Friday, August 14, 2015

China's yuan devaluation to pressure commodities: Goldman

China's yuan devaluation to pressure commodities: Goldman


[BEIJING] China's yuan devaluation signals that global economic conditions have taken a turn for the worse, creating more downward pressure to come for commodity markets, Goldman Sachs said. "The CNY (yuan) devaluation has been important for commodity markets and we believe it signals that global macro conditions have changed," Goldman Sachs said in a note to clients. "Even China has now joined the negative feedback loop that is running between commodity deflation, growth and deleveraging trends... (and) we believe the net commodity market effects are bearish," it said.
The bank said it believes the key areas of focus for commodity markets now include how dollar-yuan and the yuan-traded weighted index will evolve. "A weaker USD/CNY could see margins for Chinese commodity exporters improve and allow producers to begin to play catch up to other emerging markets producers, which have already been benefiting from foreign exchange depreciation," Goldman said.
On the other hand, with the trade-weighted yuan remaining flat, there is no strong argument that the export-led manufacturing sector would see similarly improving competitiveness, the bank said. "Global manufacturing tends to be more spread out than commodity supply, and spans to more flexible exchange rate regime economies, giving purchasers more flexibility to compare prices and switch suppliers." Aluminum and steel prices face particular downward pressure, the bank said. "This (weaker USD/CNY) could buoy supply for commodities which have large exports, a high proportion of CNY costs, and where producers are not already too far above marginal cost on global supply curves (predominantly aluminum, and to a lesser extent steel)." Despite the fact that foreign exchange policy could affect commodity markets, Goldman said it continues to believe that China's domestic policy support, both fiscal and monetary, is also critically important to commodity markets.
Infrastructure investment currently accounts for around 25 per cent of steel and 15 per cent of copper demand in China, the bank said. "This demand has low sensitivity to yuan denominated prices and hence depreciation likely has limited effects. But removal of fiscal support and a more rapid deleveraging would result in a rapid decline in steel and copper demand."


REUTERS

MAS may have more reason to tweak policy after yuan's drop: poll

MAS may have more reason to tweak policy after yuan's drop: poll


[SINGAPORE] Singapore's central bank may have more reason to consider adjusting monetary policy settings after China's surprise devaluation triggered a fall in the Singapore dollar, a Reuters poll showed.
Six of 11 analysts in the survey, conducted between Tuesday and Friday, said yuan devaluation could add to the case for the Monetary Authority of Singapore (MAS) to tweak its policy settings.
To be sure, none of the 11 shifted their views toward monetary easing based solely on the Aug 11 yuan devaluation.
The three analysts who expect MAS policy easing in coming months as their base case all held such views even before China's surprise action, which fanned concerns about the health of the world's second-largest economy.



Hirofumi Suzuki, an economist for Sumitomo Mitsui Banking Corp, had previously expected the MAS to ease in October.
The yuan devaluation, however, "will reinforce incentives for the MAS to ease its monetary policy in an inter-meeting period," he said, adding that such easing may even happen this month.
The Singapore dollar closely tracks the yuan because traders think the yuan is included in the undisclosed, trade-weighted currency basket used by the MAS to manage monetary policy.
Some analysts say the Singapore dollar's nominal effective exchange rate (NEER) probably fell to around the bottom of the policy band during the week.
Analysts at Morgan Stanley said yuan devaluation poses risks for MAS policy, adding that a case could be made for lowering the mid-point of the policy band. "While this is not our base case, with further depreciation pressure on the SGD, the MAS would either have to defend the band or allow a one-off adjustment in the band," they said in a research note.
Singapore's monetary policy is focused on the exchange rate rather than interest rates due to the trade-dependent nature of its economy.
The MAS eased policy in January in an off-cycle policy decision. Its next scheduled review is in October.
Another uncertainty is whether spillover effects from a weaker yuan will add to disinflationary pressures in Singapore. Core inflation in June was 0.2 per cent year-on-year, having hit a five-year low of 0.1 per cent in May. "The immediate concern from the CNY devaluation is the lower oil prices and how it will affect Singapore's already low core inflation," said Philip Wee, senior currency economist for DBS Bank, adding that DBS analysts are reviewing their forecast for the MAS to keep policy steady in October.
Singapore's central bank said on Wednesday that its current monetary policy remains appropriate, adding that the Singapore dollar remains within its policy band despite increased market volatility due to China's currency devaluation.
REUTERS

Economists trim Q3, Q4 growth forecasts: Philly Fed survey

Economists trim Q3, Q4 growth forecasts: Philly Fed survey


[NEW YORK] Economists dialed back their forecasts for US economic growth in the third and fourth quarter, but bumped up their growth forecast for the first quarter of 2016, according to the Philadelphia Federal Reserve's quarterly survey released on Friday.
They made similar downward adjustments on their outlook on domestic hiring, while they stuck to their view on inflation, which they said would remain tame in the foreseeable future.
Economists see the economy growing at 2.7 per cent and 2.8 per cent in the current quarter and fourth quarter, respectively. This compared with median forecasts of 3.1 per cent and 2.9 per cent in the previous survey in May.
For the first three months of 2016, they projected US gross domestic product will increase by 2.8 per cent, higher than the 2.4 per cent rise in the previous survey.



On annual basis, the 42 forecasters in the latest Philadelphia Fed survey pared their GDP forecast for 2015 to 2.3 per cent from 2.4 per cent in the prior survey. They kept to their median outlook for 2016 at 2.8 per cent.
As with their GDP outlook, the analysts revised down their view on jobs growth in the second half of 2015.
They saw US employers adding 222,600 workers a month in the third quarter, down from 223,300 in the prior survey. They projected a monthly pace of 220,400 jobs gain in the final quarter of 2015, slower than the 223,000 pace in the survey in May.
They upgraded their forecast on hiring in the first quarter of 2016 to 185,100 a month from a prior estimate of 177,000 a month.
The ongoing payrolls gains led forecasters to trim their view on the unemployment rate in 2015 to 5.3 per cent, down from 5.4 per cent in the May survey.
Forecasters saw very modest rise in inflation in the coming quarters. They forecast the consumer price index rising 0.8 per cent in 2015, up slightly from the 0.7 per cent increase in the May survey.
The core rate on personal consumption expenditure, the Federal Reserve's preferred inflation gauge, was expected to rise by 1.5 per cent in 2015, up from 1.4 per cent in prior survey.
The forecasters expected the core PCE rising to 1.8 per cent in 2016 and 1.9 per cent in 2017.
REUTERS

Singapore says it's watching housing market amid 'correction'

Singapore says it's watching housing market amid 'correction'   

[SINGAPORE] Singapore is closely watching the domestic housing market that's in a correction phase amid the longest decline in 13 years, according to Finance Minister Tharman Shanmugaratnam.
The government has sought to temper the market after home prices experienced five to six years of a "sharp up-cycle," he said at an Economic Society of Singapore event on Friday. Residential-property sales slumped 42 per cent in June from May to the lowest level this year, official data last month showed.
"We went about it in a very determined way in the past four years," Shanmugaratnam said of measures to cool prices. "We've succeeded in tempering the market, it's now in a phase of correction. But we're still watching it very closely."
Singapore home prices have fallen for seven consecutive quarters through June as tighter mortgage curbs cooled demand in Asia's second-most expensive housing market. The ruling People's Action Party is preparing for general elections that are expected to be called soon.
"Housing is critical, a unique part of the Singapore story," said Shanmugaratnam, who's also deputy prime minister. "The Asian markets always go through these cycles in the property market, and you've got to do something to temper it."
The government started introducing residential-property curbs in 2009. Measures to combat low interest rates, which drew demand from foreign buyers, have accelerated since to include a cap on debt repayment at 60 per cent of a borrower's monthly income and higher stamp duties on home purchases.
BLOOMBERG

China's yuan posts biggest weekly loss on record

China's yuan posts biggest weekly loss on record


[HONG KONG] China's yuan held steady against the dollar on Friday, but posted its biggest weekly loss on record due to the central bank's surprise move to devalue its currency.
The People's Bank of China (PBOC) set the midpoint rate at 6.3975 per dollar prior to market open, firmer than the previous day's closing quote 6.399.
The spot market closed at 6.3918 per dollar, 72 pips away from the previous close and 0.09 per cent away from the midpoint. The yuan fell by 2.9 per cent for the week.
The yuan fell for three consecutive days and had repeatedly touched fresh four-year lows since Tuesday, when the PBOC surprised the market by devaluing the yuan by nearly 2 per cent. "We believe that yuan may reach new equilibrium at around 6.4-6.5 levels, but short term volatility may remain higher," said Tan Suanjin, a portfolio manager at BlackRock.


Some banks revised down their forecast for the yuan to reach 6.5-6.6 by the end of the year. A Reuters poll conducted among 23 analysts showed that the yuan would fall to 6.45 in the next 12 months.
The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day.
The offshore yuan was trading 0.81 per cent away from the onshore spot at 6.444 per dollar.
REUTERS

China battles fires, contamination at chemical blast site

China battles fires, contamination at chemical blast site     


[TIANJIN] Chinese authorities struggled Friday to extinguish fires and identify dangerous chemicals at a devastated industrial site, two days after giant explosions killed dozens and left residents in fear of being cloaked in a toxic cloud.
Officials in the northern port city of Tianjin, where the blasts killed at least 56 people and injured more than 700, told a news conference they did not yet know what materials were at the hazardous goods storage facility that exploded, or the cause of the blast.
But Chinese media and environment group Greenpeace warned a host of potentially extremely dangerous chemicals may have been stored there.
At least 700 tonnes of sodium cyanide were at the site, along with other dangerous substances, and the poisonous chemical had been detected in nearby drains, the Beijing News initially reported.



But the report was no longer available on the newspaper's website on Friday, giving rise to suspicions that the Chinese government was clamping down on sensitive information relating to the tragedy.
The official Xinhua news agency said a team of 217 nuclear and biochemical materials specialists from the Chinese military had travelled to Tianjin to inspect the site.
Xinhua cited local authorities for the latest rise in the death toll to 56, which it said included 21 firemen.
The agency added that 721 people had been hospitalised, 25 of whom were in critical condition.
Dozens of people were still missing but there was a rare moment to cheer on Friday morning when rescue workers pulled a 19-year-old firefighter from the rubble.
However up to 1,000 firefighters were still struggling to extinguish blazes at the site, with smoke billowing from three areas, adding to uncertainty over whether more chemicals may be leaking.
Some police wore no protective clothing, while others had full-face gas masks, although an environmental expert told an official press conference that toxic gas indicators were within normal ranges and the air "should be safe for residents to breathe".
At a nearby office building, security guard Liu Zongguang, 50, wore a cheap surgical mask.
"I'm wearing this mask because I saw some police wearing them, but I also saw some without masks, I don't really know what to do," Mr Liu said.
"I'm really scared, but I don't even know what to be scared of, the government hasn't said anything, nothing about what we should do to keep our families safe from the chemicals." Greenpeace warned on Thursday that rain could transfer airborne chemicals into water systems.
The campaign group said it was "critical" that authorities monitored the situation closely and identified what substances were being released into the air.
Tianjin work safety official Gao Huaiyou told reporters that authorities did not know which of the many dangerous substances the company was authorised to store were on the site at the time.
As a trans-shipment facility, items were normally only kept for brief periods and "the types and amount of the dangerous materials are not fixed", he said.
The company's own records were damaged in the blast, he added, and information from its executives was unreliable as it did not match its customs filings.
The deputy director of the Binhai New Area government, where the blast happened said that 17,000 families, 1,700 industrial enterprises and 675 business had been affected, but did not provide details.
Online commentators expressed fury at authorities, who are regularly accused after disasters of cover-ups.
"Please be honest and say what you know. Don't hide the truth!" one poster urged on social media.
Another said: "Every time when disaster happens, state media always spread heroic acts. In the end, people are touched by these stories. Then nobody asks the cause of the accident to explore the truth." The People's Daily, the official mouthpiece of China's ruling Communist Party, said that the facility's construction "clearly violated" safety rules.
Under Chinese regulations, warehouses stocking dangerous materials must be at least one kilometre (0.6 miles) away from surrounding public buildings and main roads, it said, but there were two residential compounds and several main roads within that distance.
Two hospitals, a convention centre, several residential compounds and a football pitch were also nearby, it said.
"The warehouse should not have passed the environment assessment under normal circumstances," the paper quoted an unnamed environmental expert as saying.
Residents fearing pollution from proposed or already-built industrial plants in China regularly protest about local authorities being prepared to prioritise profits over safety.
In Tianjin, taxi driver Li Shiwen, 53, expressed familiar sentiments.
"There shouldn't be reckless development of these type of dangerous chemicals so close to where people live," Li said.
"There's always short-term thinking in China, looking for a quick solution," he added.
AFP

China securities regulator says market forces to play bigger role

China securities regulator says market forces to play bigger role


[SHANGHAI] China's securities regulator said on Friday that the government will allow market forces to play a bigger role in determining stock prices as the market gradually shifts back to normal conditions.
However, the China Securities Regulatory Commission (CSRC) told a news conference in Beijing that state margin lender China Securities Finance Corp's role in stabilising the market won't change for the next few years.
REUTERS

Japan PM apologetic over WWII, but says next generation not obliged

Japan PM apologetic over WWII, but says next generation not obliged


[TOKYO] Japanese Prime Minister Shinzo Abe expressed deep remorse Friday over World War II and said previous national apologies were unshakeable, but emphasised future generations should not have to keep saying sorry.
In a closely watched speech just ahead of the 70th anniversary of the end of WWII, the nationalist premier appeared to tread a fine line between regret over Japanese wartime aggression while also focusing on what his pacifist country had done since the end of the conflict.
"Japan has repeatedly expressed feelings of deep remorse and heartfelt apology for its actions during the war.... we have consistently devoted ourselves to the peace and prosperity of the region since the end of the war," Abe said.
"Such position(s) articulated by the previous cabinets will remain unshakable into the future." When speaking about China, Abe referred to "unbearable sufferings caused by the Japanese military".


But he added later that future generations of Japanese should not have to continually apologise.
"We must not let our children, grandchildren and even further generations to come, who have nothing to do with that war, be predestined to apologise," he said.
Japan's wartime history has come under a renewed focus since Abe swept to power in late 2012.
The 60-year-old has been sharply criticised by some for playing down Japan's past and trying to expand the role of the military.
AFP

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