China’s property sector, already a nagging economic risk, could become a victim of the unexpected weakening of the country’s currency as developers face rising debt costs.
“Most Chinese developers are heavily exposed to U.S. dollar debt (up to 90 percent of their total debt) with no hedging,” Credit Suisse said in a note Monday. “A potential renminbi depreciation may have a meaningful impact on both developers’ earnings and net gearing – especially since Chinese developers are already highly levered financially.”
The fate of China’s property sector is closely watched as a key economic risk. Capital Economics estimated that the property sector contributed 9.5 percent of China’s gross domestic product (GDP) in 2013.
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The Japanese government will set rules for trading bitcoin, including imposing taxes on transactions with the virtual currency, that will become the basis for guidelines applicable to similar currencies in future, the Nikkei reported.
Japan’s government is still trying to explain the collapse of Mt.Gox – once the world’s once largest bitcoin exchange – and figure out how the Tokyo-based company could lose nearly half a billion dollars in bitcoins, Finance Minister Taro Aso said on Tuesday.
Mt.Gox filed for bankruptcy protection in Japan on Friday, saying it may have lost some 850,000 bitcoins due to hacking into its faulty computer system.
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Demand for physical gold out of China and other emerging markets has become the key driver of bullion prices, according to HSBC, as the rampant outflows from exchange traded funds (ETF) seen last year begin to stabilize.
“Investment demand, which had fueled the rally for over a decade, is no longer driving gold prices,” James Steel analyst at HSBC wrote in a report on Tuesday.
“Instead, we believe gold is being driven by physical demand for jewelry, coins, and bars from China, in particular. Indeed, we would argue that physical demand trends in the emerging world will largely define gold’s price movements this year,” Steel added.
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Activity in China’s factory sector slowed to an 8-month low in February, a government survey showed, reinforcing signs of a modest slowdown in the economy as demand weakens.
The official Purchasing Managers’ Index edged down to 50.2 in February from January’s 50.5, the National Bureau of Statistics said on Saturday, just ahead of market expectations of 50.1.
A PMI reading above 50 indicates expanding activity while one below that level points to a contraction.
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For many months, the market has been talking up the Chinese yuan with many speculators believing that the psychological six handle was going to be breached sometime soon, as in the first half of this year. It seems that policymakers at the People’s Bank of China (PBoC) have different ideas. Overall, this market is long CNY and adverse moves will be painful. The yuan is closing out this week trading at an eight-month low against the mighty greenback.
The dollar ended at CNY6.1450, the highest closing rate in eight months. At one point during Friday’s session, the dollar hit a 10-month high of CNY6.1808, which was at that time +0.9% higher from the previous sessions close, making it the biggest single day drop in nine years. The central bank’s stance seems to have taken the market by surprise. The PBoC used the usual channels through state banks to “guide” its own currency lower. The bank is obviously taking direct aim at the “carry trade” – borrowing USD at low rates and investing in the higher-yielding yuan, the ideal way to arb interest rate differentials.
The PBoC wants the market to know it’s serious, and is making a significant statement to all those speculators who believed that the yuan’s strength was to take a straight line higher. Data released earlier in the week continues to show that capital inflows remain healthy in January. State banks brought net $76.3 billion in the month, a 12-month high. It seems that both domestic and overseas interest prefer buying the yuan while shorting foreign currencies. The PBoC’s actions this week should have more seasoned speculators second-guessing their direct strategy route.
In the fixed-income space, Chinese bonds ended up trading lower as investors mostly took profit upon being the shut out for another month (Chinese 10′s backed up +10bps to +4.28%). The bond market remains apprehensive about potential downside risks due to expectations that Chinese funding costs could remain high throughout the year.
- Japan’s Inflation and Factory Output Fuel Optimism But Could Encounter Reversal
- Yuan Drops Friday as China Sends Speculators a Message
- Japan Posts Upbeat Economic Data
- Japan’s Strong Retail Trade May Be Driven By Pre Tax Hike Purchases
- PBOC Expected To Widen Yuan Trading Band In Q2
- End Of Subsidies To Impact China Firms Profit Margins
- Asian Equities Weaker after Japan Releases
- Japan PM Says Nuclear Reliance Will Be Cut
- In Japan 7 Eleven is Investing in Farmland
- BoJ Confident on Inflation Rise and Eventual End of QE
- Corporate Japan Pressure Abe Government To Reach TPP Agreement
- Survey: Yuan to Replace U.S. Dollar
- Chinese Demand For Treasurys To Drop Further?
- India’s Q4 GDP Expected To Stay Below 5.0%
- Yen Gains on Haven Demand
- PBOC Weaknes Yuan In Bid To Drive Away Speculators
- Yuan Depreciation Might Hint at Policy Change
- JPY Displays Stock Market Correlation
- TPP Hits Roadblock in Singapore Meeting
- Indian Central Bank Warns About Spillover Effects of Tapering
- Abe Government Not Pressuring BoJ For More Action
- China Leaders Reiterate Reforms and Growth Goals
- China Housing Cools Down in January
CNY Non-manufacturing PMI
USD ISM Manufacturing
AUD Reserve Bank of Australia Rate Decision
AUD Gross Domestic Product
EUR Euro-Zone Gross Domestic Product s.a.
CAD Bank of Canada Rate Decision
USD ISM Non-Manufacutring Composite
GBP Bank of England Rate Decision
EUR European Central Bank Rate Decision
USD Unemployment Rate
CAD Unemployment Rate
USD Change in Non-farm Payrolls
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The International Monetary Fund will answer Ukraine’s call for financial help “at this critical moment in its history,” fund chief Christine Lagarde said Thursday.
In the IMF’s first official statement on Ukraine since the country’s political crisis intensified last week, Lagarde said a fact-finding team will go to Kiev in the coming days to assess the financial needs.
“We are ready to respond,” she said.
The mission will help the IMF understand the economic situation and its officials will start discussing with Ukrainian authorities what reforms would be required in exchange for emergency loans, she added.
Ukraine’s finance ministry has said it needs $35 billion for this year and next to avoid default. The political turmoil since the end of last year has roiled the economy, depleted the central bank’s reserves and sent its currency tumbling.
Any financial help from the IMF for the country of 46 million is likely to come with tough conditions, including demands for budget cuts, structural reforms and a devaluation of the currency to make the economy more competitive. The IMF would also likely demand a sharp increase in the price of natural gas, which the country heavily subsidizes.
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West Texas Intermediate and Brent crudes fell for a second day as the U.S. economy expanded at a slower pace in the fourth quarter than previously estimated.
Futures reduced monthly advances. Gross domestic product grew at a 2.4 percent annualized rate, compared with the 3.2 percent gain reported last month, revised figures from the Commerce Department showed. WTI has rallied more than 4 percent in February as supplies at Cushing, Oklahoma, dropped to a four-month low.
“The GDP report is weighing on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “WTI is going to trade between $100 and $104 until we see proof of strong economic growth. Prices had gained primarily because of Cushing inventories.”
WTI for April delivery fell 36 cents, or 0.4 percent, to $102.04 a barrel at 9:24 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 47 percent below the 100-day average. Prices are up 4.7 percent this month.
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