at davos, photos

U.S. Treasury Secretary Steven Mnuchin at Davos

The U.S. dollar hit another three-year low against a basket of leading global currencies, a continuing rout that accelerated Wednesday after U.S. Treasury Secretary Steven Mnuchin said a weaker dollar was good for trade.

The comments added to the greenback’s woes and rippled across global markets, boosting the price of metals and emerging market assets, halting the rally in European and Japanese shares, and pushing currencies like the British pound and euro higher. But the decline also comes as Treasury yields rise to a three-year…


White House Declares Open Season on the Dollar at Davos


By Cecile Gutscher and  John Ainger

 Updated on 
  • Mnuchin casts greenback weakness as good for U.S. trade
  • Treasury secretary echoes policy favored by Snow under Bush
Mnuchin Says Weaker Dollar Helps American Economy

Whether or not the White House choreographed the dollar’s slide to its lowest level in three years, the U.S. administration is certainly providing ammunition for those betting that the greenback will continue to weaken.

The U.S. currency is caught in the rhetorical cross hairs after Treasury Secretary Steven Mnuchin laid out the benefits of a weaker dollar for the American economy at Davos on Wednesday. The comments came days after U.S. President Donald Trump stepped up his protectionist push by slapping of tariffs on solar panels and washing machines. Subsequent remarks by Commerce Secretary Wilbur Ross that Mnuchin has not shifted America’s long-standing strong-dollar policy did little to slow the currency’s depreciation.

Mnuchin’s comments give “a green light to ongoing dollar weakness as far as the market is concerned,” said Shahab Jalinoos, global head of foreign-exchange trading strategy at Credit Suisse Group AG in New York. “As long as these kind of messages are presented it allows the market to imagine that’s what the administration wants to see. It validates the idea that further weakness is possible.”

Losses for the greenback have mounted since Trump’s inauguration a year ago, with the currency weakening against every Group-of-10 peer. That may have more to do with the vagaries of central-bank policy and interest rates and divisions in Washington than it does with Trumponomics. But whatever the reason, the administration’s acceptance of a weak dollar provides additional encouragement for bears.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is “not a concern of ours at all,” he said.

The U.S. currency dropped against all its G-10 peers Wednesday, with the British pound and Swiss franc among the leading gainers. The greenback dipped as much as 1.2 percent against the yen, while the euro added as much as 0.8 percent versus the dollar.

America’s Interest

Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA, said the comments show the White House may be ready to use the currency as part of its trade agenda.

The remarks are “in line with protectionist headlines that we have had recently,” he said. “Given the market’s willingness to blindly sell the dollar, such comments only help.”

While Treasury secretaries since the ’90s have tended to promote a “strong dollar” as being in America’s interest, most have tweaked the message from time to time, albeit perhaps not as aggressively as Mnuchin and sometimes more in error than design.

In 1997, Robert Rubin noted the dollar had been robust “for some time now,” prompting a selloff. In 2001, Paul O’Neill told a German newspaper “we don’t follow, as is often said, a policy of a strong dollar,” before returning to the traditional rhetoric. His successor John Snow was more outspoken, saying in early 2003 that he wasn’t “particularly concerned” by a falling greenback and noting the benefits to exporters.

‘Bad Things Happen’

Mnuchin’s comments also appear to echo the sentiments of his boss. During his first year in office, Trump has expressed his displeasure with a lofty currency, telling the Wall Street Journal last year that “I like a dollar that’s not too strong” and adding that “lots of bad things happen with a strong dollar.”

“The forum and the context are crucial in sending a message that at a minimum, the U.S. views dollar weakness as benign and in the short term, potentially even favorable,” said Alan Ruskin, global co-head of foreign-exchange strategy at Deutsche Bank. “The dollar’s obviously been trading awfully to even what might be good news for some time now. It’s clear its more responsive anyway to negative news at this moment.”

— With assistance by Katherine Greifeld, Simon Kennedy, Brendan Murray, and Benjamin Purvis

Mnuchin hails ‘weaker dollar’ sending greenback plummeting

January 24, 2018


© GETTY IMAGES NORTH AMERICA/AFP | Not the best day for the dollar on foreign exchanges

US Treasury Secretary Steven Mnuchin said Wednesday in Davos that a “weaker dollar” was good for the United States, words that sharply lowered the value of US currency on the markets.

“Obviously a weaker dollar is good for us, it’s good because it has to do with trade and opportunities,” said the top economic official from the US at the World Economic Forum in Davos, Switzerland.

He added, however, that “in the long term, the strength of the dollar is a reflection of the strength of the US economy and is and continues to be the primary currency, in terms of the reserve currency.”

Already weak since Tuesday and the signing by US President Trump of fresh protectionist measures against China and South Korea, the dollar lost even more ground after Mnuchin spoke.

His comments were widely interpreted as a green light from Washington to let the value of the dollar crumble to support US exports that become cheaper.

The dollar fell against other major currencies and even hit its lowest level since December 2014 against the euro on Wednesday around 1300 GMT, to 1.2356 dollars.

Chinese Yuan at Two-Year High Against Dollar

January 15, 2018

Loosening of controls that had propped up the yuan does little in the face of broad dollar weakness

The Chinese yuan hit its strongest level against the faltering U.S. dollar in two years, even as authorities in Beijing loosen controls meant to prop up the yuan.

The People’s Bank of China on Monday morning strengthened the daily fix by the most in three months. In China, the yuan is allowed to move 2% higher or lower than this setting.

The yuan appreciated as much as 0.7% to 6.4168 to the dollar, its strongest since December 2015, before closing up 0.3% at 6.4417, according to official rates from the China Foreign Exchange Trade System. In Hong Kong, where the currency trades freely around the clock, the yuan strengthened 0.3% to 6.4314 to the dollar.

During the past few months, the central bank has loosened policy measures that had supported the yuan—and caused losses for hedge funds that had bet against the currency in anticipation of a sharp economic slowdown in China.

The loosening has done little to stop the appreciation of the yuan against the dollar, given broader market expectations that the recently passed U.S. tax overhaul will swell the U.S. budget deficit and increase yields on Treasury bonds.

Other Asian currencies—including the Korean won, Singapore dollar and Thai baht—have been at or near multiyear highs against the dollar. And the ICE dollar index, which tracks the currency’s strength against a basket of six others, was recently down 0.2% after hitting its lowest levels in more than three years Friday.

The yuan’s strength mostly reflects the dollar’s weakness, said Eric Robertsen, global head of foreign exchange, rates and credit research at Standard Chartered . Given the yuan’s behavior as the PBOC has tweaked policy to allow it to weaken, he said, there is probably “some degree of resistance” keeping it above 6.5 to the dollar.

The most recent tweak came last week, when the central bank said Chinese banks could independently adjust the so-called countercyclical factor introduced in May to steady the yuan. Before that, in September, the PBOC said it would remove reserve requirements on forward transactions involving the yuan—in effect allowing banks to permit some trades by clients that would pay off if the U.S. dollar strengthened.

The market had seen both the countercyclical factor and the reserve requirements as meant to support the yuan, which had been targeted by speculators following twin shocks in 2015: a 2% devaluation and a shift to a more market-determined exchange rate.

The yuan also benefited from a Bundesbank decision to hold a portion of its forex reserves—which ended 2016 at €30 billion ($36.65 billion), mostly in dollars—in yuan. In comparison, its gold reserves came to €140 billion.

The next test for the yuan will be fourth-quarter economic-growth data, due Thursday.

—Tom Fairless contributed to this article.


Dollar Gets the Cold Shoulder in Global Economic Boom

January 14, 2018

Investors are flocking to the yen, euro and other currencies amid promise of quickening growth overseas

The dollar decline is the latest reversal for many investors who expected the currency to rise as the Federal Reserve continues on a yearslong path of gradual interest-rate increases.

The promise of accelerating economic growth overseas is propelling investor funds into the yen, euro and many emerging-market currencies, intensifying a yearlong siege on the U.S. dollar.

The ICE Dollar Index hit its lowest level in more than three years on Friday, extending a nearly 10% decline last year that marked the dollar’s steepest annual fall since 2003. The index tracks the value of the currency vs. a basket of U.S. trading partners.

Investors point to the global economic upswing of recent months and the tentative, accompanying steps by central bankers in Europe and Japan to normalize monetary policy after years of expansive support. While the European Central Bank and the Bank of Japan continue to supply generous support to markets, expectations are building that the world’s biggest economies will soon unwind nearly a decade of postcrisis stimulus measures and eventually join the Federal Reserve in raising interest rates.

That potentially makes the dollar less appealing to investors, who for years piled into U.S. assets anticipating steady growth and accepting low yet still above-market yields. While the Dow industrials have surged to records alongside many global stock markets, major U.S. indexes have lagged behind foreign counterparts in recent months, a sign that markets here have become something of an afterthought following large gains earlier in the decade.

“The dollar narrative is one of a global regime shift,” said Mark McCormick,  North American head of FX strategy at TD Securities. Economies like Europe and Japan “are actually starting to look like places where you would want to invest.”

The dollar decline is the latest reversal for many investors who expected the currency to rise as the Fed continues on a yearslong path of gradual interest-rate increases. Recently, the dollar’s decline has been slow and steady, but the currency’s failure to tick up when news might seem to point toward a faster pace of Fed rate increases or an uptick in inflation has impressed itself upon some investors.

Two recent examples stand out. Robust U.S. consumer-price data on Friday didn’t spur a dollar rally, and rising Treasury yields in recent weeks have had no appreciable effect on the currency, even as they have reignited a longstanding market debate about whether interest rates will eventually return to precrisis levels.

“You are seeing all these positives that should be causing the dollar to strengthen having virtually no effect,” said Said Haidar, head of Haidar Capital Management, which oversees $388 million.

Mr. Haidar is betting that the dollar will decline against the currencies of commodity-producing emerging markets such as Malaysia, Chile and Colombia.

Many analysts believe the dollar’s decline in 2018 is likely to be accelerated by the passage of the U.S. tax bill, which is widely expected to expand the U.S. fiscal deficit. The dollar tends to fall when the deficit expands, reflecting in part the rising need for the nation to sell bonds to close its funding gap.

Goldman Sachs and J.P. Morgan expect U.S. fiscal deficits to rise to $1 trillion, or 5% of GDP, in 2019 from $664 billion in the 2017 fiscal year ended September, or around 3.4% of GDP.

In part, the recent dollar weakness merely reflects the normal wax and wane of market forces.The dollar has rallied nearly 25% against its peers from its lows of 2011, a gain that in the eyes of many analysts has made the U.S. currency more expensive than its underlying fundamentals would dictate.

A modest further decline in the dollar would be welcomed by many large U.S. companies that report substantial earnings overseas. A falling dollar tends to boost exports by making U.S. goods more competitive abroad, a key policy objective of President Donald Trump, and a weaker currency potentially also gives the Federal Reserve more room to raise interest rates.

But some investors worry that an extended drop in the dollar could shake faith in the U.S. economy, elevating concerns about the lofty stock-market valuations and complicating the Fed’s efforts to raise rates. A rapid drop could also spur fears that inflation will rise beyond the moderate pace hoped for by policy makers and investors.

Net bets against the dollar in futures markets shrank to their lowest level in more than a month in December, due in part to expectations that companies will take advantage of a one-time cut for repatriation of earnings and cash held overseas, which was written into the GOP tax overhaul. However, bearish bets on the dollar grew again in recent weeks, as wagers on the euro shot higher.

For investors seeking yield, “there is the most upside in countries like Europe and Japan, where monetary policy is the furthest away from normal,” said Kit Juckes, a strategist at Société Générale. “You don’t want to buy into stories that have largely played themselves out.”

Write to Ira Iosebashvili at

Philippine central bank left red-faced over ‘faceless’ notes

December 28, 2017

Filipino Earla Anne Yehey posted on Facebook photos of 4 pieces of P100 bills without the face of the late President Manuel Roxas on them. (Courtesy Earla Anne Yehey Facebook account)

MANILA: The Philippine central bank said Thursday it accidentally released defective 100-peso bills with the face of a former president left out.

Officials at the Bangko Sentral ng Pilipinas (BSP) made the admission after a woman’s Facebook post showing the defective 100-peso ($1.99) bills she received from an ATM went viral.
Chief among the mistakes on the notes is a blank space where the portrait of former president Manuel Roxas should have been. Two words from the country’s official name were also missing.
BSP managing director Carlyn Pangilinan said the errors were caused by a “glitch” in a printing machine.
“Our quality control was manual before. Now, it is all machines so there are things that slip through,” she told reporters.
Only 33 100-peso bills with the errors have been discovered so far, she added.
Authorities asked people to return the defective bills but conceded that some may want to keep them as potential collector’s items.
This is not the first time the Philippines has seen such errors on currency.
In 2005, a batch of 100-peso bills with then-president Gloria Arroyo’s name misspelled were accidentally put in circulation.
In 2010, currency was issued showing a rare native bird but in the wrong colors and with an incorrect map.