WORLDWIDE: HEADLINES
China Could Take Further Measures To Rein In Yuan- Former Regulator
The Chinese government could take further measures if needed to keep the yuan stable, potentially putting downward pressure on the currency, a former foreign exchange regulator said.
Policymakers could increase yuan’s flexibility, expand capital outflows, or control capital inflows to rein in the yuan, which could deviate from economic fundamentals in the short term, wrote Guan Tao, global chief economist at BOC International and a former official at the State Administration of Foreign Exchange (SAFE).
The yuan also faces downward pressure from several market factors, including further strengthening of the dollar index, the shrinking spread between U.S. and Chinese yields, and the narrowing difference in the growth between the two economies, Guan wrote in an article published in the Shanghai Securities News on Monday.
Guan, who previously headed SAFE’s balance of payments department, said that the yuan is already losing some momentum, citing shrinking trading volumes in the interbank forex market.
China’s yuan hit a near four-year-high against the dollar on Jan. 26 and an index tracking yuan’s value against a basket of currencies (.CFSCNYI) is flirting with the highest level since late 2015.
Full coverage: REUTERS
UK And South Korea To Sign Deal To Strengthen Supply Chains
Britain and South Korea will on Monday sign an agreement to reinforce pandemic-damaged supply lines for key products like semiconductors, with trade minister Anne-Marie Trevelyan due to host her counterpart Yeo Han-koo in London.
The ministers will also begin work on an improved trade deal as Britain looks to use its exit from the European Union to build stronger ties with faster-growing economies throughout Asia and the Pacific.
“This is our Indo-Pacific tilt in action – strengthening ties with one of the largest economies in the world,” Trevelyan said in a statement.
Monday’s meeting is a precursor to formal trade negotiations, which are expected to begin later this year, to improve an existing agreement which effectively keeps in place the terms Britain had as a member of the EU.
Ahead of that, the delegations in London will look to improve supply chain resilience in the face of global disruption caused by the COVID-19 pandemic which is driving up production costs and fuelling inflation – currently at its highest in nearly 30 years in Britain.
Details of the agreement were not published in advance.
Britain said it wanted to ensure critical goods kept flowing between the two countries, citing chips used in advanced manufacturing as an example. Britain’s auto industry, like others around the world, has been held back by a global shortage of semiconductors.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asia Shares Slip As U.S. Jobs Stunner Hammers Bonds
Asian share markets mostly eased on Monday after stunningly strong U.S. jobs data soothed concerns about the global economy but also added to the risk of an aggressive tightening by the Federal Reserve.
Geopolitics also remained a worry as the White House warned Russia could invade Ukraine any day and French President Emmanuel Macron prepared for a trip to Moscow.
The cautious mood saw MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dip 0.1% in early trade. Japan’s Nikkei (.N225) fell 0.9% and South Korea (.KS11) 0.8%.
Chinese markets returned from the Lunar New Year break with a bounce, with the blue-chip CSI300 (.CSI300) and Shanghai Composite (.SSEC) both up about 2% in morning trade, catching up with last week’s gains in world equities. The Hang Seng (.HSI), which returned from the break on Friday, was flat.
S&P 500 futures and Nasdaq futures both eased slightly, after last week’s market turmoil saw Amazon.com Inc gain almost $200 billion while Facebook-owner Meta Platforms Inc (FB.O) lost just as much.
BofA analyst Savita Subramanian noted company guidance for 2022 had weakened significantly with most stocks falling following earnings reports.
“Commentaries suggested worsening labour shortages and supply chain issues, with a bigger headwind expected in Q1 than in Q4,” Subramanian said in a note. With wages being the biggest cost component for companies, margin pressure was set to continue.
Full coverage: REUTERS
Euro Near Three-week Top, But Looming Fed Tightening Could Help Dollar
The euro was near Friday’s three-week high on Monday morning, after the European Central Bank’s hawkish turn last week, but analysts said further short-term gains looked less likely with looming Fed tightening supporting the dollar.
Investors this week will be watching for U.S. inflation data due Thursday, with a strong reading cementing expectations that the Fed will raise rates at its March meeting and hint at the possibility of a large 50 basis point rise.
The euro was last at $1.1451, not far from Friday’s high of $1.4183, equalling mid-January’s top.
The yen was at 115.16 per dollar, and sterling was at $1.35310, both in the middle of their recent ranges.
This left the dollar index at 95.461, having been given a late boost by strong U.S. jobs data Friday at the end of a bruising week for the greenback.
It also could gain further in the short term.
“We see the risk of more USD upside in the near-term if interest rate markets price a greater chance of a 50bp hike in March. But last week’s hawkish turn by ECB President Christine Lagarde suggests any upside in the USD will be capped,” said Joe Capurso, head of international economics at Commonwealth Bank of Australia, in a morning note.
In the short term he added “with little fresh information from Europe likely this week to further boost market pricing for ECB hikes, material further upside to EUR is unlikely.”
Full coverage: REUTERS
Oil Turns Higher On Fears Of Tight Supply, Shrugging Off U.S.-Iran Talks
Oil prices rose on Monday, reversing earlier losses, as investors kept bullish sentiment on expectations that global supply would remain tight as demand picks up and shrugged off signs of progress in the U.S.-Iran nuclear talks.
“Investors scooped up short-term profits on the news suggesting progress in the U.S.-Iran nuclear talks, but fresh buying kicked in again after the technical corrections as global supply is expected to stay tight,” said Tatsufumi Okoshi, a senior economist at Nomura Securities.
U.S. President Joe Biden’s administration on Friday restored sanctions waivers to Iran to allow international nuclear cooperation projects, as the talks on the 2015 international nuclear deal enter the final stretch.
If the United States lifts sanctions on Iran, the country could boost oil shipments, adding to global supply.
Brent crude was up 60 cents, or 0.6%,at $93.87 a barrel as of 0152 GMT, after touching its highest since Oct. 3, 2014 of $94.00 earlier. It slid to as low as $92.47 in an early trade.
U.S. West Texas Intermediate crude climbed 25 cents, or 0.3%, to $92.56 a barrel, near its 7-year high hit on Friday, having fallen to as low as $91.36 earlier in the session.
Both benchmarks rose more than $2 on Friday, extending their rally into a seventh week on ongoing worries about supply disruptions fuelled by political turmoil among major world producers.
Full coverage: REUTERS
