China's yuan slips even as central bank sets firmer midpoint

China's yuan fell against the dollar on Tuesday despite a slightly stronger midpoint set by the central bank as traders expect the currency to be under further downward pressure amid a struggling economy. 

PHOTO: BLOOMBERG

AUG 18, 201511:44 AM

[HONG KONG] China's yuan fell against the dollar on Tuesday despite a slightly stronger midpoint set by the central bank as traders expect the currency to be under further downward pressure amid a struggling economy.

The People's Bank of China set the midpoint rate at 6.3966 per dollar prior to market open, firmer than the previous fix of 6.3969.

The spot market opened at 6.3923 per dollar and was changing hands at 6.4005 near midday, 58 pips away from the previous close and 0.06 per cent away from the midpoint.

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 yuan posted its biggest weekly loss on record and touched four-year lows after the central bank's surprise devaluation of its currency by nearly 2 per cent last Tuesday.

"We consider the fair value of the yuan based on a trade-weighted basket at around 6.4-6.5 against the dollar and expect the direction of the currency unit fluctuation to be based on the health of the economy and the movement of other currencies globally," Credit Suisse analysts said in a note on Monday.

Chinese home prices rose in July for a third consecutive month, fuelled by improved sales and market sentiment, suggesting the property market is slowly recovering in a rare counterpoint to a growing list of grim economic indicators.

"Trading volume is less than 7 billion yuan today, which is extremely low compared to nearly 70 billion during the devaluation last week," said a trader at an Australian bank in Shanghai.

The offshore yuan was trading 0.60 per cent weaker than the onshore spot at 6.4389 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.565, or 2.57 percent away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 per cent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them.

As a result the market has lost liquidity in recent years and has frequently proven an unreliable measure of market sentiment.

REUTERS

  

A timeline of recent blasts in Bangkok

At least 19 people were killed and more than 120 injured when a bomb exploded on Monday outside a religious shrine in the Thai capital, in its deadliest single assault in recent years. 

PHOTO: REUTERS

AUG 18, 20157:21 AM

[BANGKOK] At least 19 people were killed and more than 120 injured when a bomb exploded on Monday outside a religious shrine in the Thai capital, in its deadliest single assault in recent years.

The explosion came at a time of heightened political tension in the deeply divided nation.

Thailand's long-running political conflict broadly pits a Bangkok-based middle class and royalist elite, backed by parts of the military and judiciary, against rural and working-class voters - many of whom are part of the Red Shirt movement - loyal to ousted former premier Thaksin Shinawatra.

Martial law was imposed for several months following a coup last year that toppled the civilian administration. It has since been lifted but the junta retains sweeping security powers.

Small bomb blasts occur in the capital during times of heightened tension - with all factions accusing each other of resorting to violence.

However none have been on the scale of Monday's attack, for which no-one claimed responsibility, and it was not immediately known if it was linked to the political tensions.

Here is a brief timeline of other main bomb attacks in Bangkok over the past five years.

2010

April: Five grenade blasts hit Bangkok, targeting hundreds of pro-government supporters in attacks that leave one dead and scores wounded, including foreigners. The grenade blasts come after a failed attempt by authorities to disperse the Red Shirts, sparking clashes that left 25 people dead and more than 800 injured in the worst civil unrest in almost two decades.

July: The government says a bomb that killed one at a bus stop in central Bangkok was designed to create disorder.

September: Bangkok put on high alert after a series of grenade blasts. Thousands of police and soldiers are mobilised for extra security.

October: A blast at an apartment complex kills four, with the government blaming the incident on the anti-government "Red Shirt" movement. The Reds deny any involvement and accuse the authorities of a plot to justify tougher security powers.

November: A grenade is thrown onto a minibus killing one. It was not clear if it was politically motivated.

2011

January: Police arrest five men armed with explosives after a tip-off that bomb attacks were planned near the seat of government in Bangkok.

June: Two people are injured in a blast at a political protest by Thailand's "Yellow Shirt" demonstrators near Government House.

December 7: A makeshift explosive device is found and defused near the government lottery office with authorities saying the perpetrators wanted to "challenge the government".

2013

May: A homemade bomb hidden near rubbish bins in a busy suburban Bangkok shopping area explodes, injuring seven people.

2014

January 18: One protester dies after a bomb attack at an opposition march in Bangkok. Authorities and demonstrators blame each other for the blast, which was apparently caused by a grenade-type device thrown from a nearby building.

January 19: Twin blasts by unknown attackers at an anti-government protest in central Bangkok leave 28 injured.

2015

February: Two small bombs explode near a popular shopping mall in downtown Bangkok. One man is injured but there are no deaths.

August 17: At least 16 people - among them foreigners - are killed after a blast in Chidlom district at a popular shrine located on a main road through Bangkok's commercial hub.

AFP

    

Greek elections 'imperative' for stability: minister

Greek Prime Minister Alexis Tsipras (centre) and Greek Agriculture and Energy Minister Panos Skourletis (left) arrive at Agriculture Ministry in central Athens, Greece, on Aug 5, 2015. 

PHOTO: REUTERS

AUG 18, 20157:08 AM

[ATHENS] Early elections in Greece are "imperative" to maintain the country's political stability as it begins to implement an unpopular third debt bailout, a minister said Monday.

"Elections are imperative for purposes of political stability. Given the problems in the government's (parliamentary) majority, the situation can be called anything but stable," Energy Minister Panos Skourletis told Skai TV.

A third of MPs from the ruling radical left party Syriza last week rebelled against Prime Minister Alexis Tsipras in a vote on the three-year, 86-billion-euro (S$134 billion) package, forcing him to rely on opposition parties to ratify it.

"Such a major numeric loss of parliamentary majority is unprecedented," said Skourletis, a former spokesman for Tsipras.

The party's senior member of the European Parliament Dimitris Papadimoulis told the station that it was "likely and logical" that Tsipras would now call for a vote of confidence.

But he added that he saw elections as "highly likely" in the coming months.

According to reports, Mr Tsipras will decide whether to call a confidence vote after a scheduled European Central Bank bond repayment on August 20.

However, the main opposition parties that have so far helped Mr Tsipras pass the reforms demanded by Greece's creditors through parliament have indicated that they will not back him in a confidence vote.

Syriza swept to power in January on a wave of public anger against steep tax rises, spending cuts and reforms demanded by Athens' creditors - the EU, European Central Bank and International Monetary Fund - in exchange for two previous bailouts.

After six months of fraught negotiations, and with capital controls since June to avert a bank collapse, Mr Tsipras on July 13 had to sign up to fresh cuts to keep the country in the eurozone.

Mr Skourletis on Monday reasoned that the government was bound by "democratic legality" to seek fresh popular approval as the "reality" it faced "bears very little relation to the mandate we received in the last elections."

There is a hefty list of measures on tax, competition, social security and pensions that must be voted through and brought into force by the end of the year, a task Mr Tsipras is unlikely to manage with so many of his lawmakers now arrayed against him.

A source close to Mr Tsipras said the embattled premier would start a range of meetings from August 20 with government officials to discuss strategy.

Meanwhile, 17 Syriza lawmakers launched an appeal on Monday for party unity and for the immediate holding of a party congress before any elections are held. None of the rebel MPs were among the lawmakers making the call.

AF
P

Goldman sees iron ore slumping 30% on supply, steel outlook

Iron ore prices may tumble about 30 per cent over the next 18 months as supply expands while steel output falters, according to Goldman Sachs Group Inc, which said the impact on the market from China's devaluation was a sideshow. 

PHOTO: BLOOMBERG

AUG 17, 20154:54 PM

[BEIJING] Iron ore prices may tumble about 30 per cent over the next 18 months as supply expands while steel output falters, according to Goldman Sachs Group Inc, which said the impact on the market from China's devaluation was a sideshow.

"Supply is likely to diverge further from demand," analysts Christian Lelong and Amber Cai wrote in a report. "Contrary to market consensus, we believe that peak-steel production will be followed by a contraction" in China, they wrote, sticking with price forecasts for the next four quarters.

Iron ore rebounded over the past five weeks from the lowest level since at least 2009 as steel prices advanced in China and shipments from the top exporters, Australia and Brazil, lagged behind expectations. China's government devalued the yuan last week, roiling commodities markets and spurring concern that import demand for dollar-denominated raw materials may drop.

"Arguably, the yuan devaluation and the recent supply disruptions are what we consider a sideshow for the iron ore market," the analysts said in the Aug. 14 note. "Supply growth will resume in the short term." Ore with 62 per cent delivered to Qingdao rose 0.6 per cent to US$56.74 a dry metric ton last week to post a fifth straight climb, Metal Bulletin Ltd data showed. While the price hit US$57.02 on Thursday, the highest since July 1, after blasts in the Chinese port of Tianjin, they're 20 per cent lower this year.

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Iron ore was seen by Goldman averaging US$49 a ton this quarter, US$48 in the final three months of 2015, US$46 in the first quarter of next year and US$44 the following quarter, according to the Aug 14 report. That's unchanged from a July 20 note from the bank. The 2016 forecast of US$44 was also retained.

Steel production in China typically drops in the third quarter on the back of seasonal cycles, the analysts said. At the same time, iron ore supply growth will resume as operational issues that had held up some output are resolved, they said.

Iron ore futures on the Dalian Commodity Exchange dropped 1 per cent on Monday. Hebei province has notified 3,785 companies to halt or cut output to ensure air quality before a parade in Beijing next month, according to two people who received the notice. The region is the largest steel producer in China.

Australia & New Zealand Banking Group Ltd. recommended bets on iron ore losses in a report last week, targeting a retreat to less than US$50 a ton. Recent gains in prices will probably prove to be short-lived, according to Morgan Stanley.

"The next phase of balancing will require a further 30 per cent price decline over the next 18 months, on our forecasts" Goldman's Lelong and Cai wrote. "The summer of 2015 is the calm before the storm."

BLOOMBERG

    

Oil prices continue downward slide 

Crude oil prices fell on Monday, deepening a long slide as traders expect US production will remain strong, adding to abundant global supplies.

PHOTO: AFP

AUG 18, 20157:12 AM

[NEW YORK] Crude oil prices fell on Monday, deepening a long slide as traders expect US production will remain strong, adding to abundant global supplies.

US benchmark West Texas Intermediate (WTI) for September delivery closed at US$41.87 a barrel, down 63 cents from Friday's settlement after a technical modest rebound Friday.

In London, Brent North Sea crude for October, the international benchmark, fell 45 cents to US$48.74 a barrel in its first day of trade.

"Oil prices are starting the new week of trading with further losses after ending last week down for the seventh consecutive week - the longest losing streak since the beginning of the year," said Commerzbank analysts in a research note.

The WTI contract has lost more than 30 per cent in the past two months, bringing it to the lowest level in about six and a half years.

WTI was under pressure after Baker Hughes data showed on Friday that the number of rigs drilling for US oil increased last week, the sixth rise in seven weeks.

Phil Flynn of Price Futures Group said the increase in the rig count spurred "a fear that US production isn't going to fall" amid high output, putting downward pressure on prices.

Ted Sloup of iiTrader.com said the WTI trading session had been expected to have "more fireworks" at the expiration of the September contract, "but it's actually been very quiet." Mr Sloup said the market has more or less stalled around US$42 a barrel. "There's a nice wall of support" in a market that he called "way oversold".

"The conditions are there for a big rally but you can't discount the fact that this market is extremely bearish," he added.

Tim Evans of Citi Futures noted that a firmer US dollar, after Japan reported Monday that its economy contracted in the second quarter, may have contributed to the weight on the market.

A stronger greenback makes dollar-priced crude oil relatively more expensive, tending to dampen demand.

AFP

      

France calls off search for MH370 wreckage off Reunion

France on Monday said it was calling off the hunt for wreckage from missing flight MH370 after 10 days of air and sea searches off its Indian Ocean territory of Reunion yielded no results. 

PHOTO: AFP

AUG 18, 20157:10 AM

[DE LA REUNION] France on Monday said it was calling off the hunt for wreckage from missing flight MH370 after 10 days of air and sea searches off its Indian Ocean territory of Reunion yielded no results.

The island's top authority however said its search teams would maintain an attitude of "vigilance".

A wing part washed up on the island on July 29 and was confirmed by the Malaysian prime minister to be part of the Boeing 777 which went missing on March 8, 2014 with 239 people onboard.

The find raised hopes of finally solving the mystery of what happened to the plane, prompting investigators to search a maritime surface of 10,000 sq km and scour the island's eastern coastline.

But the searches "have not led to the identification of anything that could have a link with a plane," the French state's representative on the island, Dominique Sorain, said in a statement.

AFP