Singapore interest rates continue to rise as worries over China persist

By

Siow Li Senlisen@sph.com.sg@SiowLiSenBT

Singapore's key interest rates continue to rise to levels last seen in 2008 as worries over China's woes persist. 

PHOTO: SPH

JAN 13, 20166:08 PM

SINGAPORE'S key interest rates continue to rise to levels last seen in 2008 as worries over China's woes persist.

The benchmark three-month Singapore interbank offered rate (Sibor), typically used to price home loans, rose for the fourth consecutive day to 1.25200 per cent on Wednesday; it was 1.19125 per cent on Jan 7 and 1.18513 per cent on Dec 31.

The three-month swap offer rate (SOR), mainly used to price commercial loans, rose to 1.75581 per cent on Tuesday, up 0.03083. It was 1.70064 per cent on Dec 31.

Worries about how closely Singapore's economy is intertwined with China is weighing on the Sing dollar and putting pressure on the Sibor and SOR.

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It means the Sing dollar, which has lost 1.8 per cent since the beginning of the year, is expected to continue to weaken and interest rates will rise to compensate for holding on to a falling SGD. It stood at 1.4349 against one US dollar as at 4.05pm.

Commenting on the SOR, United Overseas Bank rate strategist Victor Yong said: "Persistent negative bias on SGD currency remains and episodes like China risk at the start of the year will exacerbate the underlying conditions and lead to SOR spikes."

The yuan has lost 1.5 per cent year-to-date while the Shanghai Composite Index has tumbled 16 per cent in 2016.

Other Asian currencies have been dragged lower amid yuan depreciation, but the Sing dollar is among the most impacted.

China is Singapore's largest trading partner and the second-largest source market for inbound tourists; Singapore became China's largest overseas direct investment destination in Asean in 2014. Singapore has been China's largest foreign investor since 2013.

The transmission effects appear to be stemming more than the foreign-exchange channel - a slightly firmer broad dollar and lingering suspicion over how much latitude the People's Bank of China will impart to the RMB against the trade-weighted RMB index, said Selena Ling, OCBC Bank economist.

"The Singapore economy is also seen as more leveraged to the China slowdown story. The ongoing crude oil slump is also interpreted as potentially giving Asian central banks more leeway on the monetary policy front amid a lackluster economic backdrop," said Ms Ling.

There is "recurring market speculation that even lower crude oil prices could afford Monetary Authority of Singapore (and other Asian central banks) more leeway on the monetary policy front (just like back in Jan 2015)", she added.

The Monetary Authority of Singapore surprised the market in January 2015 with an off-schedule easing before its April review.

OCBC's current forecast is for the USD-SGD to head towards 1.4670 before the year is out, and for the three-month Sibor and SOR to similarly test the 2 per cent handle.

"This is also predicated on the monetary policy status quo (which assumes that crude oil prices do not continue to slide towards the US$20 handle) and some stabilization in market sentiments towards the RMB trade-weighted index."

Oil has dropped below US$30 a barrel in New York for the first time in 12 years, said Bloomberg.

    
 

Russia says it can balance budget at oil price of US$82 per barrel

Russia can balance its budget at an oil price of US$82 per barrel, Finance Minister Anton Siluanov said on Wednesday. 

PHOTO: BLOOMBERG

JAN 13, 20163:37 PM

[MOSCOW] Russia can balance its budget at an oil price of US$82 per barrel, Finance Minister Anton Siluanov said on Wednesday.

This year's budget is based on an oil price of US$50 per barrel, but Brent, the global benchmark, was trading at just US$31 on Wednesday. "Our budget will be balanced when the price is US$82 per barrel so there are still a lot of decisions to be made when it comes to budget policy," Mr Siluanov said.

He said that last year's budget deficit was around 2.6 per cent of gross domestic product.

REUTERS

    
 

McDonalds's hit by European consumers' anti-trust complaint

• AFP

• Jan. 12, 2016, 7:14 AM
• 46

© AFP/File Paul J. RichardsThree Italian consumer groups said McDonald's exploits its franchises in several European countries by locking them into overly long contracts and charging exorbitant rents

Brussels (AFP) - Three Italian consumer groups lodged a far-ranging anti-trust complaint with EU regulators against US fast food giant McDonald's, urging Brussels to investigate the company's franchise system which they say harms consumers.

Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva said McDonald's exploits its franchises in several European countries by locking them into overly long contracts and charging exorbitant rents that far exceed market prices.

If taken up by the European Commission, the executive arm of the 28-nation European Union, the probe would join a separate investigation by Brussels over the fast food giant's tax deals in Luxembourg.

"The coalition calls upon the Commission to take action against the unlawful and restrictive contracts McDonald’s imposes on its franchisees, which negatively affect consumer choice, pricing, and quality of service and food across Europe," the groups said in a statement.

In its compliant, the groups say most of McDonald’s revenue in Europe comes not from selling hamburgers, but from collecting rent.

"These rents are often significantly higher than market rents and those paid by direct competitors," the consumer groups said a statement. 

In France, where McDonald's dominates the fast food market, these margins on real estate reach between 63 and 77 percent, the statement said.

The commission, which is under no time constraint to decide on the issue, confirmed in an email to AFP that it had received the complaint, "which it will now look into."

If found guilty, McDonald's faces penalties that could reach up to 10 percent of global sales and an obligation to profoundly restructure its business.

But it is far from certain the complaint will bring about a second investigation into the company by the EU, which would first examine the sector more largely to form its own opinion on the issues raised.

The powerful US labour union, SEIU, offered backing to the compliant as it tries to drum up support to pressure McDonald's to boost wages worldwide instead of prioritising low costs and higher profits.

"It's because of McDonald's super-size impact on the global economy that the actions being taken here today are so important for efforts around the world to hold the company accountable," SEIU director Scott Courtney said at a news briefing in Brussels.

The global leader in fast-food, McDonald's has more than 36,000 restaurants in more than a hundred countries around the world.

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Ford is giving its shareholders a $1 billion dividend 'reward'

• David Shepardson, Reuters

• 18h
• 969

REUTERS/Tami Chappell

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(Reuters) - Ford Motor Co said on Tuesday it was declaring a $1 billion supplemental cash dividend and that it expected to have operating profit of at least $10 billion in 2016, roughly the same as its earnings in 2015.

Ford shares were down about 3 percent from Tuesday's close to $12.45 in post-market trading.

The Dearborn, Michigan, automaker said it expected record 2015 pre-tax profit, excluding special items, "in the upper half of Ford's guidance of $10 billion to $11 billion." Profits this year will be at least as high "excluding special items."

The $1 billion supplemental cash dividend – or $0.25 per share – is in addition to the first quarter regular dividend of $0.15 per share, the same as in the first quarter of 2015.

The $1 billion supplemental cash dividend "reflects the company's strong financial performance in 2015 and robust cash and liquidity levels."

"As we close out 2015, we are benefiting from six consecutive years of consistently strong results, and our performance is allowing us to reward our shareholders," said Mark Fields, Ford president and CEO.

Ford said it expected North America to sustain its strong performance in 2016 with an operating margin of 9.5 percent or higher.

The company expects its Europe, Middle East & Africa, and Asia Pacific operations to all be profitable in 2016.

"In 2015, we achieved a breakthrough year as promised," said Fields. "For 2016, we're looking forward to delivering another outstanding year."

(Reporting by David Shepardson; Editing by Sandra Maler)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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European industry just had another shocking month

• Will Martin
 

• 6h
• 666

REUTERS/Michaela RehleThings still do not look good

The eurozone's industrial production fell 0.7% in November, far worse than economists were expecting. 

The latest data released by Eurostat on Wednesday morningshows a contraction far higher than the consensus forecast of 0.3%.

Year-on-year data also failed to meet expectations, with production growing just 1.1%, instead of the expected 1.3%.

When it comes to individual nations within the single currency, Portugal, Malta, and the Netherlands were the worst fallers. Their production fell by 4.9%, 3.7%, and 3.1% respectively

Industrial production in the eurozone is still lagging behind recorded levels from five years ago, and it is still absolutely miles less than the levels seen before the financial crisis began. 

Here's a graph to show just how much the Eurozone's industrial production is stuttering:

Eurostat

Wednesday's release follows on from an equally poor set of data from the UK, where industrial production fell by 0.7% in the month of November. That news scorched any hope that UK GDP growth accelerated in the final quarter of 2015.

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Fed hikes need to be gradual, risk hurting emerging world: IMF chief

• Reuters

• Jan. 12, 2016, 10:43 AM
• 151

Thomson ReutersLagarde sits for an interview at IMF headquarters in Washington

By Leigh Thomas and William Schomberg

PARIS (Reuters) - Further interest rate hikes by the U.S. Federal Reserve should be gradual or they risk hurting already fragile emerging economies, where many companies borrow in dollars, the head of the International Monetary Fund said on Tuesday.

Christine Lagarde said a tightening in U.S. monetary policy, which started last month with the first rate hike in a decade, should be supported by "clear evidence" of inflation in the United States. She highlighted the negative implications for emerging economies.

"The key issue going forward will be the pace of normalisation. We agree that it should be gradual as announced, as stressed actually by the Fed, and based on clear evidence of firmer wage or price pressures," she told a central banking conference in Paris.

Ebbing confidence in China's policymaking has fuelled investors' retreat from the slowing economy and other emerging markets, which had attracted hundreds of billions of dollars over the previous decade thanks to their superior returns over sluggish developed economies.

Lagarde said higher U.S. rates, combined with easing in the euro zone and Japan, could push up the dollar, making life harder for the many companies in emerging economies that borrow in dollars.

"For emerging economies, this could raise vulnerabilities in sectors with dollar exposures, especially corporates," Lagarde said.

The Chinese yuan has depreciated more than one percent since the start of the year, raising uncertainty over China's intentions regarding the exchange rate and strengthening concerns Beijing might be losing its grip on economic policy, just as the country looks set to post its slowest growth in 25 years.

Lagarde warned about further, sharp swings in exchange rates due to uncertainty about economic policy and the pace of the economy.

"Beyond dollar appreciation, there is also the potential for increased exchange rate volatility," she said.

"This volatility could be induced not only by the divergence in monetary policies in major advanced economies, but also by uncertainty about their overall prospects and policy action."

(Additional reporting by Balazs Koranyi; Writing by Francesco Canepa in Frankfurt Editing by Jeremy Gaunt)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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Greece receives offer from China's Cosco for Piraeus port

• Associated Press

• 23h
• 53

ATHENS, Greece (AP) — Greece's privatization fund says China's Cosco Group is the only bidder for a majority stake in the port of Piraeus, which is the debt-mired country's biggest.

Cosco already has a concession to operate two of three container terminals at Piraeus, the port of Athens. The privatization fund said Tuesday it has asked the company to submit an improved offer, which is expected to be evaluated next week.

It did not disclose the value of the existing offer.

Greece is selling a 67 percent stake in the port as part of its ambitious but slow-moving privatization drive, which is a key precondition for continued disbursement of international rescue loans.

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Chinese trade data beats in December

• David Scutt, Business Insider Australia
 

• 12h
• 412

Kevin Frayer/Getty Images

Chinese trade data delivered a pleasant, and largely unexpected, surprise in December.

In US dollar terms, exports fell by 1.4% from a year earlier, beating expectations for a contraction of 8.0%. It was the smallest annual decline recorded since June 2015, and a sharp improvement on the 6.8% contraction seen in November.

On the other side of the ledger, imports fell by 7.6% from 12 months earlier, again smaller than the 8.7% contraction of November and forecasts for an acceleration to 11.5%.

The improvement in both figures, particularly for exports, left the trade surplus at $60.09 billion, well above the $53 billion level expected.

Business Insider Australia

In yuan-denominated terms, exports rose by 2.3% while imports slid 4.0%. Despite the recovery in December, over the year imports fell by 13.2% from 2014, overshadowing a smaller 1.8% contraction in exports.

A China Customs spokesperson stated that weak external demand was one of the main reasons for the poor export performance seen during the year, adding that these difficulties were likely to persist in 2016.

He also noted that the recent yuan depreciation will stimulate exports and dampen imports, although its impact would diminish over time.

While that will assist Chinese firms short-term, it does the exact opposite for those firms operating outside, and competing against, China.

Read the original article on Business Insider Australia. Copyright 2016.

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