Sunday, December 6, 2015

China's yuan weakens as US rate hike expectations bolster dollar

China's yuan weakens as US rate hike expectations bolster dollar

[SHANGHAI] China's yuan fell against the dollar on Monday after the central bank set a weaker midpoint to reflect dollar strength on rising expectations of a US interest rate hike this month.
"Dollar demand in the market was higher than supply as investors expected the dollar to strengthen further," said a trader at a Chinese commercial bank in Shanghai.
The People's Bank of China (PBOC) set the midpoint rate at 6.3985 per dollar prior to market open, 0.21 per cent weaker than the previous fix 6.3851, the lowest since late August.
The spot market opened at 6.4021 per dollar and was changing hands at 6.4085 at midday, 0.1 per cent weaker than the previous close.
All but one of the primary dealers, brokerages that deal directly with the US Federal Reserve, believe the Fed is going to raise rates at the end of its Dec 16 meeting, according to a Reuters poll.
The dollar index, which stood at 98.441 by midday on Monday, has recovered since late last week after upbeat payrolls data bolstered the case for an imminent hike in US interest rates.
On expectations of US monetary tightening, the yuan closed sharply down against the dollar on Friday, at its weakest since late August.
The yuan has also been weighed down by the apparent lack of support from the PBOC lately, after the Chinese currency was admitted into the International Monetary Fund's benchmark reserve basket.
"We cannot tell what is the central bank's acceptable range for the yuan," said a trader at a foreign bank in Shanghai.
The IMF announced on Nov 30 that it would include the yuan in its Special Drawing Rights (SDR) basket, an important milestone in China's integration into global finances.
Hours after the IMF announcement, China's central bank said there was no basis for the yuan to continue to devalue, and it would keep the currency basically stable as it would intervene in the market when there were abnormal international payments or capital moves.
Offshore yuan was trading 0.77 per cent weaker than the onshore spot at 6.4584 per dollar by midday.
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Obama reassures nation faced with an evolving terror threat

Obama reassures nation faced with an evolving terror threat

[WASHINGTON] President Barack Obama sought to soothe a nation shaken by the terrorist attack in a California town with assurances the US is hardening its defenses that were tempered by an acknowledgment that the threat has evolved into a new phase.
Delivering an address from the Oval Office for only the third time in his presidency, Mr Obama said on Sunday the shooting rampage in San Bernardino was an act of terrorism carried out by a Muslim couple radicalised by extremist ideology though not necessarily directed by a foreign group. He warned against discriminating against Muslim-Americans, saying that would play into the hands of terrorist organizations like Islamic State.
"The threat from terrorism is real, but we will overcome it," Mr Obama said. "We will destroy ISIL and any other organization that tries to harm us." The president decided on Friday to give the address after the FBI said it was treating the killing of 14 people and wounding of 21 others as a terrorist attack. Following on the heels of the deadly strike by Islamic State terrorists in Paris three weeks ago, the mass shooting in California raised public alarm and revived criticism of Mr Obama from political opponents and even some allies that he hasn't clearly articulated a strategy to combat the extremist group.
"We constantly examine the strategy to determine when additional steps are needed to get the job done," Mr Obama said. He offered no new plans either for the fight on Islamic State territory or at home and instead reviewed what the US has done so far and repeated proposals to make it more difficult for a would-be terrorist to get firearms.
Mr Obama laid out actions being taken to intensify the military campaign against Islamic State in Syria and Iraq, including stepped-up airstrikes against oil infrastructure that the group partially relies on for funding. He also cited the addition of France and UK to the coalition conducting bombing raids on Islamic State in Syria and greater intelligence cooperation with European governments.
"This is our strategy to destroy ISIL," Mr Obama said. "It is designed and supported by our military commanders and counterterrorism experts, together with 65 countries that have joined an American-led coalition."
To his critics, Mr Obama's 13-minute address was too little and too late.
"President Obama offered no changes to his reactive, indirect, and incremental strategy," Senate Armed Services Committee Chairman John McCain, an Arizona Republican, said in a statement.
"He continues to assume that time is on our side. It is not."
Republican National Committee Chairman Reince Priebus used a statement to criticize both Mr Obama and former Secretary of State Hillary Clinton, the front-runner for the Democratic presidential nomination in 2016.
"The attacks in San Bernardino should serve as a wake-up call for Obama and Clinton that the way to victory is not through the status quo but refocusing our efforts to defeat ISIS," Mr Priebus said.
Mr Obama touched on two areas that have generated much debate in the presidential campaign: gun control and treatment of Muslim-Americans.
He repeated calls to deny gun purchases to anyone on the government's no-fly list, which the Republican-controlled Congress has rejected. And he also said the US should make it harder for anyone to buy military-style assault weapons, which Congress previously has defeated.
Mr Obama also said that the battle against terrorism cannot be fought by targeting law-abiding Muslims in the US At home,Mr Obama called on the Muslim-American community to work with law enforcement to prevent and identify radicalisation as he warned against xenophobia that targets Muslims broadly.
"Muslim Americans are our friends, neighbors, our co-workers, our sports heroes, and yes, they are our men and women in uniform," Mr Obama said. "We have to remember that."
Law enforcement officials said the San Bernardino killers, Syed Rizwan Farook, a US citizen, and Tashfeen Malik, his Pakistani wife, appear to have become radicalised in recent months or years, though the exact evolution of their extremist views remains a mystery. Agents are combing through the couple's phone records, computers and phones seeking clues as to what happened and who else they may have been working with.
Malik posted a pledge of allegiance to the leader of Islamic State on a Facebook page she controlled under an alias at about the time of the attack, law enforcement authorities said.
The White House was forced to correct Mr Obama's statement that Malik, the female shooter, entered the country through the visa waiver program that has been targeted by the administration as a security vulnerability. Pakistan, where Malik is from, does not participate in the waiver program, which Obama has ordered the Department of Homeland Security and Department of State to review. Malik entered the US on a so-called "fiancee visa." Mr Obama said investigators to date have not found evidence that the couple was working with a broader network in the US or that they coordinated their efforts with Islamic State overseas.
James McJunkin, a former top counter-terrorism agent at the FBI, said homegrown extremists are difficult to uncover and pose a unique challenge for law enforcement and intelligence officials.
"They are living inside the community and they are doing this in the privacy of their homes and who, despite popular belief, are not being monitored by the government," Mr McJunkin said in an interview.
"Detection becomes the issue then," Mr McJunkin said. "In traditional terrorism, you are also relying on at third party to provide the training and flashpoint. You have a greater likelihood of more frequent communications with people who are organizing the activity and therefore you have higher likelihood of the FBI detecting them before they go active."
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Obama urges tech, law enforcement to address social media used for terrorist plots

Obama urges tech, law enforcement to address social media used for terrorist plots

[WASHINGTON] The White House is urging Silicon Valley to help address the threat posed by militant groups by restricting the use of social media for planning and promoting violence, a senior administration official said on Sunday.
Last week's mass shooting in California has moved cyber defense against extremists to center stage in Washington.
In coming days, the White House will talk to companies in the tech sector about developing a "clearer understanding of when we believe social media is being used actively and operationally to promote terrorism," said the official, speaking on background.
President Barack Obama sees the need for the sector to work with law enforcement when the use of social media "crosses the line" from expressing views "into active terrorist plotting," the official said. "That is a deeply concerning line that we believe has to be addressed. There are cases where we believe that individuals should not have access to social media for that purpose," the official said.
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Asset managers see sovereign wealth funds withdraw US$19b: FT

Asset managers see sovereign wealth funds withdraw US$19b: FT

[RIYADH] Persian Gulf sovereign wealth funds have withdrawn money from asset managers at a record rate this year as falling oil prices have left gulf economies scrambling to inject cash into their economies, according to a Financial Times report published on Sunday.
Data provider eVestment said state investors have removed at least US$19 billion from funds under management, sparking both concerns that profits for investment managers will suffer, as well as further losses to funds under management, the report said.
Countries that depend on the sale of oil and gas, which has seen a price drop of more than 50 per cent since June 2014, have been forced to raid their investment portfolios the report said.
The report highlighted asset managers Aberdeen Asset Management, Northern Trust, Franklin Resources among others have each admitted that government clients have withdrawn funds this year.
The report cited Morgan Stanley as saying sovereign funds have also pulled money from Invesco as well as the asset management units of several US banks including Goldman Sachs Group, Bank of New York Mellon Corp, State Street Corp, and JPMorgan Chase & Co.
Representatives for Aberdeen, Northern Trust, Franklin Resources, Invesco, State Street, JPMorgan, and Goldman did not immediately return requests for comment after hours on Sunday.
A representative for BNY Mellon declined to comment.
The Saudi Arabian Monetary Agency is one of the sovereign wealth funds that has made withdrawals from its asset managers the report said, adding that the fund, with more than US$650 billion in assets has withdrawn around US$70 billion.
The monetary agency did not respond to a request for comment.
REUTERS

Global investors venture into China bonds after IMF boost

Global investors venture into China bonds after IMF boost   

[HONG KONG] Confirmation that the International Monetary Fund will include the renminbi in its basket of reserve currencies has added to hopes for further internationalisation of China's bond market, but investors say they are not going to jump in headfirst while regulation remains heavy and the currency's direction remains unclear.
Global central banks are expected to add more renminbi assets to their reserves after the IMF announced last week that it will include the renminbi as the fifth world reserve currency in its Special Drawing Rights (SDR). The so-called redback will have a 10.9 per cent weighting in the basket, the third highest after the US dollar and euro.
The move had little immediate impact on the currency or on markets, but is set to drive more global investors to renminbi bonds in the long run. "Once the Chinese fixed income market opens up, it will be very difficult for global investors to ignore the market. It will change the market structure for the Asian and global fixed income market," said Neeraj Seth, head of Asian credit at BlackRock.
The first movers are likely to be central banks that have yet to join 70 of their peers already deploying their foreign reserves into renminbi-denominated debt, raising the proportion of global reserves held in RMB from around 1.4 per cent, as estimated by the People's Bank of China.
Days before the IMF's announcement, a G10 central bank began investing in Chinese bonds for the first time, according to sources familiar with the matter. Philippine central bank governor Amando Tetangco told reporters last week it may increase renminbi assets to diversify its foreign exchange reserves. "We're going into the next phase where a vast majority, if not all the central banks around the world with investable reserve assets are going to be looking to take exposure to the RMB," said Karby Leggett, Asia head of public sector and development organisations at Standard Chartered. "It's really just a question of pace and speed and timing." In the short-term, the impact is expected to be limited because net inflows will be too small to move the 40 trillion yuan (S$8.8 trillion) Chinese onshore bond market, the world's second-largest after the US.
Even if the proportion of global reserves held in RMB reaches 4 per cent, similar to those currently held in yen, potential inflows would amount to US$210 billion, which is still not significant enough to have a material impact on Chinese Government Bond (CGB) yields or drive the trend of the remminbi, according to Frances Cheung, a rates strategist at Societe Generale.
But the IMF's inclusion marks a symbolic shift for central banks, who will be making long-term adjustments to raise their holdings of renminbi-denominated bonds despite concerns about Chinese growth and tight onshore yields, as well as the weak outlook for the renminbi against the dollar.
"We don't expect that the changed views on RMB appreciation will fundamentally influence the decision-making process for central banks regarding their interest in deploying reserve assets into China," said Leggett. "That decision is not driven by the return they get on the assets they hold, but rather by a far more fundamental and strategic consideration around how they best protect the nation's currency reserves. This will lead to an enormous shift in the global currency landscape as central banks recalibrate their balance sheets."
Fund managers cautious Fund managers appear less likely to mark the renminbi's updated status by increasing their bond holdings through qualified foreign institutional investor and renminbi qualified foreign institutional investor quotas. Unlike central banks, who have a fundamental reason to shift assets in renminbi, they are concerned that the currency could depreciate further.
"For us, China has been a great allocation and it performed well, but as valuations in other markets now sort of have improved because of the weakness we have seen in both the currency space and bond space, to some degree, we are likely to rotate a little bit of our positions to these markets and, to some degree, some of that may come out of China," said Kenneth Akintewe, senior investment manager in Asian fixed income with Aberdeen Asset Management. "We will be maintaining exposure to the onshore market, and we might see some reduction in exposure in the offshore CNH market," Akintewe said. Aberdeen has a QFII quota of US$255 million and a RQFII quota of 600 million renminbi.
Concerns over credit fundamentals have also deterred foreign fund managers from getting involved in renminbi corporate debt. "Sometimes, trading desks of (foreign institutional investors) wanted to buy Chinese corporate credits, but their risk control departments did not allow it," said a Chinese trader who deals with overseas clients.
According to data provider Chinabond, by the end of October, the position of overseas investors (both central bank and fund managers) in corporate bonds stood at only 58.4 billion renminbi, compared to 487 billion renminbi in treasuries and policy bank bonds.
Despite reservations among foreign asset managers, they will inevitably have to increase exposure to China's bond market. "In the longer term, in addition to sovereign bonds and policy banks bonds, two other areas will be very important to focus on: first, a proper corporate credit market, and second, a municipal equivalent market," said Seth at BlackRock, which has a QFII quota of $1.25 billion and a RQFII quota of 640 million renminbi.
Diversification In the near term, central banks who have been investing in China and who are new to the market are largely expected to focus on buying CGBs and policy-bank bonds both onshore and offshore.
The Chinese government is greeting this heightened interest by facilitating the investment process. The People's Bank of China last month registered seven public institutions, including the central banks from Hong Kong, Australia and Hungary, to enter China's interbank foreign exchange market, removing limits on the size of investments.
But as China continues to relax restrictions, and foreign investors become more comfortable, offshore interest is expected to shift away from the traditional CGB and policy-bank bonds to other types of debt, such as Dim Sum and Panda bonds.
A day after the IMF announcement, a Hong Kong-based banker said he received queries from European and African central banks on Dim Sum bonds, which are still easier to invest in than the nascent Panda bond market.
In the coming years, bankers and investors even predict central bank appetite could even trickle into local government debt.
REUTERS

Saturday, December 5, 2015

Social media step up battle against militant propaganda

Social media step up battle against militant propaganda

[SAN FRANCISCO] Facebook, Google and Twitter are stepping up efforts to combat online propaganda and recruiting by Islamic militants, but the Internet companies are doing it quietly to avoid the perception that they are helping the authorities police the Web.
On Friday, Facebook Inc said it took down a profile that the company believed belonged to San Bernardino shooter Tashfeen Malik, who with her husband is accused of killing 14 people in a mass shooting that the FBI is investigating as an "act of terrorism." Just a day earlier, the French prime minister and European Commission officials met separately with Facebook, Google, Twitter Inc and other companies to demand faster action on what the commission called "online terrorism incitement and hate speech."
The Internet companies described their policies as straightforward: they ban certain types of content in accordance with their own terms of service, and require court orders to remove or block anything beyond that. Anyone can report, or flag, content for review and possible removal.
But the truth is far more subtle and complicated. According to former employees, Facebook, Google and Twitter all worry that if they are public about their true level of cooperation with Western law enforcement agencies, they will face endless demands for similar action from countries around the world.
They also fret about being perceived by consumers as being tools of the government. Worse, if the companies spell out exactly how their screening works, they run the risk that technologically savvy militants will learn more about how to beat their systems. "If they knew what magic sauce went into pushing content into the newsfeed, spammers or whomever would take advantage of that," said a security expert who had worked at both Facebook and Twitter, who asked not to be identified because of the sensitivity of the issue.
One of the most significant yet least understood aspects of the propaganda issue is the range of ways in which social media companies deal with government officials.
Facebook, Google and Twitter say they do not treat government complaints differently from citizen complaints, unless the government obtains a court order. The trio are among a growing number that publish regular transparency reports summarising the number of formal requests from officials about content on their sites.
But there are workarounds, according to former employees, activists and government officials.
A key one is for officials or their allies to complain that a threat, hate speech or celebration of violence violates the company's terms of service, rather than any law. Such content can be taken down within hours or minutes, and without the paper trail that would go with a court order. "It is commonplace for federal authorities to directly contact Twitter and ask for assistance, rather than going through formal channels," said an activist who has helped get numerous accounts disabled.
In the San Bernardino case, Facebook said it took down Malik's profile, established under an alias, for violating its community standards, which prohibit praise or promotion of "acts of terror". The spokesman said there was pro-Islamic State content on the page but declined to elaborate.
Some well-organised online activists have also had success getting social media sites to remove content.
A French-speaking activist using the Twitter alias NageAnon said he helped get rid of thousands of YouTube videos by spreading links of clear cases of policy violations and enlisting other volunteers to report them. "The more it gets reported, the more it will get reviewed quickly and treated as an urgent case," he said in a Twitter message.
A person familiar with YouTube's operations said that company officials tend to quickly review videos that generate a high number of complaints relative to the number of views.
Relying on numbers can lead to other kinds of problems.
Facebook suspended or restricted the accounts of many pro-Western Ukrainians after they were accused of hate speech by multiple Russian-speaking users in what appeared to be a coordinated campaign, said former Facebook security staffer Nick Bilogorskiy, a Ukrainian immigrant who helped some of those accounts win appeals. He said the complaints have leveled off.
A similar campaign attributed to Vietnamese officials at least temporarily blocked content by government critics, activists said.
Facebook declined to discuss these cases.
What law enforcement, politicians and some activists would really like is for Internet companies to stop banned content from being shared in the first place. But that would pose a tremendous technological challenge, as well as an enormous policy shift, former executives said.
Some child pornography can be blocked because the technology companies have access to a database that identifies previously known images. A similar type of system is in place for copyrighted music.
There is no database for videos of violent acts, and the same footage that might violate a social network's terms of service if uploaded by an anonymous militant might pass if it were part of a news broadcast.
Nicole Wong, who previously served as the White House's deputy chief technology officer, said tech companies would be reluctant to create a database of jihadists videos, even if it could be kept current enough to be relevant, for fear that repressive governments would demand such set-ups to pre-screen any content they do not like. "Technology companies are rightfully cautious because they are global players, and if they build it for one purpose they don't get to say it can't be used for anything else," said Ms Wong, a former Twitter and Google legal executive. "If you build it, they will come - it will also be used in China to stop dissidents."
There have been some formal policy changes. Twitter revised its abuse policy to ban indirect threats of violence, in addition to direct threats, and has dramatically improved its speed for handling abuse requests, a spokesman said. "Across the board we respond to requests more quickly, and it's safe to say government requests are in that bunch," the spokesman said.
Facebook said it banned this year any content praising terrorists.
Google's YouTube has expanded a little-known "Trusted Flagger" program, allowing groups ranging from a British anti-terror police unit to the Simon Wiesenthal Center, a human rights organisation, to flag large numbers of videos as problematic and get immediate action.
A Google spokesman declined to say how many trusted flaggers there were, but said the vast majority were individuals chosen based on their past accuracy in identifying content that violated YouTube's policies. No US government agencies were part of the program, though some non-profit US entities have joined in the past year, she said. "There's no Wizard of Oz syndrome. We send stuff in and we get an answer," said Rabbi Abraham Cooper, head of the Wiesenthal Center's Digital Terrorism and Hate project.
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