The rapid pace of China's currency reserve depletion is 'simply unsustainable'

• Lianna Brinded
 

• Feb. 7, 2016, 6:43 AM
• 22,141
 
• 36

Reuters

China’s massive foreign-exchange reserves shrank to the lowest levels since May 2012.

The People’s Bank of China reported today that during January, reserves dropped by $99.5 billion (£68.6 billion) to $3.23 trillion, slightly more than the $3.2 trillion markets expected in their poll, Reuters said after the data was released.

And according to Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight, "the mathematics around this rapid pace of depletion of FX reserves in recent months is simply unsustainable for any length of time."

Biswas pointed out in an emailed statement to Business Insider that:

"In such a downside risk scenario where the PBOC capitulates due to further rapid erosion of FX reserves and there is significant further yuan devaluation, this could also cause shocks in China’s corporate debt markets, as Chinese non-bank borrowers hold a large amount of USD debt, estimated at USD 1.2 trillion in mid-2015. 

"The combination of moderating Chinese growth, excess capacity in key industries, rising USD yields and a potential further yuan slide against the USD all create risks of further stress for some Chinese corporate borrowers, which could trigger an increasing number of corporate debt defaults in 2016."

In other words, further depletion from FX reserves could lead to a whole host of knock-on effects that could potentially and eventually lead to an increased amount of companies defaulting on their debt.

Biswas isn't the first economist to sound the alarm. Earlier this week, Societe Generale's Albert Edwards warned that China is running out of money and will have to float the renminbi as a free currency.

At $3.2bn the market remains content that massive firepower remains to support the renminbi. It does not. Our economists estimate that when FX reserves reach $2.8 trillion — which should only take a few more months at this rate — FX reserves will fall below the IMF's recommended lower bound.

If that occurs in the next few months, expect to see a tidal wave of speculative selling, forcing the PBoC to throw in the towel and let the market decide the level of the renminbi exchange rate.

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More: China Currency Reserves China FX Reserves China Analysis

Google CEO Sundar Pichai got a stock package worth almost $200 million

• Alexei Oreskovic
 
•  

• 19h
• 410

Getty ImagesGoogle CEO Sundar Pichai

Google's Sundar Pichai is getting a nice payday to go along with his new role as CEO of the internet search company. 

Pichai received roughly $183 million in stock, which will vest over a period of four years,according to a regulatory filing. The pay package appears to be one of the largest awarded to a Google executive. 

Pichai became the CEO of Google in October, after the company restructured and created the new Alphabet holding company. Alphabet is comprised of the traditional Google Internet business and various separate companies focused on "other bets," such as the high-speed broadband business Google Fiber and the home appliance business Nest.

The hefty pay package underscores how important Alphabet's flagship search engine remains to the company, even as it diversifies into other projects, and how how much the company wants Pichai to stick around.

Pichai was awarded 273,328 Class C shares of Google stock, which will vest over a four year period, according to SEC documents filed on Friday. 

According to Bloomberg, the pay package is the highest that Google has ever given to an executive officer whose equity grants have been reported in filings. Former Google CEO Eric Schmidt, who is currently Executive Chairman, received two separate $100 million stock grantsin 2011 and 2014.

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This obscure indicator is flashing red for the US economy

• Ben Moshinsky
 

• 7h
• 6,974
 
• 10

Via Flickr

The US economy is flashing warning signs, particularly in the industrial and manufacturing sectors.

Demand for oil, and particularly so-called distillates — which are refined oil products such as jet fuels and heating oils — is crashing.

Here's the Barclays commodities team on the indicator (emphasis added):

January US demand for the four main refined products came in at -568k b/d (-3.9% y/y), compared with January 2015.

Distillates were the weakest sector, down 18% y/y. Whether or not the data itself point to much weaker underlying growth in the US economy is still open to question, but not much.

As illustrated in Figure 4, the scale of the decline in distillates demand in January has only ever been seen before during full-blown US recessions.

And here's that chart:

Barclays

Barclays does cite some mitigating factors, such as unusually warm winter weather and the fact this is based on preliminary data that may get revised upward later on.

But it doesn't look great.

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MORGAN STANLEY: We're slashing our oil price forecast by 50%

• Ben Moshinsky
 

• 5h
• 3,607
 
• 4

Fotos_von_Carlos on Flickr

Oil is one of the most traded commodities at the moment, and everyone has a view.

But the prevailing opinion now is that oil prices won't be returning to triple digits a barrel anytime soon.

On Monday, Ian Taylor, CEO of Vitol Group, said the price of oil would stay beneath $60 for as long as 10 years.

Now, Morgan Stanley has weighed in, slashing its 2016 oil forecasts from above $50 a barrel to less than $30.

It's all about demand. With the OPEC oil-producing cartel refusing to cut production, it will take a lot of demand for the commodity to mop up the glut and return prices to normal.

Morgan Stanley analysts don't see any evidence of that happening soon:

We are pushing out our view of the recovery in oil by 6-12 months and cutting our oil forecast from the US$50s to high US$20s over the next year

Here's the chart:

Morgan Stanley

The price of Brent crude, the European benchmark, peaked at about $140 a barrel in 2008 before crashing as low as $45 in early 2009. It then recovered substantially, trading around the $100 mark from 2011 to 2014.

But now Brent and West Texas Intermediate, the US benchmark, are hovering between $32 and $35 a barrel thanks to oversupply amid an attempt by OPEC to knock out the US shale oil industry.

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More: Oil Oil price Vitol

IEA: Don't buy oil

• Will Martin
 

• 4h
• 6,101
 
• 5

REUTERS/StringerFirefighters working to put out the fire of a storage oil tank at the port of Es Sider in Ras Lanuf in 2014.

Oil prices will stay low, and the imbalance of supply and demand in the markets will increase even more, according to the latest Oil Market Report from the International Energy Agency, released Tuesday.

The price of the world's most important commodity has crashed more than 70% since the summer of 2014, with oil trading at its lowest levels in a decade.

Volatility has been a huge issue this year, with prices rising and falling by as much as 8% on a seemingly daily basis.

The big issue affecting the price of oil is one of the most basic of all economic principles: supply and demand. Oil is flooding into the market thanks to massive production from the OPEC nations, and global demand for oil, despite being at five-year highs, just can't keep pace.

The IEA's monthly release provides a snapshot of what's going on globally in the oil markets, and this month it doesn't provide much encouragement for anyone who thinks the price of oil will rise.

The IEA has increased its forecasts of how much oil supply will outstrip demand over the first half of 2016, saying 1.75 million more barrels of oil a day will be produced than are needed, up from the 1.5 million barrels forecast in January.

That means the price of oil is going nowhere, or at least nowhere upward. As the IEA puts it, "With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term."

The major crude oil benchmarks, West Texas Intermediate and Brent, are trading at $30.45 and $33.26 a barrel, up on the day, but the IEA doesn't expect such price movements to be the norm going forward. Here's what oil looks like Tuesday:

Investing.com

OPEC's almost total refusal to even consider cutting production is the big driver of oil's stubborn low prices, and that is reflected in the IEA saying the confederation of producers pumped out 280,000 more barrels every day last month than in December.

This has been helped by Iran's reentry into the global markets after the lifting of sanctions in January. Since then, it has increased production by 80,000 barrels a day to 2.99 million, the IEA says.

In the past few weeks many of the world's biggest banks, trading firms, and brokerages have weighed in with predictions about the oil price — and the vast majority have been negative.Credit Suisse, Bank of America Merrill Lynch, Barclays, HSBC, and Citi have all cut price forecasts, and on Tuesday morning Morgan Stanley became the latest to chip in, estimating that oil will trade in the range of $20 to $30 a barrel next year.

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More: Oil IEA Supply and Demand OPEC

Hong Kong has erupted in violent protests

• Clare Baldwin and Donny Kwok, Reuters

• 3h
• 2,927
 
• 6

REUTERS/Bobby YipProtesters in the Mong Kok district in Hong Kong on Tuesday.

HONG KONG — Hong Kong riot police fired warning shots Tuesday during clashes that erupted in the Chinese-ruled city when authorities tried to remove illegal street stalls set up for Lunar New Year celebrations, the worst violence since pro-democracy protests in 2014.

Demonstrators prised bricks from the sidewalk to hurl at the police, while others toppled street signs and set fire to garbage bins in Mong Kok, a tough, working-class neighborhood just across the harbor from the heart of the Asian financial center.

"We have noticed a shift in some members of the public," said Lo Wai-chung, the Hong Kong police commissioner. "(They) have an inclination to use violence or radical acts in order to express their opinion."

Nearly 90 police officers sustained injuries ranging from fractured bones to lacerations and bruises, and 54 protesters were arrested, Lo said. Hong Kong television showed police officers being beaten with poles and sticks as they lay on the ground.

Many protesters and police officers were also shown with blood streaming down their faces.

The police said two warning shots were fired into the air, with pepper spray and batons also used to disperse the crowd. Television footage showed the shots were fired as protesters surrounded traffic police, pelting them with garbage, bricks, and bottles and wrestling one of them to the ground.

Lo said the life of the officer who fired the shots was being threatened. He also said there would be a full investigation into the incident.

The remains of burned bins and flower pots, chunks of brick, and broken bottles lay scattered along the Nathan Road shopping strip, which leads to the harbor at Tsim Sha Tsui. A taxi with shattered windows was parked nearby.

The narrow streets in and around Mong Kok were the scene of some of the most violent clashes during protests in late 2014 to demand greater democracy for the former British colony that returned to Beijing rule in 1997.

The violence broke out after the police moved in to clear illegal vendors who sell local delicacies, trinkets, and household goods from makeshift streetside stalls.

The hawkers, a common sight on Hong Kong's bustling streets, quickly attracted a strong social media following under the hashtag #FishballRevolution.

Hong Kong's chief executive, Leung Chun-ying, said the government strongly condemned the violence. Secretary for Security Lai Tung-kwok said the police were investigating indications the clashes had been organized.

The protesters had dispersed by 8 a.m. (7 p.m. ET on Monday), but more than 100 had confronted the police in a tense, pre-dawn standoff during the Lunar New Year holiday, when most of the city is shut down.

The police said they did not expect another riot on Tuesday night, when fireworks were planned over the harbor for the new year, but they were boosting manpower nonetheless.

Hong Kong Indigenous, a "localist" group that is fielding a candidate in a Legislative Council by-election in a few weeks, was involved in the protest, though it was not immediately clear the role it played or the extent to which it was involved.

The group said on its official Facebook page and confirmed to Reuters that its candidate, Edward Leung Tin-kei, had been arrested.

Many so-called localists remain deeply embittered by the lack of any concessions from Beijing or Hong Kong authorities during the 2014 protests. Television footage showed protesters on Tuesday shouting, "Establish a Hong Kong country!" during running battles with police.

The clashes in December 2014 came when authorities cleared the last of pro-democracy demonstrators from the streets after more than two months of protests that had presented Beijing with one of its greatest political challenges in decades.

(Additional reporting by Anne Marie Roantree, Bobby Yip and James Pomfret; Editing by Paul Tait and Nick Macfie)

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

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CARNAGE IN JAPAN: Nikkei's largest fall in years, yen spikes, government bond yields below 0%

• David Scutt, Business Insider Australia
 

• 7h
• 5,588
 
• 7

Chris McGrath/Getty ImagesA 6.6-meter replica of Godzilla at Tokyo Midtown in 2014 in Tokyo.

It has been a tumultuous, nerve-jangling session for Japanese markets.

The benchmark Nikkei 225 index lost more than 900 points, closing the session at 16,085.44.

The 5.4% decline is the largest since June 13, 2013, and left the index sitting precariously above the 16-month low of 16,017.26 struck on January 21.

Since the high January 29, the day the Bank of Japan adopted a zero-interest-rate policy, the index has lost more than 10%.

Business Insider Australia

As with markets in Europe and the US, financials led the losses, with a decline of 7%.

All other sectors finished in the red, with utilities, down 2.63%, the standout performer for the session.

While concerns over the outlook for the global economy contributed to the decline, renewed strength in the Japanese yen — coming despite additional easing from the Bank of Japan less than two weeks ago — was also a major factor behind the Nikkei's decline.

The USD/JPY briefly hit a low of 114.25 midway through the session, marking the strongest the yen has been against the US dollar since November 2014.

In late trade it buys 114.72, down 1% from the New York close.

Business Insider Australia

While continued easing of monetary policy by the Bank of Japan has done little weaken the yen, it has certainly affected Japan's government bond market.

The easing, along with renewed global growth fears, saw yields on benchmark 10-year Japanese government debt fall below 0%, taking them to lows never witnessed before.

Business Insider Australia

So to recap: Stocks slumped by over 5%, recording their largest decline in nearly three years, and the yen hit a 15-month high, while benchmark JGB yields fell to the lowest level on record.

Another amazing session, and one that sets up an interesting open for European markets pummeled in a similar fashion on Monday.

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

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UK plans new data rules to boost banking competition

FEB 9, 20168:46 AM

[LONDON] New data-sharing rules could be introduced in Britain from the end of this year to encourage innovation and competition in banking, an industry working group said on Tuesday.

A common data-sharing standard would make it easier for customers to find the right financial products and for companies to share information electronically with their accountants, the Open Banking Working Group's report said.

Banking data - dealing with matters as varied as account transactions, mortgage payments and fitness club subscriptions - is currently not easy to share with a third party in a format that computers can read for feeding into apps or for use by new banks getting off the ground.

The group was set up last year at the request of Britain's finance ministry to explore how data on accounts transactions can be safely shared across the sector.

The government wants to increase competition on the high street in a sector dominated by just five banks - HSBC, Barclays, Lloyds, RBS and Santander UK.

Britain wants the so-called Fin-Tech sector to flourish by creating new types of apps and services in banking.

The group said a new entity would plan, design and roll out the new standard, though it is unclear how it would be funded.

An initial, basic standard would be launched towards the end of this year, with personal customer transaction data included on a read-only basis at the start of 2018, the group said in a statement. Full customer, business and transactional data would be included by 2019.

Harriett Baldwin, a junior finance minister, said the new standard would "provide Fin Techs with a globally unrivalled opportunity for innovation in the UK. "We look forward to continuing to work with industry over the coming weeks to establish how these recommendations will be taken forward," Ms Baldwin added.

The British Bankers' Association, a trade body, said making more bank data openly available would make it easier for customers to get the best deals." Anthony Browne, chief executive of the British Bankers' Association, said: "No data would be shared without the explicit consent of the customer and that data will be protected with robust security checks."

The group's work pre-empts changes in European Union law that will require banks to allow their customers to receive their data over the Internet and share it with third parties.

REUTERS