Sing dollar steadies; key rate falls back to December levels

By

Siow Li Senlisen@sph.com.sg@SiowLiSenBT

The Sing dollar continues to steady as risk sentiment improves, leading to a retreat in a key interest rate back to December levels. 

PHOTO: SPH

JAN 25, 20167:32 PM

THE Sing dollar continues to steady as risk sentiment improves, leading to a retreat in a key interest rate back to December levels.

The SGD on Monday was quoted at 1.4286 against the US dollar at 6.33pm by Bloomberg, stronger than the 52-week high of 1.4408 on Jan 15.

The three-month swap offer rate (SOR) continued to fall. It was quoted at 1.456 per cent on Jan 22, taking it back to early-December levels. The high was 1.762 per cent on Jan 13. The SOR is usually used to price corporate loans.

The three-month Singapore interbank offered rate (Sibor), typically used for home loans, remained unchanged at 1.254 per cent.

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"The easing in the 3-month SOR is probably a reflection of the improvement in global risk appetite since late last week which is also reflected in the SGD NEER (nominal effective exchange rate) retracing off from the weaker side of its parity band," said Selena Ling, OCBC Bank economist.

Central banks have been talking down volatility, trying to soothe battered markets.

"If you look globally, both the European Central Bank and Bank of Japan are hinting at additional monetary policy stimulus, while People's Bank of China has been actively injecting liquidity ahead of the Chinese New Year holidays," said Ms Ling.

"The fall in SOR can probably be attributed to the improvement in sentiment over the past two trading days," said Eugene Leow, DBS Bank economist.

"As Asian currencies including the SGD recover some lost ground against the USD, upward pressure on the SOR has eased somewhat," he said.

A sustained SGD recovery is not on the cards and the SOR is expected to resume moving north later.

Said Victor Yong, United Overseas Bank interest rate strategist: "We regard the recent SOR weakness as temporary since the backdrop of weak growth, low inflation and monetary policy divergence has not materially changed."

    
 

China is trying to conquer 'The Impossible Trinity': an economic puzzle no-one has ever solved

• Ben Moshinsky
 

• Jan. 23, 2016, 2:54 AM
• 12,006
 
• 7

REUTERS/Kent Skibstad

It's called the "Impossible Trinity" for a reason.

In economics, you can't have it all. A country must choose two out of the following:

• control of a fixed and stable exchange rate
• independent monetary policy
• free and open international capital flows

The theory is that a country that attempts to get all three at once will be broken by the international markets as they force a run on the currency.

If an independent central bank imposes low interest rates to stimulate the economy, capital will flow out in a search of a decent return or yield, and the currency will devalue. Officials will eventually have to release their currency pegs and devalue or impose strict controls to stop capital fleeing the country.

It's a problem that China is wrestling with at the moment and something that no country has ever managed to get right. Most developed economies are happy with two – picking an independent central bank and free flows of capital and leaving the exchange rate to market.

The UK went for the triple in the early 90s. This ended in disaster. Interest rates shot up to 15% in an attempt to support the pound against the weight of the international markets, and keep it in the European exchange rate mechanism, causing a housing collapse and a recession in the process.

With China's attempt, policymakers are finding themselves trying to juggle some delicate trade-offs.

Interest rates are low to keep the money supply up and liquidity in the economy buoyant. The currency, allowed to float a bit more freely than it has in the past is weakening, and capital outflows are accelerating.

Here's Societe Generale's Jason Daw and Wei Yao:

Total net capital outflows, including net errors and omissions (E&O), occurred for the sixth straight quarter and reached a new record of $221bn. The decline in official reserves, adjusted for FX valuations, was also a record at $161bn.

And here's the chart:

Societe Generale

Policymakers are aware of the Impossible Trinity and believe that it's possible to have a bit of all three at once, but only a bit.

Here's Bank of America China analyst Helen Qiao:

When questioned for the view on the Impossible Trinity, Chinese central bankers often refer to a variation of the Impossible Trinity theory developed by Chinese scholars. It summarized the PBoC practice as “x + y + m = 2”, implying partial (rather than extreme) solutions do exist for all three conditions at the same time. In other words, limited independence of monetary policy, strongly managed exchange rate and partial capital also satisfy the conditions of a variation of the “impossible trinity”.

So China is dipping its toe, rather than pushing on all three fronts at once. Policymakers are employing a mixture of central controls and market freedoms on their currency, letting it float a bit but paying to prop it up.

The response is a fudge. And an expensive one.

China is burning through its foreign exchange reserves in an attempt prop up its currency, selling dollar reserves. It's vaguely reminiscent of when the UK tried to solve the trinity.

Here's a chart from CLSA's Greed & Fear note picked out by Jim Edwards last week:

CLSA / Greed & Fear

It's a dangerous gamble but one that is worth pursuing.

If China succeeds, at least for a while, it can buy itself time to rebalance its domestic economy from slowing manufacturing to growing services and domestic consumption. And claim to be the first country to solve a trilemma that has haunted economics for decades.

If it doesn't work, policymakers will be on the hook for burning through hundreds of billions with nothing to show for it.

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Morgan Stanley CEO James Gorman took a big pay cut for 2015

• Portia Crowe
 
•  

• Jan. 22, 2016, 4:32 PM
• 1,607
 
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Thomson ReutersMorgan Stanley Chairman and CEO James Gorman.

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Morgan Stanley CEO James Gorman took a big pay cut in 2015.

Gorman will receive $21 million in total compensation — down $1.5 million or 6.7% from 2014, according to a Morgan Stanley spokesperson.

The chief executive received a base salary of $1.5 million and a stock unit award of $4.6 million, up from $4.4 million for 2014,according to an SEC filing.

In 2014, Gorman's compensation, excluding long-term incentive pay, was $16 million, up a third from the year before. Including long-term incentive compensation, the total was $22.5 million.

Goldman Sachs CEO Lloyd Blankfein will receive $23 million for 2015, while JPMorgan CEO Jamie Dimon will receive $27 million.

Morgan Stanley on Tuesday reported fourth-quarter earnings that beat expectations. The disastrous fixed income, currencies, and commodities division, however, missed expectations and was down year-on-year.

The firm began cutting 25% of its fixed income headcount late last year. Last week it announced bonuses, which were reportedly very disappointing in the fixed income division but better in equity sales and trading. 

Earlier this month, Greg Fleming, the president of the Morgan Stanley's prized wealth-management business, left the firm. That cleared the path for executive Colm Kelleher, who took over as sole president of the firm. 

In a strategic update following the release of fourth-quarter earnings, Gorman also announced the firm would begin outsourcing employees in high-cost centers like New York to "low-cost centers" in a new cost-saving plan dubbed "Project Streamline."

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Alibaba revenue growth seen slowest on record; to intensify fight with JD.com

• Reuters

• 7h
• 195
 
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Thomson ReutersA logo of Alibaba Group is pictured at its headquarters in Hangzhou

By John Ruwitch and Paul Carsten

SHANGHAI/BEIJING (Reuters) - Chinese e-commerce giant Alibaba Group Holding Ltd is expected to post its weakest quarterly revenue growth on record, Thomson Reuters data shows, a slowdown analysts say will heat up the battle with smaller rivalJD.com Inc in a tougher economy.

Alibaba's revenue for the quarter ending December is projected to grow at 26.6 percent, according to a Thomson Reuters SmartEstimate survey of 28 analysts, which would be the slowest rate since the company started publishing such data 3-1/2 years ago.

The pace also lags the 47-51 percent revenue growth JD.com projected for the same period, which is also the slowest expansion since the company started releasing records.

Alibaba and JD.com declined to comment, citing the pre-earnings quiet period.

"When the market starts to slow you start to have real winners and real losers," said Brian Buchwald, chief executive of consumer intelligence company Bomoda. "I think that they need to pay attention to their immediate competition."

JD.com has focused on more affluent shoppers in China's biggest cities, a strategy that may be paying off in an economy that last year grew at its weakest pace in a quarter of a century..

While the two companies calculate the total value of goods sold - known as gross merchandise volume (GMV) - differently, JD.com's grew 82 percent in the nine-months to September while Alibaba's rose 34 percent, suggesting China's biggest e-tailer was losing market share.

Earlier this month, Alibaba Chief Executive Daniel Zhang said the company will pivot towards these "first-tier" cities like Beijing, Shanghai, Shenzhen and Guangzhou, after having trumpeted a push into China's countryside, as well as abroad.

In an article on Alibaba's blog page, Zhang also said the company was seeking to retain and win over more customers by "enhancing reputation and optimizing user experience".

This may be a tough ask, as quality concerns still dog Alibaba and as JD.com has already carved out its own space in these cities by offering speedy delivery and quality assurances.

"They have faster shipping speeds, and the quality is more trustworthy," said Zoe Li, who works at a tech start-up in Beijing, referring to JD.com compared to Alibaba.

Last month, the Chinese e-commerce giant avoided being named on a U.S. blacklist for sites hosting the sale of fake goods, and appointed a new head of anti-counterfeiting.

(Reporting by John Ruwitch in SHANGHAI and Paul Carsten in BEIJING; Editing by Miral Fahmy)

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

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McDonald's will open over 60 restaurants in Russia in 2016

• Reuters

• 7h
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Dylan Love

MOSCOW (Reuters) - McDonald's plans to open more than 60 restaurants in Russia in 2016, increasing the pace of expansion from last year, after its focus on local suppliers and affordable menus has proved successful in an economic crisis.

"The eating-out industry has been stagnating since the beginning of 2015 but we have seen significant growth of our market share as we continued expansion," Khamzat Khasbulatov, chief executive of McDonald's Russia, told a news conference.

He said the company had to make "serious adjustments" to its business model after sanctions and the weakening of the rouble put pressure on its margins.

"The development of local supply has played a big role in supporting our profitability," he said on Monday.

In 2016, capital spending will focus on modernization and further investment in local supply as well as new openings.

The U.S. fast-food chain, which has been present in Russia for 26 years, has steadily increased the share of local supply to 85 percent.

Khasbulatov said the company hoped to achieve full localization, helping smooth out the impact of currency swings and Russia's food import ban.

"It's important to localize not only food processing but also production," he said.

"In terms of capital allocation, Russia remains an  interesting region ... within the (McDonald's) system," he told reporters.

"The foundation that we've built allows us to look in the future with a big optimism ... and to prepare for even more intense development."

McDonalds opened 59 restaurants in Russia in 2015. Khasbulatov said the company had been raising prices below broader inflation and would continue with this strategy to remain competitive.

(Reporting by Maria Kiselyova and Olga Sichkar; Editing by Mark Potter)

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

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Singapore No 4 worldwide for supporting global innovation through domestic policies

By

Nisha Ramchandaninishar@sph.com.sg@Nisha_BT

JAN 25, 201611:58 AM

SINGAPORE was ranked fourth worldwide for domestic policies which support global innovation, according to think tank Information Technology and Innovation Foundation (ITIF).

The report studied 56 countries, looking at 27 factors with positive and negative spillovers such as supportive tax systems, investment in research & development and human capital, forced localisation and weak intellectual property protection.

"Robust innovation is essential for economic growth and progress," said co-author Stephen Ezell, ITIF's vice-president for global innovation. "As countries increasingly vie for leadership in the innovation economy, they can implement policies that try to benefit only themselves but harm the production of innovation in the rest of the world. Or they can implement 'win-win' policies that bolster their own innovation capacity while also generating positive spillovers for the entire global economy. For innovation to flourish around the world, we need a system that is doing much more of the latter."

Singapore's fourth place indicated policies that the report found to be best in their positive contribution to the global innovation ecosystem and 22nd in terms of being least harmful.

The report also showed a robust correlation between countries' contributions to global innovation and their levels of domestic innovation success, suggesting that performing well when it comes to innovation policy at home bodes well for the world too.

The report also highlighted that countries should adopt policies to enhance their impact on global innovation. To start, it urged policymakers and economists to treat innovation as an important tool for optimising global growth.

Secondly, the report called on the global development and trade community to set up a framework that better differentiates between policies that are beneficial for the world's innovation ecosystem and those that are harmful.

Finally, ITIF said that established countries should set up a Global Science and Innovation Foundation to fund research on major global challenges, especially through joint research.

Robert D Atkinson, ITIF's president and a co-author of the report, added: "Policymakers need to better understand and more aggressively push back when countries try to advance their own interests at the expense of global innovation. The world's leaders need to articulate a more robust vision of commonly shared prosperity based on substantial increases in worldwide productivity and more innovative products and services.
"

Oil prices extend rise above US$32 in Asia on demand hopes

JAN 25, 20161:35 PM

[SINGAPORE] Oil prices extended their rally in Asia on Monday buoyed by hopes of extra stimulus measures in the eurozone and Japan that could help boost demand in the face of a global supply glut.

Prices ended on a buoyant note on Friday, with the US benchmark West Texas Intermediate (WTI) for March delivery soaring nine per cent to US$32.19 a barrel, while Brent soared 10 per cent to US$32.18.

The upward momentum continued in Asia on Monday, with WTI up 14 cents, or 0.43 per cent, at US$32.33 and Brent 17 cents, or 0.53 per cent, up at US$32.35 by 0335 GMT.

Michael McCarthy, chief market strategist at CMC Markets Australia, said a report showing that private sector business activity in the eurozone continued to expand in January boosted hopes for oil demand catching up with the oversupply.

Data monitoring company Markit said its closely watched composite Purchasing Managers Index (PMI) fell to 53.5 points in January from 54.3 in December. While the figure was an 11-month low it was still well above the 50-point level that separates growth and contraction in the 19-nation bloc.

On Thursday European Central Bank chief Mario Draghi signalled further stimulus measures for the region, while a report in the respected Nikkei business daily Friday said the Bank of Japan is also considering extra measures.

"The demand side of the situation was what was worrying us. Now that we've seen evidence to support that, we've had a lot of short-term interests in the market having to cover. It's a good old-fashioned scramble," he told AFP from Sydney.

"Combined with a strong economy in the US, the demand side of the equation remains on track to catch up with supply about 12 months out." Sanjeev Gupta, head of the oil and gas practice at professional services firm EY, said prices also got a boost from the severe snowstorm that battered the US East Coast over the weekend as demand for heating oil rose.

However, some analysts remain wary of calling a bottom, especially with Iranian crude poised to return to the market within months following the lifting of western economic sanctions linked to its nuclear programme.

AFP

    
 

China diesel use slumps as natural gas, gasoline demand gains

JAN 25, 20162:12 PM

[HONG KONG] China's diesel consumption contracted for a second year as its economy shifts away from industrial investment toward consumption-led growth. Gasoline and natural gas demand rose.

Diesel use in 2015 dropped 3.7 per cent from the previous year, National Development and Reform Commission said in a statement on its website. The contraction is greater than the 1.5 per cent decline in 2014. Gasoline and natural gas consumption rose 7 per cent and 5.7 per cent, respectively.

China's fuel use reflects divergent economic trends as gasoline demand in the world's largest automobile market is rising while cooling industrial production damps diesel consumption. Industrial output grew at 6.1 per cent last year, the slowest pace on record since at least 1999. China's total vehicle sales are expected to increase 6 per cent this year after rising to a record in 2015.

"China has adopted an economic development shift away from industrial-intensive drivers toward being more services oriented,"  Lin Jiaxin, a Guangzhou-based analyst with research company ICIS-China, said by phone.

"Diesel demand is damped as industrial activities slow." Diesel consumption, a barometer of the country's industrial activity, will stay flat or fall in 2016, while gasoline use will rise by 200,000 barrels a day, according to an International Energy Agency forecast last month. The country's diesel exports surged 75 percent last year to a record.

China's diesel demand will grow at an average annual rate of 1.3 per cent through 2025 as gasoline use expands 6.2 per cent, ICIS-China said last week in a report. Gasoline consumption will surpass diesel for the first time in 2024, it said.

Natural gas demand last year rose 5.7 per cent to 193.2 billion cubic meters, the NDRC said Monday. A price cut in November probably helped raise sales at the end of the year, according to Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd, a research company. Consumption during the first 11 months of the year had increased only 3.7 percent, according to Mr Tian.

"I expected natural gas sales to see a big jump in December, so it helped cover up rather sluggish sales in the first eleven months," Mr Tian said by phone.

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