Week In FX Asia – PBoC Sets Yuan Fix Higher

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S&P did not limit its focus to Russia on Friday. The rating agency noted that China shipbuilding, metal, mining and building material companies are vulnerable to defaults.

“A slowing economy and tough operating conditions in some leveraged industries facing cyclical downturns and overcapacity will lead to more missed payments” noted the agency.

However on the positive side, S&P does not see a “Lehman moment” because banks are predominately funded with retail and business deposits. However, it cannot rule out distress and credit losses over the next couple of years. Markets can expect Beijing to continue to support the financial system (especially banks) at least until authorities can administer orderly closings of troubled entities.

Last week’s Q1 GDP report from China was significant, it not only revealed a slowdown in GDP growth to +7.4%, but also indicated that economy wide inflation slumped further towards outright “deflation.” There is a fear that deterioration in Chinese economic data will lead to exporting deflation via unavoidable Chinese currency devaluation.

The RMB is ending the week on a sour note, extending losses despite the PBoC setting the yuan fix stronger for the third consecutive session. At one point during Friday’s intraday session the yuan happened to fall to its lowest level in 16-months. The central parity is set at 6.1576 vs. Thursdays 6.1589 (offshore NDF’s 6.2669). It seems that the PBoC is deliberately setting the rate higher to perhaps give the perception that they are not intently weakening the yuan. Dealers still expect the Yuan to remain weak in Q2 on concerns of China’s slowing economy.

• China’s Big Banks Using use their own Capital Ratios Models


• Japan Leads Asian Equities Lower


• China Watches Obama Japan Visit Closely


• China May Still Lag Japan


• RBNZ Signals More Tightening


• NZD/USD at 0.8630 on hawkish RBNZ


• USD/JPY around 102.50 Before Tokyo CPI


• Obama Reaffirms Japan Commitment During Visit


• BOJ Governor Says Inflation Might Beat Expectations


• BOJ Says 90% of Japanese Banks Increased Risky Assets After QE


• China Opens 80 Projects to Private Investment


• Asian Equities Mixed after China PMI


• Signs China is Stabilizing after PMI Data


• Asian Equities Mixed after China Data


• China PMI Contracts for Fourth Month


• Yen’s Safe Haven Status Under Threat


• Asian Equities Weaker following China’s Lead


• Japan Open for Business


• Japan Could Ask US To Increase Shale Gas Export


• Japan-US To Resume TPP Talks Tuesday


• Japan Trade Deficit Balloons Due to Energy Imports

WEEK AHEAD

* GBP Gross Domestic Product

* EUR German Consumer Price Index

* USD Consumer Confidence

* EUR German Unemployment Rate

* EUR Euro-Zone Consumer Price Index

* CAD Gross Domestic Product

* USD Gross Domestic Product

* USD Federal Open Market Committee Rate Decision

* USD ISM Manufacturing

* USD Change in Non-farm Payrolls

* USD Unemployment Rate

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Asian Stocks Mostly Higher Ahead Of HSBC Chinese PMI

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Asian stocks rose, with the regional benchmark index paring last week’s losses, as Japanese markets reopened ahead of a private gauge of factory production in China.

Japan’s Topix (TPX) index gained 1.2 percent after a three-day weekend. Macquarie Group Ltd. gained 3.6 percent as Australia’s biggest investment bank said it expects full-year earnings to rise as much as 45 percent. Yamato Holdings Co., a parcel delivery company, surged 4.9 percent in Tokyo on a report it will form a tie with China Post Group.

The MSCI Asia Pacific Index rose 0.5 percent to 133.43 as of 9:22 a.m. in Tokyo after declining 1.2 percent last week. The MSCI Asia Pacific excluding Japan Index gained 0.1 percent.

A China purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics is projected to signal a third straight month of contraction in the manufacturing sector.

Bloomberg

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Week in FX Asia – Asian Currencies Feel Yellen Effect

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The Janet Yellen era at the United States Federal Reserve has officially begun. Her first Federal Open Market Committee was memorable. The actual FOMC statement was what the market has come to expect from central bank communication: Optimistic, but cautious. The expected $10 billion added taper continues the trend set by Bernanke in the December FOMC. What took markets by surprise was Mrs Yellen first post FOMC press conference.

The Fed chair said that the quantitative easing program would could end by fall if the current pace continues to be constant and rates could be higher six months after that. Nowhere in the FOMC statement did that timeline appear. In fact the actual release foresaw low rates for “considerable time”. Yellen surprised by giving a closer date that most analyst expected given other Fed members previous statements.

What begun last summer with another apparent off script comment from Ben Bernanke regarding tapering seems to be moving forward. The era of record low rates around the world seems to be over. Emerging markets were particularly hard-hit by the tapering announcement. This time around the USD has made big gains against all currencies across the board.

The Japanese yen was feeling the pressure of higher demand for the currency which made it strengthen against the USD. This is not beneficial for Prime Minister Abe’s plans to stimulate Japan’s economic growth. A strong yen would make it harder to turn around an export led economy. Following Yellen’s comments the JPY broke through the 102 line which should give a breather to the Bank of Japan. Governor Kuroda is set to speak in London on Saturday and some of his comments will probably discuss the current state of the currency.

The CNY is under pressure from global growth expectations. Major investment banks have downgraded their forecasts of Chinese GDP. Rumours that have started to solidify around a real estate developer bankruptcy has capped the stock markets. The extra 1% added to the CNY trading band to expand it to 2% has helped the currency have extra flexibility that traders have used to reduced their holdings.

The INR dropped a two month low after the Fed hinted rates could go higher as soon as next spring but quickly recovered and is now trading above the week’s open. Global macroeconomic trends have put pressure on the Indian economy as there are still question marks around the political landscape as the country gears up for elections. The INR has showed resilience after last summer’s tapering announcement and has managed to reassure investors as one of the more solid markets in the BRIC and other emerging markets.

• China’s 2014 7.5 Percent GDP Target In Jeopady


• Thai Court Ruled February Elections Unconstitutional


• China Close To Fresh Stimulus if Slowdown Continues


• Asian Stocks Higher But Currencies Remain Bearish


• Declines In China ADRs Send Hong Kong Stocks Into Bear Market


• Japanese Parliament Enacts 2014 Record Budget


• Corporate Japan Wants Better Diplomatic Relationship With China


• CNY Continues Downward Trend


• Yuan Forwards Hit Critical Levels – Risk Major Sell Off


• China’s Debt Issue Unlikely To Hit Lehman Contagion Levels


• Asian Stocks Lower On Yellen’s Rate Hike Guidance


• BoJ Could Increase Stimulus After Sales Tax Rise


• BoJ Governor Kuroda Stays Confident on Reaching 2 Percent Inflation Target


• Japan’s PM Hopes Wage Increases Trickle Down To Smaller Businesses


• Land Prices Rise in Japan’s Major Metropolitan Areas


• CNY Falls to Year Low After Trading Band Extension


• Japanese Deficit Shrinks in February


• Singapore’s 2014 Growth Forecast Cut To 3.8%


• PBOC Not Part Of “Emergency Meeting” On Chinese Developer Collapse


• Chinese Housing Prices Slow Down in February


• Chinese Real Estate Stocks Hit By Developer Default Rumors


• Stagnating Chinese Property Market Increases Default Risks


• Analysts Opinions On Japanese Sales Tax Mixed


• Japanese Government Maintains Upbeat View of Economy

WEEK AHEAD

* GBP Consumer Price Index

* USD Durable Goods Orders

* JPY National Consumer Price Index

* EUR German Consumer Price Index

* GBP UK Gross Domestic Product

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Trade Confidence In Singapore Highest Since 2012

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A half-yearly survey by HSBC showed that Singapore’s trade confidence is at its highest level in two years.

The HSBC Trade Confidence Index for the second half of 2013 came in at 115.

This is a jump of ten points from the previous survey, and also exceeds the overall index for Asia which stands at 112.

The increased optimism comes on the back of an improving global outlook.

The survey showed that 50 per cent of exporting firms in Singapore that observed increasing volumes attributed the growth to better global demand.

The survey also showed that 82 per cent of respondents believe that emerging markets in Asia are Singapore’s most promising trade areas over the next six months, compared with 74 per cent six months ago.

ChannelNewsAsia

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Asian Equities Higher after U.S. Lead

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Asian stock markets rose on Monday following last week’s rally on Wall Street, as investors brushed off a worse-than-expected U.S. jobs report.

The Dow Jones Industrial Average and the S&P 500 posting their best two-day gains in four months despite January’s weak non-farm payrolls report. 113,000 jobs were created last month, well below estimates of 185,000, while the jobless rate fell to 6.6 percent versus expectations of 6.7 percent.

“The Fed is not likely to consider the non-farm payrolls report solely in its decision without due regard to the range of labor market indicators available, and in that context things are looking stable,” wrote analysts at Mizuho Bank in a morning note.

CNBC

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Week in FX Asia – Reserve Bank of Australia Hold Rate and Moves to Neutral

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Reserve Bank of Australia Holds Rates and Changes Stance to Neutral

On Tuesday, the Reserve Bank of Australia maintained the benchmark interest rate at 2.50%, where it has been pegged since August. This didn’t grab much attention from the markets, but the Rate Statement did. Governor Glenn Stevens noted that interest rates are at an appropriate level, indicating a shift from easing to a neutral stance. He also made a point of noting the Australian dollar’s strong decline, stating that it will “assist in achieving balanced growth” for the Australian economy. Stevens refrained from saying that the Australian dollar was “uncomfortably high” as he has done in the past. The RBA has room to be pleased, as the Aussie has shed 8% of its value in the past three months.

Abenomics Was Praised For its Effect on the Yen Now Catches Blame for Lower Stock Market

The Nikkei Index did not escape the global stock market slowdown. It is down 1 percent in a week that had the European Central Bank and the Bank of England hold rates and disappointing earning in the US. The most anticipated event of the week was the US jobs report which came in at 113,000 new jobs in January. The number was below expectation of around 180,000 which made the JPY strengthen versus the dollar deflating one of Shinzo Abe’s ongoing victory of a weak currency. The markets continue to question Abe’s ability to deliver arrows number two and three in his three arrow strategy. The first arrow launched a monetary policy stimulus that so far has been successful in driving the stock market higher and the Yen lower. This has benefit the inflation numbers which for the first time in decades have posted consecutive positive numbers escaping deflation.

This week several analyst and managers have forecasted trouble ahead for Abe’s Japan if the government spending continues without any deep reforms. Labour, fiscal and trade reforms are on the agenda, but so far Abe has only promised changes and failed to deliver them. The second and third arrows depend on Abe taking a hard stance to push through the unpopular reforms. He has tried to sweeten the labor changes with again a promise to raise wages. Industry groups have agreed in principle to those raises, but only after Abe delivers the reforms.

China returns from Lunar Year Holiday to Slowing PMIs

The Chinese Yuan gained versus the US dollar over 2 percent in 2013. The government’s mission to increase CNY convertibility and liquidity paid off when the BIS triennial survey welcomed the currency to the top 10 most traded globally. This Friday marked the end of the Lunar Year holiday and disappointing reports awaited Chinese traders. The official purchasing manager index fell to 50.5. Still above the expansionary measure of 50, but below the January reading of 51. China’s services sector also showed a slowdown this week. The HSBC/Markit Services PMI showed a fall as the index is 50.7 in January versus December’s 50.9

• Emerging Markets Look To China To Pull Region Higher


• Asian Currencies Higher


• Central Bank: Philippines Strong Fundamentals Will Attract Investors Soon


• Asian Equities Mainly Higher


• RBA Shifts to a Neutral Policy Stance


• China Buying More Meat From Australia and New Zealand


• Money Escaping Asia At Tremendous Rate


• Indonesia’s GDP Surprise Masking Fundamental Growth Issues


• Asian Equities Climbing Higher Despite US Disappointment


• Yen’s Impact on Stocks and Profits


• Japan Could Face Bond Default


• US-Japan TPP Deadlock Blocks Trade Deal Progress


• Japanese Monthly Wages at Record Low in 2013


• Japan New Car Sales Rise to 15 Year High


• Thai Political Crisis Continues As Rice Scandal Grows


• Singapore’s Stability Drawing Safe Haven Flow


• Japan’s Wages Increase Again


• Yen Weakens on Rally in Emerging Markets


• Emerging Markets Suffer Largest Outflow


• Japan’s Banks Will Benefit From Economic Stimulus


• Japan and European Union Continue Free Trade Talks


• Abenomics Trickle Down Stops At Big Firms


• Forecast sees Japan Missing Target

WEEK AHEAD

* GBP Bank of England Inflation Report

* AUD Employment Change

* USD Advance Retail Sales

* CNY Consumer Price Index

* EUR French Gross Domestic Product

* EUR German Gross Domestic Product

* USD U. of Michigan Consumer Confidence

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