China's yuan rises on stronger midpoint fix, reforms

China's yuan firmed against the dollar on Thursday after the central bank set a firmer midpoint and launched a worldwide payments system to encourage more trade settlement and investment dominated in the yuan, among other reforms. 

PHOTO: BLOOMBERG

OCT 8, 201511:56 AM

[SHANGHAI] China's yuan firmed against the dollar on Thursday after the central bank set a firmer midpoint and launched a worldwide payments system to encourage more trade settlement and investment dominated in the yuan, among other reforms.

"The yuan was boosted in line with the midpoint and partly due to the new reforms, including that on payments system," said a trader at a foreign bank in Shanghai.

"But trading was thin as not all investors and traders have been back into the market after the long holiday." The People's Bank of China set the midpoint rate at 6.3505 per dollar prior to the market open, 0.17 per cent firmer than the previous fix of 6.3613 on Sept 30.

China's markets reopened on Thursday after the week-long long National holiday.

The spot market opened at 6.3508 per dollar and was changing hands at 6.3514 at midday, 0.09 per cent firmer than the previous close.

The PBOC on Thursday launched the China International Payment System (CIPs), a worldwide payments system for the yuan to encourage greater use of the yuan in trade settlements and investment.

In another reform, China on Wednesday subscribed to the International Monetary Fund's Special Data Dissemination Standard (SDDS), marking a major step forward for official statistics in the country.

Data on Wednesday showed China's foreign exchange reserves posted their biggest quarterly decline on record in July-September, as the central bank stepped up intervention to stabilise the yuan and calm sentiment after an unexpected devaluation of its currency had jolted global markets.

Analysts said the figures pointed to continued capital outflows on expectations of further economic weakness and more interest rate easing. But they added that the pace of the flows, while still substantial, had appeared to slow.

China's reserves, the world's largest, dropped US$43.3 billion to US$3.514 trillion last month, central bank data showed on Wednesday, and were down by about $180 billion in the third quarter in their largest ever quarterly fall, according to Reuters data going back to 1980.

The offshore yuan was trading at 6.3515 per dollar, almost synchronous with the onshore yuan.

"We think the PBOC's objective is to restore a pre-devaluation degree of convergence between the onshore and offshore forward curves," Tim Condon, head of Asia research at ING, said in a note.

"We think the PBOC will see the smaller decline in foreign exchange reserves in September as vindicating its strategy."

REUTERS

    
 

US says ready to defend against North Korean nuclear threat

A video grab from KCNA shows the Unha-3 (Milky Way 3) rocket launching at the North Korea's West Sea Satellite Launch Site, at the satellite control centre in Cholsan county, North Pyongan province in this file video released by KCNA in Pyongyang Dec 13, 2012. 

PHOTO: REUTERS

OCT 8, 201511:28 AM

[WASHINGTON] The US government believes North Korea has the capability to launch a nuclear weapon against the US homeland and stands ready to defend against any such attacks, a high-level US military official said on Wednesday.

Admiral Bill Gortney, commander of US Northern Command and the North American Aerospace Defence Command, said he agreed with US intelligence assessments that North Korea had nuclear weapons, as well as the ability to miniaturise them and put them on a rocket that could reach the United States. "We assess that they have the capability to reach the homeland with a nuclear weapon from a rocket," Adm Gortney told an event hosted by the Atlantic Council think tank.

Adm Gortney said it was very difficult to predict the behaviour of North Korean leader Kim Jong Un but the US military was prepared to respond if he were to use a nuclear weapon. "We're ready for him, and we're ready 24 hours a day if he should be dumb enough to shoot something at us," Adm Gortney said. "I'm pretty confident that we're going to knock down the numbers that are going to be shot."

North Korea's space agency said last month Pyongyang was building a new satellite and readying it for launch, with any use of a long-range rocket suggesting that the secretive state has made advances developing a ballistic missile.

North Korea says its rocket launches are part of a legitimate space programme aimed at putting satellites into orbit. It has in the past conducted missile tests in defiance of international warnings and sanctions.

The US Missile Defence Agency said in March North Korea could achieve the ability to launch an intercontinental ballistic missile this year.

On Wednesday, Adm Gortney said the US military was investing to modernise its current missile defence system, add new sensors and radars to better identify potential missile launches, and drive down the cost of defending against such attacks.

He warned that the failure of the US Congress to pass a budget for fiscal year 2016, or a resumption of mandatory budget cuts, could jeopardise the funding needed for such efforts.

REUTERS

    
 

China to spend S$2.2b to subsidise hospital reform in 2016

China will spend 9.8 billion yuan (S$2.2 billion) to subsidise public hospital reform next year, the Ministry of Finance said in a statement on Thursday, as the country looks to overhaul its creaking national healthcare system.

PHOTO: REUTERS

OCT 8, 201510:14 AM

[SHANGHAI] China will spend 9.8 billion yuan (S$2.2 billion) to subsidise public hospital reform next year, the Ministry of Finance said in a statement on Thursday, as the country looks to overhaul its creaking national healthcare system.

China's government, which has been struggling with overcrowded city hospitals, simmering tension between patients and doctors, and widespread bribery in the sector, will spend 11.1 billion yuan to subsidise the reform process in 2015.

The country's much-hyped healthcare reform drive is facing a number of obstacles, including a perceived lack of support from central government and challenges of private firms working within the huge, fragmented public sector.

REUTERS

Morgan Stanley bond team faces the unexpected: can Fed avoid QE?

Pedestrians walk past Morgan Stanley headquarters in New York, U.S., on Thursday, Jul 10, 2014. 

PHOTO: BLOOMBERG

OCT 8, 20159:58 AM

[NEW YORK] A year that started with almost everyone calling for the Federal Reserve to raise interest rates is drawing to a close with one of the world's largest bond dealers saying there is increasing chatter about the need for additional stimulus.

Morgan Stanley, one of the 22 primary dealers that trade directly with the Fed, says its clients began discussing the possibility that central bankers will resume bond purchases - or cut interest rates to below zero - after a weaker-than- forecast US employment report last week. The firm recommends buying medium-term Treasuries.

Another set of bond purchases would be the fourth round of the Fed's program known as quantitative easing, dubbed QE4 by traders.

"Almost immediately after September nonfarm payrolls figures flashed on the screen, the phones started ringing," Matthew Hornbach, Morgan Stanley's head of global interest rate strategy in New York, wrote in a report Oct. 6. "What's more likely: QE4 or negative rates?" "Apart from it being too early to talk about either, both QE4 and negative rates have one thing in common," he wrote. "They both mean that liftoff will be pushed back considerably." While Fed policy makers have yet to raise the idea of reviving quantitative easing, market participants are beginning to raise the idea as a slowdown in global growth curbs the US expansion. Hideo Shimomura at Mitsubishi UFJ Kokusai Asset Management in Tokyo, who knows a thing or two about prolonged recessions and deflation, doesn't think it's far-fetched.

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"If the economy struggles next year, they might do more quantitative or qualitative easing," said Mr Shimomura, chief fund investor for Mitsubishi UFJ's $100 billion in assets. "There's also a chance they may cut rates. It's a story for next year." Investors haven't been dissuaded from buying Treasuries by the possibility of rising rates. US government securities have returned almost 2 per cent this year as commodities and stocks tumbled, according to data compiled by Bloomberg.

"It's definitely a reflection that sentiment has gotten pretty dark," said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., a primary dealer whose clients have also broached the QE topic. "We went from people trying to guess how many hikes we'd have in 2015, to will we hike in 2015, to will we ever hike, to will we do QE." Quantitative and qualitative easing is the term the Bank of Japan uses for its own bond-purchase programme, which extends buying beyond government debt. The BOJ is snapping up sovereign bonds, exchange-traded funds, real-estate investment trusts, commercial paper and corporate bonds as it battles more than a decade of deflation.

The Fed began buying mortgage-backed securities in 2008 and extended the purchases to Treasuries in 2009 to support the economy by pushing down borrowing costs. The purchases increased its balance sheet to as much as US$4.52 trillion in January from less than US$2 trillion. After ending the program last year, it may revive it again and include corporate bonds this time, Mitsubishi UFJ's Shimomura said.

The benchmark Treasury 10-year note yield was little changed at 2.06 per cent as of 10:24 am in Tokyo, according to Bloomberg Bond Trader data. The price of the 2 per cent security due in August 2025 was 99 15/32.

Ray Dalio, billionaire founder of Bridgewater Associates, said in August he expects the Fed to resume quantitative easing even if it first raises benchmark rates by a fraction of a per cent.

"We don't consider a 25-50 basis point tightening to be a big tightening," he wrote in a LinkedIn post. "While we might see a tiny tightening akin to what was experienced in 1936, we doubt that we will see anything much larger before we see a major easing via QE." Traders began scaling back bets that the Fed will raise rates this year after the central bank postponed raising them at its September meeting, citing threats to the global economy, futures contracts indicate.

After last week's employment report, they're now betting it won't even happen in the early months of 2016. The US added 142,000 jobs in September, versus 200,000 projected by a Bloomberg survey of economists.

The odds of a rate increase are less 50 per cent through the start of next year, only rising to 62 per cent by the time of the policy committee's March meeting, futures contracts indicate. The probability of a move by the end of 2016 is 92 per cent. The calculations are based on the assumption that the effective fed funds rate will average 0.375 per cent after liftoff.

BLOOMBERG

    
 

Hillary Clinton to propose high-frequency trading tax, Volcker rule changes

Hillary Clinton will propose a tax aimed at penalising "harmful" high-frequency trading strategies and offer ways to strengthen the Volcker Rule, among other measures, as she unveils another set of proposals Thursday aimed at what she has termed risky Wall Street behavior. 

PHOTO: REUTERS

OCT 8, 20159:38 AM

[NEW YORK] Hillary Clinton will propose a tax aimed at penalising "harmful" high-frequency trading strategies and offer ways to strengthen the Volcker Rule, among other measures, as she unveils another set of proposals Thursday aimed at what she has termed risky Wall Street behavior.  The Democratic front-runner plans to call for a tax targeting trading strategies that rely heavily on order cancellations, a Clinton aide said Wednesday, previewing her announcements on the condition of anonymity.

In what her campaign is billing this as an effort to put the interests of the investing public before those of high- frequency traders and "dark pools," where securities are traded privately, Mrs Clinton will suggest that the Securities and Exchange Commission launch an overhaul of stock market rules to allow for equal access to markets, greater transparency and the minimisation of conflicts of interest.  Mrs Clinton will also suggest adjusting the Volcker Rule, by eliminating the rule that allows banks to invest up to three per cent of their capital in hedge funds and reinstating the "swaps push-out" rule of Dodd-Frank, which was removed last year. Former Massachusetts Representative Barney Frank, the coauthor of the bill, has been advising Mrs Clinton and her team.   Though Mrs Clinton, who served eight years as a senator from New York, has considerable Wall Street backing, she is under pressure from the left wing of her party - led by Senator Elizabeth Warren of Massachusetts and Vermont Senator Bernie Sanders, now Mrs Clinton's chief rival for the nomination. In Bloomberg focus groups earlier this week, voters cited Sanders' championing of middle class workers as a reason for his appeal.

Ever since she launched her campaign earlier this year, Mrs Clinton has sounded a markedly populist note. "We also have to go beyond Dodd-Frank. Too many financial institutions are still too complex and too risky," she said in July.

Mrs Clinton will also offer proposals to beef up individual accountability, calling for  corporate fines for wrongdoing to come with penalties that hit workers' bonuses and extending the statute of limitations for major financial fraud to 10 years.

Mrs Clinton has framed her push to get tough on Wall Street as part of a philosophy of "clear-eyed capitalism," making sure that fairness for all is part of the equation.

"I believe we have to build a growth and fairness economy. You can't have one without the other," she said in July during her first major economic speech of the campaign, at the New School University in New York. "We can't create enough jobs and new businesses without more growth, and we can't build strong families and support our consumer economy without more fairness."

BLOOMBERG

    
 

China launches yuan cross-border interbank payment system

China's central bank on Thursday launched the China International Payment System (CIPs), a worldwide payments superhighway for the yuan to facilitate trade settlement and investment dominated in the yuan.

PHOTO: AFP

OCT 8, 20159:31 AM

[BEIJING] China's central bank on Thursday launched the China International Payment System (CIPs), a worldwide payments superhighway for the yuan to facilitate trade settlement and investment dominated in the yuan.

CIPS will replace a patchwork of existing networks that make processing renminbi payments a more cumbersome process.

It will comprise of two phases, the first of which will look to facilitate cross-border yuan business activities and support trade in goods and services. The second will improve clearing efficiency for direct participants in the yuan market, the People's Bank of China said in a statement on its website.

REUTERS

China subscribes to data standard to boost economic statistics

China's central bank, the People's Bank of China, said in a separate statement issued on its website that adopting SDDS would help uncover the real situation in the economy and provide"a timely and accurate basis" for policymaking. 

PHOTO: REUTERS

OCT 8, 20157:50 AM

[LIMA] China on Wednesday subscribed to the International Monetary Fund's Special Data Dissemination Standard (SDDS), marking a major step forward for official statistics in the country, the IMF said ahead of its annual meetings here.

China's adoption of the IMF standard follows many investors questioning the reliability of China's data as the country's economic growth has slowed. A surprise August devaluation of the yuan currency sent shockwaves through global markets. "Participation in the SDDS is expected to enhance a country's availability of timely and comprehensive statistics and contribute to the pursuit of sound macroeconomic policies," the IMF said in a statement.

China's central bank, the People's Bank of China, said in a separate statement issued on its website that adopting SDDS would help uncover the real situation in the economy and provide"a timely and accurate basis" for policymaking. At the same time, it will help "enhance the level of China's participation in global economic cooperation".

The IMF forecasts that China's economy will grow by 6.8 per cent this year and 6.3 per cent in 2016.

REUTERS