Goldman sees yen weakness as BOJ moves toward increased stimulus

At Goldman Sachs Group Inc, currency strategists say it's not just about the Federal Reserve. 

PHOTO: BLOOMBERG

SEP 14, 201510:23 PM

[SINGAPORE] At Goldman Sachs Group Inc, currency strategists say it's not just about the Federal Reserve.

The Bank of Japan, which meets Tuesday, is on course to boost monetary stimulus, weakening the yen to 130 versus the dollar within 12 months, Goldman Sachs analysts, including Robin Brooks, the chief currency strategist in New York, wrote in a report. While Goldman sees further easing coming in October, two of 35 analysts surveyed by Bloomberg News forecast further stimulus at Tuesday's gathering. The euro, meanwhile, will decline to 95 cents per dollar next year as the European Central Bank expands its asset-buying program, the analysts wrote.

After the two currencies rallied last month amid a China- inspired global market rout, investors have an opportunity to sell the currencies, they wrote. The yen has gained 6.9 per cent during the past three months, the most among 10 developed-nation peers, while the European counterpart has appreciated 4.3 per cent, Bloomberg Correlation-Weighted Indexes show.

"Risk aversion has increasingly decoupled price action from fundamentals in recent weeks, which presents an opportunity," the analysts wrote.

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The yen added 0.4 per cent to 120.16 per dollar at 9:41 am in New York, while the euro lost 0.3 per cent to $1.1309.

Japan's currency is projected fall to 127 per dollar by the end of 2016, according to a Bloomberg survey of analysts. The euro will weaken to $105, a separate survey shows.

Foreign-exchange traders have focused in recent weeks on the potential for the first US interest-rate increase since 2006.

The Fed will likely keep interest rates unchanged on Thursday and signal that "liftoff is near," the analysts wrote. There is a risk that there will be a "dovish shift in the projections and, potentially, in the language" from Fed Chair Janet Yellen during the press conference, according to the report.

Liberal Democratic Party lawmaker Kozo Yamamoto, who has advised Prime Minister Shinzo Abe on economic policy, said last week the BOJ should increase annual asset purchases by at least 10 trillion yen (US$83 billion). The central bank's Oct 30 meeting would be a "good opportunity" for further easing, he said in an interview with Bloomberg.

"We see dollar-yen upside as highly actionable on a three- month horizon," the Goldman Sachs analysts wrote. "Governor Kuroda has been adept at surprising markets since the start of his tenure and, though our official call is for the second October meeting, we cannot rule out action sooner." ECB President Mario Draghi signaled his willingness to boost stimulus when policy makers met earlier this month. Officials are battling slower growth and inflation.

More than two-thirds of respondents to a Bloomberg survey predicted the ECB will expand or extend its quantitative-easing program, with almost all of those saying he'll do so within nine months.

BLOOMBERG

    
 

Border-free Europe unravels in migrant crisis

SEP 14, 20159:20 PM

[VIENNA] The two-decade-old era of border-free travel in Europe was unravelling on Monday as countries imposed controls on their frontiers in response to an unprecedented influx of migrants.

Germany's surprise decision to restore border controls on Sunday had a swift domino effect, forcing neighbours to shut their own frontiers as thousands of refugees pressed north and west across the continent.

Austria dispatched its military to guard its frontier with Hungary after thousands of migrants crossed the border on foot overnight, filling up temporary accommodation space in tents and railway station car parks.

"If Germany carries out border controls, Austria must put strengthened border controls in place," Vice Chancellor Reinhold Mitterlehner told a joint news conference with Chancellor Werner Faymann. "We are doing that now." He and Faymann said the army would be deployed in a supporting role.

"The focus of the support is on humanitarian help," Mr Faymann said. "But it is also, and I would like to emphasise this, on supporting border controls where it is necessary." Slovakia said it too would shut its own borders with Austria and Hungary.

The measures were the biggest threat to the Schengen system, which since 1995 eliminated frontier posts across Europe and ranks alongside the euro single currency as one of the transformative achievements of integration on the continent.

The 26 European countries in the Schengen area issue common visas and leave the borders between them unguarded. Frontiers which were fought over for centuries and which choked off traffic and trade just a few years ago, are now marked by little more than signposts on highways across the world's biggest economic bloc.

But the rules still bar undocumented migrants from travel within the zone, while leaving few mechanisms to stop them.

That has created chaos as hundreds of thousands of people, including refugees from war in the Middle East, arrive on the bloc's southern and eastern edges and head to richer and more welcoming countries further north and west to seek asylum.

European interior ministers were holding crisis talks, with Germany, France and the bloc's executive Commission trying to overcome opposition from eastern members to a plan to relocate 160,000 refugees from Italy, Hungary and Greece.

Poland said it was prepared to impose controls if migrants aimed for its frontier in large numbers, and any EU decision to impose quotas for accepting refugees on member states without their agreement would lead to institutional crisis.

"We will accept only as many refugees as we can afford, not a single one more or less," said Prime Minister Ewa Kopacz.

A draft agreement would also include strong language on the need for tighter controls of the bloc's external borders, rapid screening of arrivals and deportation of those without valid asylum claims, to help assuage countries concerned that relocating asylum seekers could attract more people.

Countries within Schengen are permitted to reimpose border checks on a temporary basis in emergencies, and have occasionally done so in the past, but not on the scale unfolding on Monday.

Most of the refugees have been bound for Germany, which announced in August it would suspend EU asylum policy to accept Syrians who arrive elsewhere in the EU, creating greater incentive for migrants to trek across the bloc.

Austria had shuttled refugees directly on to Germany. But since Germany announced border controls on Sunday, migrants walked across the border into Austria from Hungary at the fastest rate yet, without being able to travel onward. An Austrian police spokesman said in the early afternoon that 9,000 people had arrived since midnight, after 14,000 on Sunday.

"The accommodation centres in Nickelsdorf, Parndorf, and in the near surroundings are all full," the police spokesman said, referring to the area near the main border crossing. "At the moment, no buses are running," he said.

"The only buses that are running are taking people to the station until a special train leaves, but otherwise we have no accommodation at the moment."

Germany's Chancellor Angela Merkel has taken a lead on the issue, announcing that Europe's richest country was able and willing to host hundreds of thousands of migrants and preparing for as many 800,000 asylum applications this year. Her vice chancellor said in a letter to party members seen by Reuters that this figure could rise to 1 million.

She has also demanded that other EU countries do their part by accepting some refugees who would be relocated from the main countries where they arrive - Italy, Greece and Hungary.

EU Commission President Jean-Claude Juncker has proposed a formula to distribute refugees based on EU member states'economic strength and population. Countries would be allowed to contribute money to escape their quotas.

But the measures are strongly opposed by eastern European countries, including Poland, Slovakia and Hungary itself, even though Hungary would be one of the three beneficiaries.

French President Francois Hollande, who has joined Ms Merkel in campaigning hard for binding EU-wide quotas, called for rapid agreement on controls of entrants along the EU's external borders as well.

"In concrete terms that means putting registration centres in Greece, Italy and Hungary," Mr Hollande said as EU interior ministers met on the matter in Brussels. "It must be sorted out today."

REUTERS

    
 

Australia to get new PM as Abbott loses out to rival Turnbull

Australia will get its fifth prime minister in eight years after the ruling Liberal Party on Monday voted out Tony Abbott in favour of longtime rival Malcolm Turnbull following months of speculation and crumbling support from voters. 

PHOTO: EPA

SEP 14, 20157:58 PM

[CANBERRA] Australia will get its fifth prime minister in eight years after the ruling Liberal Party on Monday voted out Tony Abbott in favour of longtime rival Malcolm Turnbull following months of speculation and crumbling support from voters.

Mr Turnbull, a multi-millionaire former banker and tech entrepreneur, won a secret party room vote by 54 to 44, Liberal Party whip Scott Buchholz told reporters after the meeting in Canberra.

Foreign Minister Julie Bishop was elected deputy leader of the party which, with junior coalition partner the National Party, won a landslide election in 2013.

Since then, the popularity of the government and Mr Abbott in particular has suffered from a series of perceived policy missteps, destabilising infighting and leaks.

The opposition Labor Party has consistently led opinion polls, while Mr Turnbull has been consistently viewed as preferred prime minister.

REUTERS

    
 

Indonesia declares emergency in haze-hit province

Indonesia has agreed to share with Singapore the names of companies suspected of causing forest fires that have led to a deterioration of air quality in the city state. 

PHOTO: REUTERS

SEP 14, 20157:53 PM

[JAKARTA] Indonesia Monday declared a state of emergency in a province choked with thick haze from forest fires, as fears mounted that worsening air quality could affect the upcoming Grand Prix in neighbouring Singapore.

The emergency announcement in Riau province on Sumatra island came as aircraft were deployed to water-bomb the raging blazes and conduct "cloud-seeding", which involves chemically inducing rain.

Smog-belching fires are an annual problem during the dry season in Indonesia. Vast tracts of land are cleared on Sumatra and the Indonesian part of Borneo island, using illegal slash-and-burn methods to make way for palm oil and pulp and paper plantations.

The blazes intensified in the past fortnight, sending smog over Sumatra and Borneo that has left tens of thousands ill, forced people to wear face masks and prompted the cancellation of flights and school closures.

Although there were more fires in other provinces, Riau has been one of the worst-hit as smog blows in from the surrounding areas.

Environment Minister Siti Nurbaya Bakar announced the state of emergency and said that more heath posts would be set up in Riau.

Arsyad Juliandi Rachman, Riau acting governor, said assistance would now be requested from the central government, state-run news agency Antara reported.

Air quality has also been worsening in Singapore just east of Sumatra and Malaysia. Authorities in Singapore said it was in the upper end of the "unhealthy" range late Monday, with smog shrouding the city-state and a smell of burning wood.

There were concerns about the potential impact on next weekend's Formula One, with organisers saying they were monitoring the haze.

"In the event that the haze caused visibility, public health or operational issues, Singapore GP would work closely with the relevant agencies before making any collective decisions regarding the event," a Singapore GP spokesman said in a statement.

Ms Bakar agreed to share the names of companies suspected of causing the fires with Singapore during a phone conversation with Singapore Environment Minister Vivian Balakrishnan Monday afternoon, authorities in the city-state said.

Singapore has passed legislation allowing authorities to fine companies that cause or contribute to haze, regardless of whether they have an office in the city. But Indonesia has previously faced criticism for failing to hand over information.

Mr Balakrishnan "expressed his concern over the serious haze situation" and reiterated Singapore's offer of help in fighting the fires, Singapore authorities said. Ms Bakar said she would consult President Joko Widodo.

Haze levels have also been steadily rising in neighbouring Malaysia due to the Indonesian fires, with buildings more than a kilometre (0.6 miles) away in the capital Kuala Lumpur appearing as vague silhouettes.

Pressure to stop the annual outbreaks of smog has increased since 2013 when Southeast Asia suffered its worst air pollution crisis for more than a decade. But joint attempts by countries in the region to find a solution have moved slowly.

AFP

      

China to let foreign central banks trade in forex market

SEP 14, 20157:22 PM

[BEIJING] China will allow foreign central banks to trade in its spot interbank foreign exchange market and trade currency derivatives such as swaps and forwards, the central bank said on Monday.

The central bank also commented on a big discrepancy of 405.4 billion yuan (S$89.59 billion) between two sets of official data that are proxy indicators of the demand for foreign currencies in China.

In an online question and answer statement, the central bank said the gap was due to "ample" foreign exchange liquidity in the banking system.

A Reuters calculation of central bank data released on Monday showed China's financial institutions sold a net 723.8 billion yuan of foreign exchange in August, the largest outflow on record.

But separate central bank data showed the bank sold a net 318.4 billion yuan of foreign exchange last month.

REUTERS

      

China seizes up to US$157b of unspent local government budgets: sources

Angry Chinese authorities have seized up to 1 trillion yuan (US$157 billion) from local governments who failed to spend their budget allocations, sources said, as Beijing seek ways to stimulate economic growth which is at its slowest for 25 years. 

PHOTO: AFP

SEP 14, 20156:28 PM

[BEIJING] Angry Chinese authorities have seized up to 1 trillion yuan (US$157 billion) from local governments who failed to spend their budget allocations, sources said, as Beijing seek ways to stimulate economic growth which is at its slowest for 25 years.

The huge underspend, linked to officials' reluctance to spend on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that Chinese state investment has grown too slowly this year.

"In the past, local governments had asked for the money. Money was given, but no one acted," said one of two sources, both of whom are close to the government.

They declined to be named as they are not authorised to speak to the media.

"Investments were not realised, and the money will be reallocated," added the source, an economist. He did not elaborate on how the funds would be spent.

The repossessed money will pay for other investments, said the sources, as economic growth looks increasingly likely to fall below 7 per cent.

Lacklustre spending growth could be especially punishing for China, as investment is seen by some Chinese government economists as the best way to shore up activity in the short-term.

One trillion yuan of unspent funds is equivalent to about 6 percent of China's projected total government spending for 2015.

The Finance Ministry was not immediately available for comment when contacted by Reuters.

As part of sweeping reforms proposed by the Chinese government at the end of 2013, China is pursuing its boldest ever anti-graft campaign that has felled a powerful ex-domestic security chief among others.

While the campaign has been a hit with the public, it has also had the unintended consequence of scuppering investment as fearful officials eager to stay out of trouble resort to early retirement or dither over approving major projects.

That has annoyed Beijing, which has repeatedly threatened to punish procrastinating governments by recalling their unspent budgets. HSBC Bank estimated in May that China had 3.8 trillion yuan of unused fiscal funds carried over from previous years.

"Due to the crackdown (on corruption), most local officials have accomplished nothing," said the second source, who has ties to the leadership.

Official data showed investment accounted for slightly more than a third of China's economic growth in the first six months of this year.

Data over the weekend pointed to stubborn weakness in China's economy. Growth in investment and factory output both missed forecasts in August, suggesting that China needs to roll out more policy support to lift the world's second-largest economy.

REUTERS

    
 

Draghi seen expanding QE by economists fearing shallow recovery

Mario Draghi's promise that the European Central Bank is willing to step up its stimulus if needed is resonating with economists, who see the euro-area recovery as too shallow to be sustained. 

PHOTO: BLOOMBERG

SEP 14, 20155:50 PM

[FRANKFURT] Mario Draghi's promise that the European Central Bank is willing to step up its stimulus if needed is resonating with economists, who see the euro-area recovery as too shallow to be sustained.

More than two-thirds of respondents in a Bloomberg survey predict the ECB's president will expand or extend the 1.14 trillion-euro (US$1.3 trillion) quantitative-easing program, and almost all of those say he'll do so within nine months. While an increasing number of respondents see the economy improving for now, they're also fretting that the upturn won't last long.

The ECB's Governing Council has already shown concern that a slowdown in global trade will erode exports, a pillar of the regional recovery, before domestic demand is strong enough to compensate. The central bank this month cut its growth and inflation forecasts and Mr Draghi told reporters that QE is flexible in size, duration and composition. In contrast, the Federal Reserve may raise its interest rates as soon as this week.

"QE risks becoming a semi-permanent feature," said Gianluca Sanna, a portfolio manager at Banca Monte dei Paschi di Siena SpA in Milan. "While it's certainly true that the eurozone is indeed going through a phase of decent, maybe even above- potential, output growth, chances are that there is nothing self-sustaining in what we are seeing right now and the eurozone ends up again in a low-growth environment with inflation dangerously close to zero."

In the survey, 68 per cent of the 41 economists polled said the ECB will step up its QE program. Of those who provided a timeline, 65 per cent predict an announcement by December and 87 per cent see a commitment to more stimulus by March.

Nearly four-fifths of the respondents who expect a bigger QE program see the ECB extending its duration beyond the initial end-date of September 2016. About 43 per cent said the monthly purchase amount will be lifted above the current 60 billion euros, and 29 per cent said the central bank will broaden the range of assets it buys.

The Frankfurt-based central bank has other options, though with less control over their scale. The fifth round of its targeted long-term loans to banks - aimed at rekindling lending to companies and households - will take place next week. Economists predict banks will opt to take up 70 billion euros, compared with the 73.8 billion euros they borrowed in June. The loans fall due in September 2018 and are charged at the benchmark interest rate of 0.05 per cent.

Economic growth is returning, if unevenly. Figures published Monday showed industrial production rose 0.6 per cent in July, twice as much as economists predicted, as output jumped in Germany, Spain and Italy, while declining for a second month in France.

The 19-nation economy expanded 0.4 per cent in the second quarter after 0.5 per cent in the first. ECB data show credit standards eased and loan demand climbed in the second quarter. That bodes well for investment, which rose about 1 per cent in the first half of the year.

"The recent data reinforce the image of a continued, gradual recovery," ECB Governing Council member Jens Weidmann told reporters in Luxembourg on Saturday.

"With respect to the direction of European monetary policy, these provide more arguments for a stable-hand policy, even though the uncertainty with regard to the economic outlook is definitely still high."

The share of economists saying the region's short-term outlook will improve rose to 32 per cent, compared with 28 per cent last month. Only 5 per cent said prospects will deteriorate.

Yet the concern is the fragility of the revival, as China's slowdown drags on emerging nations and potentially on global growth. A rout in financial markets started last month when the country devalued its currency to shore up its economy. Oil prices dropped to a six-year low, threatening to tip the euro- area inflation rate negative again.

"The domestic situation of many eurozone economies has improved, particularly in Spain and Ireland, but headwinds from abroad, namely China, Brazil and some other emerging markets, have increased," said Fabian Fritzsche of Collineo Asset Management GmbH in Dortmund, Germany. "However, I think the positive effect of the lower crude-oil price will exceed the negative effect of lower export growth to the emerging markets at least in the short term."

The ECB now forecasts the euro area will expand 1.4 per cent in 2015, 1.7 per cent in 2016 and 1.8 per cent in 2017. Officials cut their 2017 inflation forecast to 1.7 per cent, a signal that more stimulus may be needed to ensure they reach their goal of medium-term price growth just below 2 per cent.

"All options are open to the ECB as regards stepping up its QE program," said Alan McQuaid, chief economist at Merrion Capital Group Ltd in Dublin. "Initially I see them broadening the range of assets purchased, then upping the monthly amount and then finally extending the program beyond September next year."

BLOOMBERG