BACHY - Bank of China Limited

Other OTC - Other OTC Delayed Price. Currency in USD
10.49
+0.11 (+1.06%)
As of 3:14PM EDT. Market open.
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Previous Close10.38
Open10.56
Bid0.00 x 0
Ask0.00 x 0
Day's Range10.41 - 10.56
52 Week Range10.10 - 12.17
Volume37,814
Avg. Volume63,867
Market Cap149.267B
Beta (3Y Monthly)0.82
PE Ratio (TTM)4.66
EPS (TTM)N/A
Earnings DateN/A
Forward Dividend & Yield0.67 (6.50%)
Ex-Dividend Date2019-05-22
1y Target EstN/A
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  • Bloomberg12 hours ago

    Ranks of Rate Cutters Swell With Fed Bets on the Rise: EM Review

    (Bloomberg) -- The following is a roundup of emerging-markets news and highlights for the week ending July 19.Highlights:President Donald Trump reiterated that he could impose additional tariffs on Chinese imports if he wantsTrump complained again that China wasn’t buying the large volumes of U.S. agricultural goods that he claims Xi Jinping promised to purchaseTwo senior Federal Reserve officials stressed the need to act quickly if the U.S. economy looked likely to stumble, reinforcing bets the central bank could cut interest rates by as much as half a percentage point later this month. U.S. money markets priced in 41 basis points of easing in July after the two men spokeREAD: New York Fed: Williams’ Speech Not About Potential Policy ActionTreasury Secretary Steven Mnuchin said he and U.S. Trade Representative Robert Lighthizer may travel to Beijing for trade negotiations if talks by phone are productiveU.S. and Chinese senior officials spoke by phone on Thursday in Washington, according to Lighthizer’s officeChina’s economy posted the weakest growth since quarterly data began in 1992 amid the ongoing trade standoff with the U.S., while monthly indicators provided signs that a stabilization is emerging. Gross domestic product rose 6.2.% in the April-June period from a year earlierIn June, factory output and retail sales growth beat estimates, while investment in the first half of the year also gave further evidence that stimulus measures to curb the slowdown are feeding throughSouth Korea’s central bank unexpectedly trimmed its benchmark interest rate by 25 basis points to 1.75%, while Indonesia cut its rate by the same margin to 5.75% as predicted. Ukraine lowered its rate by half a point to 17% on Thursday, as expected, while Chile’s monetary authorities left policy rate unchanged at 2.5%South Africa’s central bank shifted policy to help boost the economy and said the government must now do its part to make the first interest-rate cut in more than a year more effectiveTurkey’s new central bank governor ended days of silence since his surprise appointment by President Recep Tayyip Erdogan with a message that hinted at restraint as he pivots toward interest-rate cutsTrump said he’s not looking at economic sanctions against Turkey “right now”Trump said the U.S. “immediately destroyed” an Iranian drone that approached the USS Boxer near the Strait of Hormuz, though officials in Tehran denied losing oneIran is capable of shutting the Strait of Hormuz -- a crucial choke-point for oil flows -- but doesn’t want to do it, the country’s foreign minister saidOil extended gains after state media reported Thursday that Iran’s Revolutionary Guard seized a foreign vessel smuggling fuel in the Persian Gulf on July 14Asia:The Chinese yuan is being given a new opportunity to boost its global status amid rising trade conflicts, according to People’s Bank of China Deputy Governor Pan GongshengSentiment in China’s foreign-exchange market is more rational and stable than last year despite an escalation in trade dispute between China and U.S. in May, said Wang Chunying, spokeswoman of State Administration of Foreign ExchangeSouth Korean President Moon Jae-in warned Japan that any effort to block his nation’s economic growth “will not succeed”Japanese Economy Minister Hiroshige Seko said his ministry will respond at an official level to any questions with South Korea on export controls and he doesn’t see a quick resumption of policy talks with Japan’s neighborSouth Korean Prime Minister Lee Nak-yon said diplomatic discussions are underway and he expects to see some results, when asked about possibility of sending a special envoy to Japan, DongA Ilbo newspaper reportedJapanese Foreign Minister Taro Kono said South Korea is responsible for worsening the relationship between the two nations by refusing to accept arbitration over forced-labor casesBank of Korea cut 2019 GDP growth forecast to 2.2% from 2.5%India’s trade deficit narrowed in June as a slowing economy and lower oil prices curbed importsBank Indonesia sees more room for accommodative policy, Governor Perry Warjiyo said after the rate decisionThe nation’s exports fell 8.98% in June from last year, while trade surplus came in at $196 million, versus estimated $658 millionMalaysia and Indonesia are reviewing their relationship with the EU and member states and are committed to challenging the bloc’s biofuel law through World Trade Organization and other avenues, Council of Palm Oil Producing Countries saidThe Bank of Thailand reiterated its concern about the baht’s persistent strength on Wednesday, but said cutting the key interest rate may have only a limited impact and instead flagged a preference for using a range of toolsThe central bank plans to ease rules on money outflows by giving more flexibility for portfolio investment by Thai investors, according to Deputy Governor Mathee SupapongseThe country’s tourism minister has blamed a surge in the baht for sapping tourist arrivals and said he’ll take up the matter with the central bankPrime Minister Prayuth Chan-Ocha and his new cabinet were sworn into their roles by King Maha Vajiralongkorn on Tuesday. The new government plans to announce key policies to parliament on July 25, Prayuth saidThailand’s outlook was revised to positive from stable on increasing confidence that lingering political risks will not derail macroeconomic management, Fitch Ratings saidMalaysia’s finance minister said the 2020 budget will take into account risk scenarios caused by the continuing U.S.-China trade war even as the nation’s economy shows signs of resilienceKaohsiung mayor Han Kuo-yu won Kuomintang primary in a bid to contest January’s election for Taiwan presidencyChinese state media raised the specter of a backlash against U.S. companies including General Dynamics Corp. and Honeywell International Inc, as the foreign ministry warned firms would be sanctioned if a potential $2 billion arms sale to Taiwan goes aheadHoneywell has no input in these arms agreements and has no direct dealings with Taiwan, the U.S. company saidBangko Sentral ng Pilpinas’s survey of economists before June rate-setting meeting showed average inflation forecasts of 2.9% and 3.1% for this year and next, according to minutes of the policy meetingPhilippines revised foreign-exchange assumption to 51-53 pesos a dollar for 2019 and 51-55 from 2020 through 2022, compared with 52-55 assumptions affirmed for those years earlier this yearEMEA:Trump confirmed reluctantly that Turkey won’t be able to buy the U.S. F-35 fighter that it helps build after the country began taking delivery this week of a Russian missile defense systemThe Kremlin raised the possibility of changing Russia’s Constitution after a top lawmaker proposed bolstering parliament’s powers, in a move that could help to extend President Vladimir Putin’s ruleThe U.S. House adopted an amendment to the National Defense Authorization Act that would sanction Russian sovereign debtFirst Abu Dhabi Bank PJSC’s board proposed removing the foreign ownership limit after the United Arab Emirates started loosening rules to attract international investors. The shares advancedForeign holdings in Egyptian Treasury bills and bonds climbed to $19 billion in June, Deputy Finance Minister Ahmed Kouchouk saidA delegation of three former Lebanese premiers asked Saudi Arabia for financial assistance to help shore up their country’s deteriorating financesZambian dollar bonds soared as Bwalya Ng’andu was sworn in as the nation’s new finance minister, a day after Margaret Mwanakatwe was fired from the postNg’andu said he wants to restart discussions with the International Monetary Fund about a bailout loan and that the government may delay the start of a controversial sales taxZimbabwe has gone from deflation to triple-digit inflation in less than three yearsSudan’s military council signed a power-sharing deal with the country’s firebrand opposition that seeks to stem months of uncertainty and sporadic bloodshed after the overthrow of long-time President Omar al-BashirLatin America:Argentine consumer prices rose 55.8% in June from a year ago and 2.7% from May, almost in line with economist estimatesCentral bank forecasts peso volatility to be moderate in the run-up to October’s electionThe IMF granted Argentina approval to boost currency-market interventions to contain a potential selloff in the peso before the electionIMF also cut its 2019 GDP forecast for Argentina to -1.3% from -1.2%President Mauricio Macri is behind opposition candidate Alberto Fernandez in voter intention ahead of the Aug. 11 primary, according to a poll by Argentine consulting firm SynopsisMexico would have to increase financial support to Pemex significantly for the national oil company to increase capital-investment levels needed to fully replace its reserves, Moody’s saidPemex announced plans to balance its budget by 2021 and reverse a decade and half of declining crude production as early as next yearFormer Mexican Finance Minister Carlos Urzua said a disagreement over the state power company’s fight to hold up natural gas pipelines helped trigger his July 9 resignationBrazil’s Economy Minister Paulo Guedes is said to be presenting two proposals to President Jair Bolsonaro to allow withdrawals from the FGTS workers’ savings fund, one that releases about 40 billion reais ($11 billion) and another of 20 billion reaisBolsonaro said the government will change federal levies through a tax reform billSavings from Brazil’s pension bill could increase by 350 billion reais over a decade if the Senate includes states and municipalities back into the reform, Guedes saidBrazil economists have slashed their 2019 growth forecasts every week for the past five months, underscoring a year of dashed hopes for a faster recoveryMay economic activity index rose 0.54% from previous monthPeru’s ex-president Alejandro Toledo, wanted in his home country on corruption charges, was arrested in the U.S. on an extradition warrant, authorities said\--With assistance from Philip Sanders and Alex Nicholson.To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Netty Ismail in Dubai at nismail3@bloomberg.net;Colleen Goko in Johannesburg at cgoko2@bloomberg.net;Selcuk Gokoluk in London at sgokoluk@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.netTo contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Robert BrandFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • The Only Way Is Down for Central Bankers Already at Peak Rates
    Bloomberg2 days ago

    The Only Way Is Down for Central Bankers Already at Peak Rates

    (Bloomberg) -- The Federal Reserve and other leading central banks are declaring the peak in global interest rates has been reached and are readying to start the march down.As the world economy weakens amid the U.S.-China trade war and inflation continues to undershoot the target of most policymakers, Fed Chairman Jerome Powell is set to oversee the first cut to the U.S. benchmark in a decade.European Central Bank President Mario Draghi has also flagged action, though he may wait until September, and even Bank of Japan Governor Haruhiko Kuroda may come under pressure to join in. The People’s Bank of China has eased lending conditions but so far held fire on rates, but Australia, India, New Zealand and Russia are among those to have already injected fresh stimulus into their economiesThe action marks a turnaround from the end of last year when investors were bracing for tighter monetary policy the world over, led by the Fed.What Bloomberg's Economists Say: “Major central banks face different pressures. For the Fed, economic fundamentals appear robust, it's the fear of what's to come that's prompting action. For Europe, growth below potential demands a response, but space to provide it is limited. In China, tariff-dented growth calls for cuts; high leverage counsels caution. In all cases, though, the result will likely be additional stimulus in the months ahead.” — Tom OrlikHere is Bloomberg Economics’ quarterly review of 23 of the top central banks, which together set policy for almost 90% of the global economy. We outline the issues they face in 2019 and how they might respond.U.S. Federal ReserveCurrent federal funds rate (upper bound): 2.5% Forecast for end of 2019: 2%Fed Chairman Powell has clearly signaled an interest rate cut is coming at the central bank’s meeting later this month and the question is whether he’ll advocate for a half-point reduction or stick with a more cautious quarter-point move. The Fed chief, under fire from President Donald Trump for raising rates last year, has highlighted uncertainties over Trump’s trade policies and weakening global manufacturing output. These could undermine the record U.S. expansion by sapping business investment, which has weakened despite low unemployment and solid consumer spending.Powell has assured Americans that the central bank is committed to keeping the economy on track. With inflation running below the Fed’s 2% target, officials have scope to ease, though some may worry at fanning investor appetite for risk amid hefty corporate borrowing and with U.S. stocks around record highs. Powell in the past has cautioned that the last two U.S. recessions were caused by asset bubbles: the housing market collapse in 2008 and the end of the dot.com boom in 2000.What Bloomberg's Economists Say: “As he testified before Congress, Fed Chair Powell chose not to reshape market expectations which were leaning heavily toward a July cut of 25 bps, further illustrating that the Fed is not willing to fight market sentiment following the clumsy execution of its final rate hike in the fourth quarter of last year. Bloomberg Economics anticipates 50 bps of cuts this year. Following a 25 basis point cut at the July meeting, we expect policy makers to attempt to string market expectations of the second move through to December, depending on the tone of incoming data.” — Carl Riccadonna & Yelena ShulyatyevaEuropean Central BankCurrent deposit rate: -0.4% Forecast for end of 2019: -0.5%ECB policy makers acknowledge that lingering global uncertainties may deepen the euro area’s slowdown, and are readying for additional action such as interest rate cuts or renewed asset purchases. Investors and economists expect the deposit rate to be reduced by September, and many see quantitative easing being relaunched before the year is out.Draghi is poised to leave office in October as the only ECB president to never have raised interest rates. His successor, IMF Managing Director Christine Lagarde, is widely seen as continuing his accommodative stance. She's scheduled to begin her new role on Nov. 1, the same day the U.K. plans to start life outside the European Union, and faces an immediate economic shock if Britain fails to strike a Brexit deal.What Bloomberg's Economists Say: “Sentiment has soured, inflation is stubbornly weak and Europe may become the next major casualty of protectionism. The ECB has already indicated stimulus is coming and we expect the full monty — a rate cut, relief for banks and relaunch of QE at 45bn euros a month. For maximum impact, this should come as a package, alongside fresh forecasts in September. The risk is that action on rates comes sooner.” — Jamie MurrayBank of JapanCurrent policy-rate balance: -0.1% Forecast for end of 2019: -0.1%The BOJ is likely to keep its policy settings unchanged for now. Governor Kuroda told Bloomberg in June that the central bank can still deliver big stimulus, but said no action was warranted. Economic growth data for Japan has proven stronger than expected, giving policy makers more confidence in the resilience of domestic demand, and effectively putting to bed talk of postponing a sales tax increase in October. Prime Minister Shinzo Abe’s government also seems less concerned about the BOJ’s inflation goal these days, putting less pressure on Kuroda to act. Abe told lawmakers ahead of a July upper house election that his real economic goal was achieving full employment, not 2% price growth.Still, a majority of economists polled by Bloomberg expect the bank’s next policy step will be extra easing at some point. Many of them flag a sharp gain in the yen, prompted by likely U.S. rate cuts. The BOJ’s current pledge is to keep interest rates extremely low until around spring next year as it assesses the impact of the tax hike on the economy. As the tax increase approaches, the BOJ may want to reaffirm its easing commitment by extending its guidance without referencing the tax.What Bloomberg's Economists Say: “The BOJ is unlikely to budge for the foreseeable future regardless of inflation slowing and external pressures increasing. Even so, part of its strategy may be to give the 10-year yield a little more wiggle room and a tweak of its forward guidance. The yen will be important in the calculus going forward — appreciation toward 100 per dollar would probably put the BOJ on guard.” — Yuki MasujimaBank of EnglandCurrent bank rate: 0.75% Forecast for end of 2019: 0.75%Governor Mark Carney has noted the darkening outlook over the U.K. since global trade tensions flared up. The extension of the Brexit deadline also prolonged the uncertainty that’s holding back companies’ investments. After stockpiling boosted growth in the first quarter, the economy probably stagnated or even contracted in the second.All that has led to a widening gap between the BOE’s forecasts for gradual rate hikes, which assume a smooth Brexit, and the market’s view that rate cuts are next on the agenda.The search for Carney’s successor, who will take over in February, is also clouded by the change in government, which means that current Chancellor of the Exchequer Philip Hammond probably won’t still be in the job when it’s time to make the appointment. And if the departure from the European Union goes badly in October, Carney will certainly have his hands full until he leaves.What Bloomberg's Economists Say: “The combination of uncertainty about Brexit and a slowdown in global growth has put the brakes on the U.K. economy this year. Looking to the second half, there are few signs of those headwinds abating. We expect quarterly growth to stay below trend and average 0.3% in 2H while CPI inflation is likely to remain below target over the same period. That gives the BOE room to keep rates on hold while it waits to see the how the new prime minister moves forward with Brexit. With the clock ticking, reaching a deal by October 31 looks increasingly ambitious. At the same time, Parliament appears ready to stop a no-deal exit. That leaves the prospect of another Brexit delay and more policy paralysis.” — Dan HansonBank of CanadaCurrent overnight lending rate: 1.75% Forecast for end of 2019: 1.75%Governor Stephen Poloz reinforced the view he’s on hold indefinitely after he kept the Bank of Canada’s overnight rate at 1.75% for a sixth straight meeting in July and gave little indication he’s prepared to follow the global move toward easier policy.Canada’s economic resurgence in the second quarter buys Poloz time to gauge whether U.S.-China trade tensions resolve themselves or deepen. So does the recent stabilization in the country’s housing market. While most observers agree the central bank will be on hold until through 2020, some economists question how the country can withstand a deceleration in the U.S., its largest trading partner. Markets are also leaning in that direction, pricing in about 15 basis points of cuts over the next year.People’s Bank of ChinaCurrent 1-year best lending rate: 4.35% Current 7-day reverse repo rate: 2.55% Forecast for end of 2019: 4.35%; 2.48%Markets are raising their bets the PBOC will need to take bigger easing steps to revive tepid growth. Economists expect the bank to provide long-term cheap liquidity by reducing reserve-requirement ratios for commercial lenders, and forecasts of a cut in open-market borrowing costs are growing.Consumer inflation is now close to the policy target of 3% and will probably stay there for a few more months, but that won't likely be a key constraint for monetary policy as core inflation remains low. Factory-gate prices, arguably a more important inflation gauge, will flirt with deflation throughout the year. The trade truce reached by China and the U.S. at the G-20 meeting in Osaka eased the pressure on the yuan. The jobless rate has fallen a little but policy makers are still closely watching the situation. The country is expected to keep the full-year current account in a small surplus if oil prices stay muted.What Bloomberg's Economists Say: “China’s top policy makers showed some indications of looking beyond the current downturn to tackling long-term structural reforms. The weakening economic outlook will probably force them to re-focus on stabilizing cyclical growth and step up policy support - on both the fiscal and monetary fronts. The government is likely to buttress the economy with further infrastructure spending. The PBOC will probably step up stimulus. If the higher U.S. tariffs remain in place for an extended period, the PBOC could cut the RRR by another 150 basis points and reduce the benchmark interest rate by 50 bps by year-end, with one 25-bps cut in 3Q and another in 4Q.” — David QuReserve Bank of IndiaCurrent repo rate: 5.75% Forecast for end of 2019: 5.5% The RBI has been the most aggressive rate cutter of any major central bank this year, lowering borrowing costs by 75 basis points to take the benchmark rate to a nine-year low. Inflation remains below the central bank’s medium-term target of 4%. And with a budget from new Finance Minister Nirmala Sitharaman that has shown commitment to fiscal prudence, Governor Shaktikanta Das might have room to lower rates even more in coming months to support economic growth that has slumped to a five-year low.What Bloomberg's Economists Say: “We expect the RBI to continue with its policy easing – likely with a 25 bps rate cut at the August 7 meeting and a total of 50 bps by March 2020. The RBI is now also keeping the banking system flush with liquidity, in line with its accommodative stance. Surplus liquidity conditions bode well for the transmission of its policy rate cuts into lower borrowing costs in the economy. This should help drive a V-shaped recovery in growth in the current quarter.” — Abhishek GuptaCentral Bank of BrazilCurrent Selic target rate: 6.5% Forecast for end of 2019: 5.5%New central bank chief Roberto Campos Neto is in a comfortable position, with inflation expectations anchored through 2021 and the benchmark interest rate at an all-time low. With consumer prices rising well below target this year and the economy either in or close to technical recession, analysts expect policy makers to lower borrowing costs by a full percentage point by December.Yet the bank has made clear that “concrete advances” in the government's reform agenda, particularly an overhaul of the nation's bloated pension system, are a precondition for monetary easing. While the proposal won't become law before at least September, investors bet interest rates may start to fall earlier than that as the bill overcomes major congressional hurdles along the way. Also, investors aren't pricing in any tightening before end-2020.What Bloomberg's Economists Say: “Monetary policy has been accommodative for the last two years at least, but momentum has been building for further easing in Brazil. Inflation is slowing and growth has been disappointing; markets' and BCB's own forecasts point to below-target inflation in 2020; and prospects of low rates elsewhere diminished risks to the currency. The last thing standing between BCB and a rate cut seems to be pension reform: BCB has repeatedly referred to "fiscal uncertainties" as an important risk for inflation. We expect an easing cycle totalling 100bps, bringing the Selic to 5.5% before year-end — conditional on the lower house approving the pension overhaul.” — Adriana DupitaBank of RussiaCurrent key rate: 7.75% Forecast for end of 2019: 7.15%After taming an inflation spike earlier in the year, the Bank of Russia returned to monetary easing in June, with a 25 basis-point cut and a hint at two more before the end of the year. But with inflation falling faster than expected and the already-sputtering economy hitting an air pocket, the central bank is under pressure to move faster to reduce the cost of credit, now among the highest in the world in real terms.Governor Elvira Nabiullina has even hinted that the central bank could opt for a bigger half-percentage point cut next time, which would take interest rates to the lowest level in more than five years.Building the case for more cuts is a world-topping 10.5% rally in the ruble this year, which has helped the outlook for inflation. Monthly inflation was flat for the first time in almost a year in June. Also, fears of harsher U.S. sanctions have eased after attention in Washington shifted to the trade war with China in the wake of Special Counsel Robert Mueller’s report on alleged Russian meddling in the 2016 election.What Bloomberg's Economists Say:  “The Bank of Russia's easing cycle will keep turning, with a full percentage point of rate cuts likely by mid-2020. Policy settings remain relatively tight, while inflation has underwhelmed. Demand shows signs of lingering weakness. We expect the central bank to front-load easing with another quarter-point reduction in July. One more cut might come in 4Q, taking the key rate to 7% at year-end.” — Scott JohnsonSouth African Reserve BankCurrent repo average rate: 6.75% Forecast for end of 2019: 6.5%Moderating inflation and persistently slow economic growth could open the door for the South African Reserve Bank to cut its benchmark interest rate by 25 basis points for the first time in over a year this month. While Governor Lesetja Kganyago said last month the central bank's forecasting model suggests there may be room for rate cuts in the next year or two, inflation expectations are at a record low. That, and the rand's gains to the strongest level against the dollar in four months, could bring easing forward.Changes to the composition of the MPC could also play a role. Two of the five members voted for a rate cute in May and since then Chris Loewald from the central bank's research department was appointed to the panel and Deputy Governor Daniel Mminele, who was seen as hawkish, left the Reserve Bank.What Bloomberg's Economists Say: “We expect the South African Reserve Bank to follow the winds of monetary policy change and ease its stance in 2H19. The reappointment of Lesetja Kganyago for another five-year term as governor makes for some continuity. But the loss of his key lieutenants Francois Groepe and Daniel Mminele has significantly reduced his ability to focus monetary policy on bringing inflation expectations closer to the mid-point of SARB’s 3-6% target range.” — Mark BohlundBanco de MexicoCurrent overnight rate: 8.25% Forecast for end of 2019: 8.25%Economists across the board agree that Mexico’s central bank is finished with raising interest rates as both inflation and the economy slow. That focus now is on when policy makers led by Governor Alejandro Diaz de Leon will begin to loosen.Inflation is hovering near the 4% upper limit of policy makers, but most economists surveyed by Bloomberg expect the bank to wait until early next year to lower borrowing costs. The board was divided in its decision to keep the key interest rate at a decade high in its June decision, with one board member voting for a quarter-point cut as the economy sputters. Still, members highlighted inflation risks from potential weakness in the peso based on the possible imposition of tariffs by the U.S., as well as the risk for an increase in energy or agricultural prices.What Bloomberg's Economists Say: “Banxico is likely to cut interest rates in line with the Federal Reserve to avoid relative tighter monetary conditions. Headline and core inflation are in line with central bank forecasts and show no need for tighter policy. Weak economic growth consistent with a negative and widening output gap argue against any additional tightening. Lingering economic risks and high uncertainty still grant caution and limit room for policy makers to ease monetary conditions.” — Felipe HernandezBank IndonesiaCurrent 7-day reverse repo rate: 6% Forecast for end of 2019: 5.75%After being one of the most aggressive rate hikers in Asia last year with 175 basis points of tightening, Bank Indonesia Governor Perry Warjiyo has flagged easing is now only a matter of timing, and magnitude. Policy makers have become increasingly concerned about spillover effects from trade tensions and waning global demand, with the government having lowered its forecast for growth for this year and next year.At the same time, the trade war between the U.S. and China is seen as presenting an opportunity as Indonesia looks to lure investment and boost exports, in a bid to help rein in a persistent current account deficit. Inflation at 3.28% in June remains low by Indonesian standards and well within the central bank’s 2%-4% target range, providing additional room for the first rate cut since September 2017.What Bloomberg's Economists Say: “Bank Indonesia may be able to add rate cuts to its policy mix in 2H in support of growth. Ongoing rupiah vulnerability has forced the central bank to use alternative tools to support lending. Hurdles for the currency are the current account deficit (which is poised to re-widen from 1Q) and risk aversion (which has been buoyed by the escalation in May of the U.S.-China trade war). Should the Fed cut interest rates, though, Bank Indonesia would have more room to maneuver.  We’d expect easing by the Fed to be at least partially mirrored by Indonesia’s central bank. This would maintain Indonesia’s interest rate differential, supporting capital inflows and the rupiah.” — Tamara HendersonCentral Bank of TurkeyCurrent 1-week repo rate: 24% Forecast for end of 2019: 22%The monetary policy outlook may turn more dovish in Turkey after President Recep Tayyip Erdogan unexpectedly dismissed Murat Cetinkaya as governor for not lowering interest rates, appointing deputy Murat Uysal as his replacement.The decision came days after Turkey’s real rate soared to a world topping 8.3% as inflation slowed more than expected, giving policy makers room to start an easing cycle as early as July. Uysal takes charge of monetary policy following a pause in interest rates that lasted for over nine months. Some economists worry that the central bank may kick off an easing cycle stronger than warranted by the inflation outlook at the next policy decision scheduled for July 25.What Bloomberg's Economists Say: “The sacking of Murat Cetinkaya as governor of the central bank leaves no one in doubt: President Recep Tayyip Erdogan wants lower interest rates, and he wants them now. The new governor Murat Uysal has his orders, but will have to weigh them against the risks posed by currency volatility as markets are likely to penalize excessive easing. We expect at least 400 basis points of rate cuts this year.” — Ziad DaoudCentral Bank of NigeriaCurrent central bank rate: 13.5% Forecast for end of 2019: 13%Nigeria's central bank has made it very clear that it's keen to boost lending to help an economy that's still struggling to recover from a 2016 contraction.Governor Godwin Emefiele surprised with the first interest-rate cut in more than three years in March, but with inflation that's been above the target band of 6% to 9% for since 2015 and the need to attract foreign inflows to support the naira, the central bank has started to resort to other measures than interest cuts. It has increased the ratio of deposits that commercial banks must use for loans and reduced the amount of money lenders can keep in interest-bearing accounts at the central bank.The central bank may sit back now and first monitor the effect of these new regulations on credit extension, while it waits for signs that inflation pressures are easing, before it cuts further.What Bloomberg's Economists Say: “Governor Godwin Emefiele appears to have built a consensus on the reconfigured monetary policy committee of the Central Bank of Nigeria for a gradual easing of monetary policy after the 50 basis point reduction to 13.50% in its benchmark rate in March. We expect further rate cuts in 2H19 but see the scope for monetary easing easing as constrained by a weakening of Nigeria’s balance of payments.” — Mark BohlundBank of KoreaCurrent base rate: 1.75% Forecast for end of 2019: 1.55%The Bank of Korea is facing growing expectations of a rate cut as its bellwether economy takes a beating from the U.S.-China trade war and a steep downturn in the semiconductor sector. Faced with record household debt and soaring home prices, Governor Lee Ju-yeol looked to have charted a course toward policy normalization when he raised rates in November last year. Now he’s under pressure to reverse course as the Fed and ECB appear poised to cut rates.Sluggish inflation will give Lee something of a free hand but with the benchmark rate at only 1.75% — half a percentage point above a record low – he has little policy room to maneuver, especially given that financial stability remains a concern. While the consensus is for at least one rate cut by the end of this year, economists surveyed by Bloomberg see two cuts at most — totaling 50 basis points — by the end of 2020.What Bloomberg's Economists Say:  “Pressure is mounting on the BOK to reduce its benchmark interest rate. Global trade tensions are weighing on the growth outlook, offsetting any lift from more expansionary fiscal policy. Inflation remains sluggish and well-below the BOK’s 2% target. We expect a 25 basis point reduction in 4Q – though a rate cut from the Fed in July would likely prompt the BOK to move sooner.” — Justin JimenezReserve Bank of AustraliaCurrent cash rate target: 1% Forecast for end of 2019: 0.75%The RBA got back into the game in June and July, ending a three year hiatus with the first back-to-back interest-rate cuts since 2012. Governor Philip Lowe has signaled he’ll pause for a period to see how the economy responds to a combination of easing and government tax cuts. But further reductions remain on the table.Australia’s exceptional status — underscored by its tightening of policy in 2009-10 after dodging the global recession — is well and truly over. It has just one percentage point of rate ammunition in hand and, like everywhere else, is sending out monthly search parties for inflation that return empty-handed.What Bloomberg's Economists Say: “The RBA signaled a pause in its easing cycle after lowering the cash rate target to a new low of 1% in July. Its 50 bps of cuts in June and July should be sufficient, in our view, to nurture green shoots in the housing market and business sentiment. House prices continued to fall in aggregate in June, but gains in Sydney and Melbourne put a recovery within sight. Broader stabilization in 2H would support household spending, the primary engine of growth. A brighter outlook, along with still-resilient exports, should maintain strong hiring momentum and nudge the unemployment rate lower – as desired by the RBA. Markets are priced for another 25 bp rate cut within the next 12 months.” — Tamara HendersonCentral Bank of ArgentinaCurrent target: to freeze the expansion of monetary base and keep the peso stableArgentina still has the world’s highest interest rate at 59%, though it's down from 74% in early May, as policy makers want to ensure the country doesn't suffer a repeat of the 2018 currency crisis in the run-up to the October election.The central bank has recouped some investor confidence since adopting a new foreign exchange policy in April that gives it more freedom to intervene in the market to support the peso. The move received the blessing of the International Monetary Fund, which gave Argentina a record $56 billion credit line, allowing it to use part of those funds to sell dollars in the market.What Bloomberg's Economists Say: “BCRA continues to keep an ultra-tight grip on monetary policy and is unlikely to ease policy anytime soon. Slowing (though still high) inflation, a more benign external backdrop and a slightly improved sentiment towards post-election policies have driven rates down and the peso, stronger since mid-June. In an attempt to signal to markets it won't cave in to the temptation of easier monetary conditions ahead of elections, BCRA set a floor for the Leliq and adjusted down targets for monetary base. BCRA has tools to handle volatility, but if markets start to price in a dramatic change in economic policy after elections, the currency may breach the ceiling of the reference zone. We assume policy continuity as our base-case scenario, and see rates declining to around 50% by year-end.” — Adriana DupitaSwiss National BankCurrent Libor target rate: -0.75% Forecast for end of 2019: -0.75%With the European economy on shaky footing, the SNB is all but sure to stick with its expansive stance, consisting of negative interest rates plus a pledge to intervene in currency markets if needed.Any further easing by the ECB cut is likely to spur a run on the franc. Should that happen, the SNB would retaliate with interventions and possibly a cut to interest rates. Although the SNB’s rates are already the lowest of any major central bank, President Thomas Jordan has said there's additional room to cut if necessary.Sveriges RiksbankCurrent repo rate: -0.25% Forecast for end of 2019: -0.25%Sweden’s central bank stuck to its outlook its latest meeting in July, signaling it will lift rates again toward the end of the year or early next year as inflation hovers around its 2% target. With zero rates within reach again, policy makers are reluctant to steer off course even as colleagues abroad starting priming the stimulus pumps.Governor Stefan Ingves and his colleagues are skeptical that the economic downturn will be as sharp as markets signal, but they are clearly in wait-and-see mode on how further stimulus from the Fed and ECB will affect the Swedish economy and the krona. The market is skeptical that more tightening will come, with futures even pricing in a small chance for a rate cut by the end of the year.Norges BankCurrent deposit rate: 1.25% Forecast for end of 2019: 1.4%Norway’s central bank surprised markets in June when it raised rates for a third time in less than a year and signaled it was preparing to tighten two more times, perhaps as soon as September.The economy of western Europe’s biggest oil producer is benefiting from a surge in investments in its petroleum industry, which has pushed down unemployment and driven wages higher and kept inflation above target. The Norwegian krone has also remained weak, giving the central bank further room to raise rates without hurting exports.Reserve Bank of New ZealandCurrent cash rate: 1.5% Forecast for end of 2019: 1.25%Governor Adrian Orr led the developed world when he cut rates in May, and while others have since caught up he has flagged further easing is in the pipeline.Citing the weaker economic outlook at home and abroad, Orr said in June that a lower cash rate may be needed to meet the RBNZ's inflation and employment objectives.Economists are predicting a second cut in August and some expect a third before the end of the year. With the cash rate falling further into uncharted territory, some observers have even started to speculate about the possible use of unconventional policy tools. However, New Zealand's economy continues to expand and growth is forecast to gather pace later this year.What Bloomberg's Economists Say: “The RBNZ cut the official cash rate by 25 bps in May and signaled in June that more easing was likely. We expect another 50 bps of cuts in 2H. The RBNZ’s projections from May saw inflation remaining below the midpoint of the 1-3% target until 2Q 2021, even with employment broadly at the maximum sustainable level. It could take longer, though, absent further countermeasures by the RBNZ. Growth, at 2.5% in 1Q 2019 and 4Q 2018, was the weakest since 2013, and indicators for 2Q suggest price pressures remained muted. Importantly, the New Zealand dollar has been relatively resilient against trading partners, and would likely face additional upward pressure if other central banks further eased monetary policy.” — Tamara HendersonNational Bank of PolandCurrent cash rate: 1.5% Forecast for end of 2019: 1.5%Polish interest rates, on hold at a record-low 1.5% since May 2015, are unlikely to be changed this year. Central bank Governor Adam Glapinski maintains that the longest ever pause in borrowing costs could extend to 2022, when the term of this Monetary Policy Council ends.Buoyed by the dovish mood globally, Glapinski is looking past the EU's steepest pickup in inflation this year, saying price growth remains in check and will ease back to tolerable levels without the need for a rate hike. There are reasons to doubt that scenario, however. They include potential departures of low-cost Ukrainian workers for Germany and a surge in food costs.Czech National Bank Current cash rate: 2% Forecast for end of 2019: 2%The Czech central bank, one of the most aggressive inflation-fighters among global peers, has paused its tightening push after lifting rates for the eighth time in two years in May. While domestic price growth is running above the target, policy makers are now focusing more on risks abroad that could impact the export-oriented economy.The central bank says the benchmark should stay unchanged for about a year. Governor Jiri Rusnok says ideally borrowing costs would resume rising after the pause — because real interest rates are still negative — but he hasn't ruled out a cut if external risks escalate. “Neither we, nor the major central banks in the world, know a lot at this moment about how much these uncertainties will materialize and manifest in the real economy during this cycle,” Rusnok said after keeping rates on hold in June.Methodology: Based on median estimate in monthly or quarterly survey, where available, or most recent collected forecasts. All interest rate and forecast data is as of July 16.\--With assistance from Samuel Dodge, Yinan Zhao, Rene Vollgraaff, Brian Swint, Sveinung Sleire, Karlis Salna, Ruth Olurounbi, Prinesha Naidoo, Anirban Nag, Eric Martin, Carolynn Look, Andrew Langley, Peter Laca, Cagan Koc, Paul Jackson, Henry Hoenig, Michael Heath, Paul Gordon, Patrick Gillespie, Toru Fujioka, Chris Fournier, Alister Bull, Matthew Brockett, Walter Brandimarte, Catherine Bosley, David Biller, Jonas Bergman, Sarina Yoo, Tomoko Sato, Catarina Saraiva, Cynthia Li and Harumi Ichikura.To contact the editor responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Zoe SchneeweissFergal O'BrienFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Wells Fargo Says Big Rush to Bonds Has ‘Gotten Ahead of Itself’
    Bloomberg3 days ago

    Wells Fargo Says Big Rush to Bonds Has ‘Gotten Ahead of Itself’

    (Bloomberg) -- Bond markets are at risk of becoming overheated as investors rush to anticipate a new cycle of global central bank policy easing, according to Wells Fargo & Co.The big bond-buying trade has “gotten ahead of itself,” particularly in the U.S., George Rusnak, the Wells Fargo Investment Institute co-head of global fixed-income strategy, said in a Bloomberg TV interview. He described pricing for three Federal Reserve interest-rate cuts as too aggressive.“We’re a little bit more concerned that there’s this grab for yield without weighing the risks associated with that,” Rusnak said.The rally in Treasuries has taken 10-year U.S. yields down by more than a percentage point in the past nine months. The market value of negative-yielding debt crossed $13 trillion earlier this month, with even some securities from emerging-market issuers priced at sub-zero rates.While China might offer some opportunities for yield, Rusnak said caution may be warranted there as well, given the rise in corporate defaults and uncertainty about whether the People’s Bank of China will step up stimulus in the remainder of the year.\--With assistance from Selina Wang, David Ingles and Yvonne Man.To contact the reporter on this story: Gregor Stuart Hunter in Hong Kong at ghunter21@bloomberg.netTo contact the editor responsible for this story: Christopher Anstey at canstey@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • One Tit-for-Tat Battle That China Shouldn't Fight
    Bloomberg3 days ago

    One Tit-for-Tat Battle That China Shouldn't Fight

    (Bloomberg Opinion) -- Long before the Federal Reserve signaled interest-rate cuts were coming, China’s central bank was busy fiddling with an intricate dashboard of monetary-policy dials to boost growth.In 2018, the People’s Bank of China started cutting the amount of money banks are required to hold, and has been carefully adding liquidity to the system to encourage lending. Beijing has also turned to fiscal policy, lowering taxes and introducing an array of stimulus measures to encourage consumers.Hangovers from past efforts to juice activity explain China’s cautious calibration. The last thing officials want is a gush of liquidity that inflates asset prices. This easing is aimed at cushioning the slowdown, not reversing it. Few in Beijing are looking to replicate the glory days of double-digit growth rates notched in the early 2000s.Now that the Fed has pivoted, China’s stance looks downright conservative relative to peers in developed and emerging economies. Central banks from Manila to Moscow have cut interest rates this year; the Fed and the European Central Bank have hinted more are coming.Whether China will respond by cutting its benchmark lending rate remains an open question. With a deep policy toolkit, officials tend not to rely on the one-year lending rate to boost growth. But even with other options at hand, Beijing would be smart to stick to its measured approach.Opening the stimulus floodgates just a crack shows that China recognizes its larger, older and less-export dominated economy is here to stay. Quarterly GDP numbers are more likely to begin with a 5 in the next few years, than the 6 of the past few or 7 from earlier this decade. In the second quarter, the clip was 6.2% compared with a year earlier, the slowest in almost three decades. The gradual, inexorable downward slope will continue.There's a wistfulness in the portrayal of China's current economic numbers that suggests everything since the 15% growth of early 2007 is a failure. It's easy to forget that the big demand many people had of China back then was that it “rebalance.” In other words, focus less on rapid growth, nurture consumer spending and watch the pile of debt. Sound familiar?China has done all of that, and underpinned the global economy as its own slice of that pie has increased. Among large economies, it sounded a growth alarm when few were listening. The country is still wrestling with the legacy of largess unleashed after the global financial crisis, which buttressed domestic and global activity, but left the country with an overhang of debt.After lagging the PBOC, the Fed is now poised to exceed the easing efforts of its Chinese counterpart. There's little doubt among most Fed watchers that a couple of U.S. rate reductions are on the way, driven by what Fed Chairman Jerome Powell says is a desire to prolong the American expansion. The main risk the Fed has identified to that 10-year growth run isn't uniquely domestic; rather concerns about trade and risks to global growth (read: China and Europe) have deepened.The credit for any bounce in the global activity will probably go to the Fed. After all, the dollar remains the dominant global currency. Yet it would be a mistake to overlook the maturing role of China’s central bank. Both institutions are ultimately interested in the same thing: a durable upswing supported by – and benefiting –  China and America.  While a global central bank is implausible, prospects for world growth are best when the biggest monetary authorities pull in the one direction. In this instance, China got there first.To contact the author of this story: Daniel Moss at dmoss@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Facebook's Crypto Plan Unites Trump and Democrats in Disdain
    Bloomberg4 days ago

    Facebook's Crypto Plan Unites Trump and Democrats in Disdain

    (Bloomberg) -- It’s long seemed that nothing could unite President Donald Trump and Democrats on Capitol Hill. Then Facebook Inc. decided to create a cryptocurrency.Washington’s bipartisan distrust of the social-networking giant will be on display this week as it defends the digital-money proposal in two congressional hearings. In a sign that the testimony is likely to be an ordeal for Facebook, Trump took to Twitter on Thursday to bash the effort.The presidential lashing was just the latest setback for Facebook, which rolled out its plan for a token called Libra in June –- a move that many policy makers called hubristic and ill-timed, considering the political turmoil that continues to swirl around the company. Last week, Facebook agreed to pay about $5 billion in a record privacy settlement with the Federal Trade Commission.Facebook’s traditional pre-hearing courtesy visits to discuss Libra in the House and Senate aren’t going well, according to interviews with lawmakers and congressional staff. While the company has taken pains to describe its initiative in utopian and futuristic terms, lawmakers have been more interested in data security, the company’s awesome market power and why it decided to base the operation outside the U.S.Facebook’s Libra Crypto Coin: 5 Things We Know, and 5 We Don’t“Look at their arrogance, look at their role in the 2016 presidential campaign, look at the fact that they’ve rarely shown any contrition on much of anything,’’ Senator Sherrod Brown of Ohio, the Banking Committee’s top Democrat, said in an interview. “There’s going to be a group of us that’s going to demand some real information.’’Complaints about Libra haven’t just come from politicians. Trump-appointed Federal Reserve Chairman Jerome Powell told lawmakers last week he has “serious concerns’’ about the token and cast doubt on Facebook’s timeline for launching it by next year. He also warned that the U.S. regulatory system may not be equipped to handle the enormous digital payment system envisioned by Facebook, which has more than 2 billion users.Democrats, including Financial Services Committee Chairwoman Maxine Waters of California, have already demanded that the company put its plans on hold while Congress investigates. Republicans, though less vocal, also haven’t been supportive.Power to DominateThe controversy around the project, however unwanted by Facebook, nevertheless highlights the company’s power to dominate policy debates and, to some extent, set the agenda in Washington. Until Facebook jumped in a few weeks ago, cryptocurrency was more of a fringe issue that attracted an unusual crowd of libertarians, speculators and blockchain geeks. Many in Congress were uninterested.The stakes are high for both Facebook and the broader digital coin industry as David Marcus, a top executive at the company, prepares to testify before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.In his prepared remarks, released by the Senate panel Monday, Marcus acknowledged the extensive criticism and pledged to work closely with regulators and governments across the globe. He also addressed one of Washington’s top concerns, saying Libra isn’t intended to compete with national currencies or interfere with central banks on monetary policy. “We know we need to take the time to get this right,” Marcus said in the testimony. “And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”Existing LawsMarcus, whose preparation has included a mock hearing, also told the senators that while Facebook has spearheaded the Libra project, it’s not acting alone. The company has said that it envisions a governing body that would include at least 100 organizations. There are currently 28 listed as founders for the Libra Association, although none has paid the $10 million entrance fee.Libra, he added, will help consumers across the world transfer money much more efficiently and cheaply. And, Marcus warned that if “we fail to act, we could soon see a digital currency controlled by others whose values are dramatically different.” Though he didn’t offer specifics, the People’s Bank of China has already said it’s developing a digital currency.Facebook has been making similar arguments in briefings with lawmakers and congressional aides, according to interviews. The major companies that have partnered with Facebook on the project, including Mastercard Inc., Visa Inc. and Uber Technologies Inc., have been mostly silent about Libra and largely absent from the lobbying effort.Few details on Libra have been disclosed beyond a 12-page white paper issued in June, which said Libra will be built on a new blockchain infrastructure accessible from anywhere in the world. Facebook and its partners have set up a non-profit organization in Switzerland to oversee the payment network. The token will be backed by a reserve of bank deposits and short-term government securities.Trump, in his tweets last week, said he’s “not a fan” of digital coins in general because of their potential use in criminal activity. As for Libra, Trump wrote that it “will have little standing or dependability.” He added that if Facebook really wanted to get into finance it should become a bank -- and be regulated like one.Though the price of Bitcoin and some other cryptocurrencies has gained on the surge in mainstream interest in the concept, a number of competing digital coin companies are distancing themselves from Facebook. Some industry groups are also conducting briefings for congressional staff, pointing out that Facebook’s plan is light on details and not necessarily representative of all tokens.Libra is more of a “company-issued asset” rather than than a true cyptocurrency like Bitcoin, said Coin Center Executive Director Jerry Brito, who’s been involved in some of the meetings on Capitol Hill. A key complaint among purists has been that Libra isn’t decentralized. “There is no company that issues Bitcoin,” Brito added.$5 Billion SettlementBlockchain Association Director Kristin Smith, whose group represents several large crypto companies, said she’s generally not opposed to Facebook’s entrance into the market. She acknowledged, however, that there’s a lot of potential risk.“It’s mixed,” she said. “We certainly don’t want the whole industry to become associated with some of the issues that Facebook has had as a company in the past.’’Along with complaints that it allowed Russia to hijack its platform to support Trump’s election campaign, the company has also drawn fire for numerous consumer privacy breaches. The $5 billion FTC settlement, which still needs final approval from the U.S. Department of Justice, resolves an investigation stemming from Facebook’s involvement with Trump campaign consultant Cambridge Analytica.Need to ClarifySmith attended a news conference at the Capitol last week with four moderate Democratic and Republican members of the House who are strongly supportive of the financial technology industry. They, too, weren’t leaping to endorse the Libra project.Representative Josh Gottheimer, a New Jersey Democrat who sits on the financial services panel, said at the event that he hopes the focus on Facebook’s proposal will prompt lawmakers to consider legislation that clarifies the regulatory landscape. Some of the laws governing digital currency, he noted, go back to the 1930s.“We have to have the conversation,’’ he said. “I don’t want to lose the jobs and innovation elsewhere.’’Gottheimer plans to strike a similar theme at the Facebook hearing this week, but it’s not clear how many other members of the House panel will be interested in the finer details of Libra or digital payments.Some lawmakers predicted that the hearing may quickly devolve into a series of anti-Facebook rants, on issues like fake news in the 2016 campaign, data protection, the company’s market dominance and the FTC settlement. Those topics are often easier to understand for some members of Congress who are decidedly not techies.In what may be a harbinger, Financial Services Committee member David Scott, a Georgia Democrat, mistakenly referred to the digital token Libra as Libor, an interbank lending rate, while questioning the Powell last week. The Fed chief didn’t bother to correct him.(Updates with Marcus testimony beginning in 10th paragraph.)\--With assistance from Lydia Beyoud, Austin Weinstein and Julie Verhage.To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net;Ben Bain in Washington at bbain2@bloomberg.net;Kurt Wagner in San Francisco at kwagner71@bloomberg.netTo contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory MottFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bloomberg4 days ago

    Why China Can’t Get Its Economy Moving

    (Bloomberg Opinion) -- China’s new GDP numbers show that the world’s second-biggest economy is growing more slowly than at any time since the early 1990s. Chinese leaders know what they need to do to arrest the slide: pump more credit into private companies, which generate the majority of jobs and growth. The fact that growth isn’t picking up regardless of their efforts would suggest banks are resisting this imperative. But, the issue isn’t whether they’re complying, it’s how they’re choosing to do so.The government is correct that the private sector’s health is essential to the viability of the overall economy. Private firms account for 80% of jobs, 60% of economic growth and about half of all fiscal revenue in China -- and manage to do so with far lower levels of debt than state-owned companies. Since May 2018, the central bank has thus repeatedly cut banks’ reserve requirement ratios to free up liquidity, then nudged banks to direct that credit toward private firms, especially small- and medium-sized enterprises.At the same time, authorities have demanded that banks reduce risk which, in a slowing economy, should mean more conservative and market-oriented lending practices. Chinese banks consider small, private companies as the single riskiest group of borrowers in the economy. Unlike state-owned firms, they’re not backed by the government and often don’t have a lot of assets that they can post as security. Banks have found a way to balance these competing demands by ramping up a very specific type of lending -- discounting of bankers’ acceptances. While bankers’ acceptances exist the world over, they play an outsized role in China’s financial system. When a company buys something from a supplier, it can pay using a bankers’ acceptance, issued by a bank on behalf of the buyer. When the acceptance matures at some pre-arranged point in the future, the supplier exchanges it for cash from the bank for the amount of the sale. The bank then seeks payment from the company on whose behalf it issued the acceptance.  Sometimes, however, the company that’s been paid with an acceptance needs money before it’s due. It can then go to any bank and exchange the acceptance for cash, albeit at a discount to the value of the acceptance. In short, discounting is not unlike a low-interest payday loan, with the bank lending against future income. The discount rate is currently about 3.6%, which means that if a company cashes in a 100-yuan acceptance that matures in six months, it will receive a discounted 98.2 yuan from the bank. For the past year, growth in bank lending to nonfinancial companies has been driven solely by bankers’ acceptance discounting. At the end of April 2019, the outstanding volume of discounted bankers’ acceptances -- what the People’s Bank of China refers to as “paper financing” -- was up 2.92 trillion yuan ($425 billion), or 76%, from a year earlier, accounting for 32% of all new credit created in that period. Meanwhile, new medium- and long-term loans declined 6% over the same period to 5.53 trillion yuan. Short-term loans (which accounted for 4% of new loans) fell 67%.For banks, discounting seems like a handy solution to their political dilemma. Most of the companies that present acceptances for discounting are small, privately owned firms -- just the kind of companies the government is looking to support. At the same time, discounting is the safest type of corporate loan a bank can make. While the cash goes to a company, the counterparty risk lies with the bank that issued the acceptance. In effect, discounted bankers’ acceptances are interbank loans. Consequently, the risk-weighted capital that banks need to set aside against them is far less than that required for ordinary corporate loans. That’s particularly useful at a time when the large volume of bad-loan write-offs is making unprecedented demands on bank capital. What acceptances don’t do, unfortunately, is expand economic activity. As a rule, companies don’t like discounting their acceptances. Many Chinese firms operate on wafer-thin margins, and discounting erodes their profits. Only when they desperately need cash -- to pay wages, bonuses, taxes and social security contributions, utilities and interest on loans -- do they resort to the tactic. While acceptances are useful as a way of getting cash to companies that are otherwise struggling to stay alive, therefore, they don’t provide either the investment capital or working capital needed to stimulate growth. For that, banks would have to extend real (and far riskier) loans to companies, which they’re still loath to do. The central bank has supported discounting as the answer to the private sector’s problems. Other branches of the government are less convinced. At the end of June, an official from the National Audit Office said the financing environment for small firms hasn’t “fundamentally improved.” Till now, Chinese policymakers and banks have been able to convince themselves that they can make the country’s financial system safer while also stimulating growth. They may soon have to choose between the two. To contact the author of this story: Dinny McMahon at dmcmahon@paulsoninstitute.orgTo contact the editor responsible for this story: Nisid Hajari at nhajari@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Dinny McMahon is a fellow at MacroPolo, the Paulson Institute's think tank, where he publishes "The Cleanup," a monthly newsletter on efforts to clean up China's financial system. He is the author of "China's Great Wall of Debt."For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Full-Blown Currency War Can No Longer Be Ruled Out, Pimco Says
    Bloomberg4 days ago

    Full-Blown Currency War Can No Longer Be Ruled Out, Pimco Says

    (Bloomberg) -- A full-blown currency war where major central banks and governments, including the U.S., deliberately weaken their currencies can no longer be ruled out, Pacific Investment Management Co.’s global economic adviser Joachim Fels wrote in a report.The view is in line with a rising chorus of Wall Street analysts who warn that President Donald Trump’s repeated complaints about the foreign exchange practices of key trading partners heightens the risk of U.S. intervention to weaken the dollar.Fels describes current conditions as a “cold currency war, round three” that is at risk of escalating.“Following a pause since early 2018, the cold currency war that has been waging between the world’s major trading blocs for more than five years has been flaring up again,” Fels wrote. “Moreover, even an escalation to a full-blown currency war with direct intervention by the U.S. and other major governments/central banks to weaken their currencies, while not a near-term probability, can no longer be ruled out.”Trump’s calls for the Federal Reserve to cut interest rates as well as signals from the European Central Bank, People’s Bank of China and the Bank of Japan that hint at further easing measures has inflamed global currency tensions, Fels wrote.“The curtain has opened for round three of the cold currency war,” he said.While near-term intervention by the U.S. government to weaken the dollar remains unlikely -- given unresolved questions like whether the Treasury has adequate firepower -- the greenback can still be weakened by policy signals.“Even the threat of outright dollar sales, coupled with continued verbal and tweeted “weak dollar policy” interventions and, importantly, easier monetary policy by the Fed, could well do the trick,” according to Fels.The U.S. last intervened in foreign-exchange markets in 2011 when it stepped in along with international peers after the yen soared in the wake of that year’s devastating earthquake in Japan.Major central banks may not be the only ones in the cold currency war, according to Fels, who noted expectations for lower rates in South Korea, Indonesia, Chile and South Africa this week.“While I’ve focused on the cold currency war among major central banks in this note, many other central banks are of course also engaged in it,” Fels wrote.\--With assistance from Katherine Greifeld.To contact the reporter on this story: Enda Curran in Hong Kong at ecurran8@bloomberg.netTo contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael HeathFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Not Everyone Gets a Piece of China's $2 Trillion Pie
    Bloomberg5 days ago

    Not Everyone Gets a Piece of China's $2 Trillion Pie

    (Bloomberg Opinion) -- China’s 14 trillion yuan ($2 trillion) brokerage industry is divided into two camps: What locals refer to as dragon heads – the biggest and fittest firms – and the laggards, what we’ll call the dragon tails.China’s securities regulator recently formalized this distinction, taking steps to limit the scope of smaller firms’ services to traditional brokerage, advisory and underwriting. They will now be barred from riskier, more capital-intensive businesses such as over-the-counter derivatives and pledged-stock loans, the practice of offering shares as collateral (which can get messy when stock prices fall). The country’s minor players have gotten caught up in all kinds of unsavory practices that have led to defaults, market manipulation and worse – system meltdowns. So time to cut off the tails. China’s brokerage industry remains surprisingly crowded, with a staggering 131 players, despite the paltry amount they earn. Last year, return on equity of listed brokers was just 2.5% compared with 7.8% globally, according to Bloomberg Intelligence. Consolidation would go a long way toward helping regulators manage such a scattered industry. Against this backdrop, it’s little surprise that even earnest bureaucrats in Beijing can’t keep track of all the sector’s shenanigans. As we’ve written, brokers’ asset-management arms have been major suppliers of shadow loans to risky private enterprises. Can’t get proper bank loans? No problem, acquire a brokerage for your financing instead. Xiao Jianhua – the founder of conglomerate Tomorrow Holding Co., who was abducted from Hong Kong’s Four Seasons Hotel in 2017 – owned a substantial stake in Hengtou Securities Co. The trouble in his business empire is far-reaching: In May, Xiao’s Baoshang Bank Co. became China’s first bank seizure in two decades.With the helping hand of brokers, some companies also have been faking demand for their bonds. Not only does this practice distort pricing, it wreaks havoc in the interbank market. To pull it off, corporate issuers buy a sizable chunk of their own debt issuance through special funds, which brokers manage. That fund goes to the interbank market, a source of financing unavailable to non-financial firms, offering this bond as collateral. After the Baoshang seizure, however, borrowing costs soared as banks became unwilling to provide such repo financing to smaller brokerages. How can a big institution be sure it's trading with a genuine prop desk or one of these special funds standing in for a shady company? As we saw with the collapse of Lehman Brothers Holdings Inc., counterparty risk can get ugly pretty quickly. The financial system hardens into a cement floor: Even fresh liquidity from the central bank can’t seep through. The People’s Bank of China can ask its state-owned banks to provide ample liquidity to the biggest brokerages – but that won’t help more than 100 smaller ones.Consider, too, the sheer volume of stocks pledged for loans at brokerages. One year ago, a whopping 22% of listed companies pledged at least 30% of their shares for short-term loans. A weak market quickly turned into a bearish nightmare when pledged stocks edged close to margin calls. To keep things stable, regulators in January were forced to scrap an automatic threshold.By now, China’s securities industry is ripe for consolidation. Last year, the top five brokers took home over 40% of the industry’s total revenue; more than 20 of the smallest players were loss-making. But tossing out the smaller fish is easier said than done. Various arms of the government own many of the players, and bureaucrats wouldn’t dare to sell “national assets” below their book value. Of the 31 A-share listed brokers, government entities – from sovereign fund Central Huijin Investment Ltd. to lesser-known Hubei Energy Group Co. – on average have a quarter stake in brokers. In January, Citic Securities Co. raised eyebrows after planning to buy a loss-making regional securities firm from the Guangzhou provincial government for 13.4 billion yuan, or 1.2 times its book asset value. It’s only natural to expect that China’s clever brokers will continue playing cat-and-mouse with regulators. But if Beijing’s brave enough to take on dragons, that could be a dangerous game.To contact the author of this story: Shuli Ren at sren38@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Beyond the Trade War, China’s Economy Is Struggling to Stabilize
    Bloomberg5 days ago

    Beyond the Trade War, China’s Economy Is Struggling to Stabilize

    (Bloomberg) -- China is grappling with a slowdown that will see output growth slide to the weakest pace in almost three decades this year, as factors far beyond the trade war with the U.S. weigh on the world’s second-largest economy.Gross domestic product is forecast to grow at 6.2% in the second quarter, the slowest in a three-month period since at least 1992. Data due for release Monday morning in Beijing will show whether the downward forces from external demand, deflationary factory prices and contracting manufacturing can be offset by stabilizing investment, brighter consumer sentiment and a rebounding property sector.The chances for those green shoots to hold on and expand into a firmer recovery depend in turn on how well the government’s targeted stimulus policies can lift local production and counteract the trade war’s effects. The U.S. Federal Reserve’s path toward imminent rate cuts is handing China more room to make its own monetary policy easier, just when it needs it.“China’s economy will slow further in the second half as external demand remains the biggest drag, and it’ll likely stabilize from there under policy support,” said Wang Tao, chief China economist at UBS AG in Hong Kong. “The annual growth rate will stay above 6%.”Data released Friday in Beijing confirmed the picture of weak domestic demand, the negative impact of the tariff war -- and the chance that stimulus measures aimed at fostering credit may put a floor under the slowdown. Export growth slowed, imports slumped, while credit expansion held up.As China’s population ages and the economy transitions from the double-digit growth rates of the mid-2000s, policy makers are attempting to manage the path down, while curbing debt and fending off mass industrial unemployment. Those efforts can be seen in three key sectors:InfrastructureHow strongly fixed-asset investment growth can pick up is key. More specifically, infrastructure investment will have to do the heavy lifting, as manufacturers who continue to be pressured by the tariff threats and a fragile global economy are hesitant about new investment.Economists including those at UBS AG, Australia & New Zealand Banking Group Ltd. and Morgan Stanley expect infrastructure investment growth to continue to gradually accelerate this year.A fiscal stimulus plan including about two trillion yuan ($291 billion) of tax cuts is slowly feeding through into the economy. The government has stepped up efforts recently, easing the rules for using government debt in some infrastructure projects and pledging to renovate hundreds of thousands of old buildings. The relaxation of the use of government debt can increase investment by 800 billion yuan to 1 trillion yuan, according to UBS’s Wang.A leading indicator of infrastructure investment -- excavator sales -- was basically flat in June after falling in May. That sign of stabilization “bodes well for investment activity and economic growth over the second half of 2019,” Xing Zhaopeng And Betty Wang at ANZ wrote in a note.What Bloomberg Economists SayThe data due Monday will highlight an economy under continued pressure, with investment likely to remain sluggish and industrial output growth to slow. The most worrying sign from the June trade data released Friday was another month of undershoot in imports, which underscores weakness in domestic demand.\-- Chang Shu and Qian Wan, Bloomberg EconomicsClick here and here for the full notes.Retail SalesChina needs its masses of middle-class consumers to help drag it out of a trade-induced slump. This year though, auto sales and property-related consumption such as home appliances have been among the main drags on weak retail sales, and there aren’t clear signs of recovery yet in those sectors.Passenger-car sales posted the first increase in June in more than a year as dealers offered heavy discounts, yet economists remain cautious on how long the recovery can be sustained. ING Bank NV’s Iris Pang said the auto industry will continue to face challenges from both “technological disruption from the ride hailing apps” such as Didi as well as cyclically slowing growth.PropertyPolicy makers are trying to keep a tight lid on the property sector, always a candidate for runaway asset prices. Property development investment has stayed stable this year, and regulatory curbs mean that growth will stay within bounds.The country’s banking regulator has asked trust companies with fast-growing businesses in the real estate sector to control the pace of expansion and manage risks better, Xinhua News Agency reported. The People’s Bank of China has also requested banks to not lower mortgage rates further, despite easier monetary conditions.In a scenario where the trade war negotiations fall apart and tariffs on all of China’s exports again appear on the horizon, the property and auto sectors will be where policy makers try to buffer the economy, according to Lu Ting, chief China economist at Nomura Ltd. in Hong Kong.“Beijing will likely roll out more real stimulus measures such as cutting purchase tax for passenger cars and forcing major cities to ease auto license quotes,” he said. Earlier stimulus measures that had been mothballed “will likely be put back on the table in the case that U.S.-China trade tensions escalate further.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Kari Lindberg in Hong Kong at klindberg13@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • ECB Policy Makers Agreed on Need to Prepare to Ease Policy
    Bloomberg8 days ago

    ECB Policy Makers Agreed on Need to Prepare to Ease Policy

    (Bloomberg) -- European Central Bank policy makers were united in June on the plan to stand ready to provide more stimulus to the euro-area economy, a move that could be followed by interest-rate cuts as soon as this month.A number of reports on the economy have deteriorated since that meeting, which may increase the chance of stimulus sooner rather than later. ECB President Mario Draghi has also toughened his language, saying that if the outlook didn’t improve, that would be enough to warrant action.“There was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the Governing Council needed to be ready and prepared to ease the monetary policy stance further,” according to an account of the Governing Council’s June 5-6 meeting.The ECB isn’t alone in signaling looser policy to come. Federal Reserve Chairman Jerome Powell on Wednesday flagged risks to growth and traders expect at least a quarter-point U.S. cut later this month. The People’s Bank of China is using a varied tool box to push credit into the economy.At the June meeting, ECB members also reached a general consensus on policy proposals put forth by Chief Economist Philip Lane, though “some nuances were expressed about individual elements of the policy package,” including forward guidance on interest rates and pricing of long-term loans for banks. Some wanted the pricing to be more attractive.Draghi has said the ECB is willing to consider further cuts to rates or potentially renewing asset purchases if needed. Starting in September there are also plans to provide lenders with an extra infusion of cash in the form of long-term loans.Some policy makers have set a slightly higher bar for action than Draghi, suggesting that new downside risks would need to materialize. That indicates they don’t want to rush any major decision.What Our Economists Say:“We expect a rate cut, possibly as early as this month, while the chances of renewed asset purchases are rising.”--Jamie Murray, economist. Here’s the full ECB REACTECB officials said inflation was “seen to remain some distance away from the Governing Council’s inflation aim.” Market-based inflation expectations have fallen steeply this year.The Governing Council will next meet to set policy on July 24-25 and update their economic projections. Draghi will likely leave office this October as the only ECB president never to have raised interest rates. IMF chief Christine Lagarde is set to succeed him.(Updates with Federal Reserve in fourth paragraph.)To contact the reporters on this story: Kristie Pladson in Frankfurt at kpladson@bloomberg.net;Carolynn Look in Frankfurt at clook4@bloomberg.netTo contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, ;Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Zoe SchneeweissFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Powell Gives Emerging-Market Peers a Strong Reason to Cut Rates
    Bloomberg8 days ago

    Powell Gives Emerging-Market Peers a Strong Reason to Cut Rates

    (Bloomberg) -- Federal Reserve Chairman Jerome Powell gave emerging-market central banks another solid reason to lower interest rates.His signal on Wednesday that the Fed is preparing to lower borrowing costs for the first time in a decade is supportive of higher-yielding currencies, which in turn allows monetary authorities in developing markets to ease policy without triggering an exodus of capital.That’s an opportunity for policy makers to bolster their economies against slowing growth, subdued inflation and simmering trade tensions that are hurting investment and manufacturing. Across Asia and Europe, factory activity shrank in June while the U.S. showed only meager economic expansion.Central banks in Indonesia, South Africa, South Korea and Turkey are among those scheduled to make policy decisions over the coming weeks. Some of them across emerging markets have already shifted gears this year, with Russia, Chile, Malaysia, India and the Philippines lowering rates in recent months.“Powell’s testimony and likely 25 basis-point easing this month is likely to help spur emerging-market central banks to cut rates,” said Mitul Kotecha, a senior emerging-markets strategist at TD Securities in Singapore.Powell’s comments may give Bank Indonesia the impetus it needs to move after leaving its benchmark rate unchanged at 6% this year. It raised interest rates six times last year by a total of 175 basis points amid an emerging-market rout, and has been proceeding cautiously this year to avoid undermining the currency.South Korea’s central bank, which also meets next week, is expected to cut over coming months.“The tone of the comments was more dovish than anticipated,” said Stuart Ritson, portfolio manager for emerging-market debt at Aviva Investors in Singapore. “It increases the chance we see the start of an easing cycle in Indonesia next week.”The People’s Bank of China is already in stimulus mode, though has so far steered clear of adjusting its benchmark rate. Instead, the PBOC is leaning on a varied tool box to push credit into the economy. Governor Yi Gang told Bloomberg News in June that the central bank has “tremendous” policy room.The nation’s producer price inflation slowed to zero in June from a year earlier, the weakest reading in almost three years, stoking expectations that more easing is on the way.“Financial conditions in China are now firmly in easing territory and filtering through to the real economy,” Shaun Roache, Asia-Pacific chief economist for S&P Global Ratings, wrote in a note. “This careful easing should be enough to put a soft floor under China’s growth later this year.”In other regions, Turkey will be in focus after President Recep Erdogan dismissed the central bank governor last weekend. Given Erdogan’s push for lower interest rates, the question now is how fast will monetary policy ease when policy makers meet on July 25.Erdogan has said lower rates are needed to boost an economy that entered its first recession in a decade this year. The one-week repo rate has stayed at 24% since September when it was raised by a total of 625 basis points.South Africa’s stagnant growth has raised investors’ hopes of a rate cut when authorities meet on July 18. The central bank has held its key rate at 6.75% since a 25-basis-point increase in November and its scope to cut is limited by a current-account deficit.What Bloomberg Economists Say:The Fed’s signaled easing will make it easier for emerging market central banks to lower rates. This comes at a time when EMs are weakening and in need of policy space. China has been deep in an easing cycle. Many EM central banks, including those in India, Malaysia and the Philippines have cut rates this year on growth concerns. Some central banks, for example Indonesia, have been hesitant on concerns over currency pressures.\--Chang Shu, Asia economistEmerging-market assets cheered Powell’s remarks. The MSCI index of emerging-market currencies rose 0.4% as of 10:01 a.m. in London, extending Wednesday’s 0.1% gain. The MSCI gauge for developing-nation shares advanced for a second day, adding 0.7%.Traders have stepped up bets that the Fed will cut at its next meeting on July 30-31, possibly by half a percentage point, though the consensus is for a quarter-point cut.“The dovish Fed now removes the last hurdle for Asian central bank to ease,” said Jason Daw, the head of emerging-markets strategy at Societe Generale in Singapore. “The market tends to front-load a higher level of Asia central bank easing than is ultimately delivered in the cuts themselves.”\--With assistance from Marcus Wong and Tomoko Yamazaki.To contact the reporters on this story: Enda Curran in Hong Kong at ecurran8@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.netTo contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net;Tomoko Yamazaki at tyamazaki@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bloomberg8 days ago

    What Powell’s Rate Cut Signal Means for China’s Central Bank

    (Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.The unmistakable signal from U.S. Federal Reserve Chairman Jerome Powell that a rate cut is imminent hands China more room to maneuver in easing its own monetary policy. The question is on which tool to use.With a slowing economy, resurgent deflationary fears and the downdraft from trade tensions, the case for easier policy from the People’s Bank of China is building. A more stable yuan also gives Governor Yi Gang and other policy makers more leeway.“If the Fed does cut rates in July, it would open room for a domestic interest rate cut here,” Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing wrote in a note. “China’s central bank will very likely follow suit.”It’s not as simple as matching one rate cut in Washington with another in Beijing, though. China’s complex array of monetary tools is in flux, and the instrument that’s nominally still the “benchmark” is falling into disuse. Policy makers have given few clues about their intentions, and a meeting of the Politburo later this month may be the first opportunity to clarify the government’s plans.Here’s an analysis of different monetary easing venues:Reverse Repurchase RateThe interest rate the PBOC charges on 7-day reverse repo operations had been its most favored tool to mirror the Fed’s rate decisions in recent years. The central bank raised the cost of the short-term loans by 5 basis points in March 2018 after a Fed hike, but has kept the price unchanged since then. The rate is seen falling in the second half of the year, according to a Bloomberg survey of economists last month.Whether such a market-centric cut is effective to lift sentiment and revive production is questionable, though. The PBOC faces renewed difficulties around the transmission of cheap funding to the real economy. Further lowering market borrowing costs aren’t likely to be very helpful without other measures to unclog the monetary plumbing.Rate ReformA recent State Council meeting presided over by Premier Li Keqiang pledged to lower “real” borrowing costs, indicating the easing will come from better transmission of monetary policy and lower loan application fees, rather than a direct interest rates reduction.A long-postponed reform of interest rates to make borrowing costs more market-oriented is gathering pace. While details aren’t yet available yet about the revamp, policy makers are working to make interbank borrowing and bond yields more in line with the price charged for the PBOC’s short-term and mid-term loans.The reform can “allow a better transmission of monetary policy, with the ultimate purpose of lowering corporate borrowing cost and reviving credit demand,” according to a report by Judy Zhang, an analyst at Citigroup Global Markets Ltd.Reserve RatiosLowering the amount of money banks have to deposit at the central bank can provide cheap long-term funding to lenders and encourage credit growth. The ratio of required reserves is seen declining further this year, according to a Bloomberg survey of economists. Premier Li Keqiang also said this month that the government will offer cuts or targeted cuts for the reserve-requirement ratios aimed at specific sectors.Medium-Term Lending FacilityThe borrowing cost the PBOC charges for more expensive longer-maturity loans usually moves along with the rate for 7-day reverse repo operations, otherwise it’d give way to interest rate arbitrage. The overall amount borrowed via this facility has been declining, and with more reserve-ratio cuts on the way, that can help banks pay off those loans and replace them with cheaper options.Benchmark RateChina’s one-year lending rate, a tool that governs borrowing costs across the whole economy, is arguably the least likely to be used. Amid concerns about the fragile yuan, rising household debt as well as the risk of property and stock market bubbles, policy makers have shied away from adjusting this rate since 2015. The PBOC is on track to revamp the rates system this year, which may cause the so-called benchmark to be scrapped altogether.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China’s Looming Deflation Fears Strengthen Policy Easing Case
    Bloomberg9 days ago

    China’s Looming Deflation Fears Strengthen Policy Easing Case

    (Bloomberg) -- The case for Chinese policy makers to ramp up stimulus grew stronger, as tepid domestic demand and falling commodity prices increase the risk of a return to factory deflation.Growth in China’s producer price index slowed to zero in June from a year earlier, the weakest reading in almost three years. Prices fell 0.3% from May. The downward trend accentuates fears of a return of deflation for manufacturing, which would erode company profits and increase debt repayment pressures.The prospect of falling prices adds to the case for the People’s Bank of China to increase stimulus to the economy, with policy makers keen to keep output stable amid restarted trade talks with the U.S. The government will release gross domestic product and other data for the second quarter on July 15.Factory prices have “fallen faster than I expected, and if they continue to decelerate, it means overall domestic demand is weak,” said Liu Peiqian, Asia strategist at Natwest Markets Plc in Singapore. “While a single month’s data wouldn’t be enough to alter their monetary policy stance, the PBOC will likely take swift actions if it continues to drop at a rapid pace.”On the other hand, consumer prices stabilized at 2.7% year-on-year, the same as in May and in line with estimates. Core inflation, excluding volatile food and energy prices, remained at 1.6%.What Bloomberg’s Economists SayChina’s June price data intensify our concern that the industrial sector is slipping back into deflation. That is likely to get the PBOC’s attention because of the potential damage to industrial enterprises’ profits -- and the negative spillover that has on the economy. The divergence of consumer and factory prices will also put a squeeze on profits.PPI is likely to go below zero, and this will increase pressure on the central bank.\-- David Qu, Bloomberg EconomistFor the full note, click hereHistorically, lower producer prices in China put pressure on the global inflation outlook as export prices usually follow those at factory gate. If that also holds true this time, it would add to global concerns on growth and raise questions about what other central banks will do.Given concerns over domestic asset price bubbles and the fragile yuan, China is unlikely to embark on an aggressive cycle of cuts to the benchmark one-year lending rate. Economists have dialed up expectations that the PBOC will reduce the amount of cash banks have to deposit with the central bank, according to a recent survey by Bloomberg. Borrowing costs of the PBOC’s daily open market operations are also seen declining.U.S. Federal Reserve Chairman Jerome Powell’s scheduled testimony to Congress later on July 10 will also provide clues as to China’s room to maneuver on domestic policy.“The PBOC and the economy will likely maintain an easing bias, rather than tightening,“ Chang Jian, Barclays Bank PLC’s chief China Economist said on Bloomberg TV, noting that the central bank has been providing the markets with liquidity after the takeover of a small lender caused inter-bank lending issues.“We do see some downward pressures to the data coming next week,” she said.\--With assistance from Kari Soo Lindberg and Sharon Chen.To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China’s June FX Reserves Rise to Highest Since April 2018
    Bloomberg11 days ago

    China’s June FX Reserves Rise to Highest Since April 2018

    (Bloomberg) -- China’s foreign-currency holdings rose for a second month amid potential capital inflows and positive valuation effects, hitting the highest level in more than a year.Reserves climbed to $3.119 trillion in June from $3.101 trillion in May, the People’s Bank of China said MondayKey InsightsThat was higher than the median estimate of $3.110 trillion in a survey of economistsThe value of reserves rose due to a weaker dollar and higher international financial asset prices, and the stockpile will continue to be stable as the economy becomes more resilient and sustainable, the State Administration of Foreign Exchange said in a statement“The temporary trade truce has eased the RMB depreciation pressure in near term, while the medium-term outlook is contingent on the outcome of trade talks and China’s policy responses,” Liu Li-Gang, chief China economist at Citigroup Inc. in Hong Kong, wrote in a note, referring to the yuan by its formal nameGet MoreForeign investors bought at least 74.7 billion yuan ($10.8 billion) or more of Chinese bonds in June, according to Bloomberg calculations(Updates with SAFE and Citi comments. An earlier version corrected the day of release.)\--With assistance from Tomoko Sato.To contact Bloomberg News staff for this story: Kari Lindberg in Hong Kong at klindberg13@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.netTo contact the editors responsible for this story: Fion Li at fli59@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • At HK$3.28, Is Bank of China Limited (HKG:3988) Worth Looking At Closely?
    Simply Wall St.13 days ago

    At HK$3.28, Is Bank of China Limited (HKG:3988) Worth Looking At Closely?

    Let's talk about the popular Bank of China Limited (HKG:3988). The company's shares saw significant share price...

  • Motley Fool15 days ago

    Better Buy: HSBC Holdings vs. Bank of China

    Banking giants HSBC and Bank of China are two of the largest listed stocks in Hong Kong. But which one should investors go for?

  • Easy Money Won't Keep China Bond Bulls Happy for Long
    Bloomberg15 days ago

    Easy Money Won't Keep China Bond Bulls Happy for Long

    (Bloomberg) -- Investors thinking the current rally in China’s sovereign bonds means it’s about to catch up with the big global surge might want to reconsider.That’s the takeaway from a survey of 34 analysts and traders by Bloomberg this week. The median 10-year yield forecast was 3.18% for the end of September, up slightly from 3.17% on Thursday. And a key gauge of interbank borrowing costs -- which hit a four-year low -- will average 2.5%, the survey also showed. That’s about 50 basis points higher than the current level.China’s government bonds have jumped in recent days, with the yield falling 10 basis points in four sessions, after another set of weak economic data strengthened the case for further monetary easing. Still, survey respondents said the People’s Bank of China will stand pat this quarter, taking account of the shorter-term liquidity it has already pumped in.“Investors shouldn’t be too hopeful of broad monetary easing,” said Zhong Zhengsheng, managing director at research firm Cebm Group Ltd. One concern among officials: liquidity in the system could go toward property, exacerbating home-price inflation, he said.And with money-market rates so low, it’s an open question whether a cut to the cost on funds the PBOC offers to banks is needed, Zhong said.Twenty of the survey respondents said the central bank will keep the required reserve ratio unchanged in this quarterOnly one predicted a cut in the benchmark lending rateAnd 20 said authorities will refrain from reducing the rate for open-market operationsChina’s government bonds have been lagging behind the powerful global rally -- ironically underlining the potential value of the world’s second-largest debt market as a diversification option for international investors. Indeed, foreign inflows to China’s bonds have continued.For local funds, a flurry of municipal bond issuance has weighed on the market -- alongside the reverberations of a seizure of a local bank, which sparked concern about the potential for forced sales of government bonds by smaller lenders in a rush to raise cash.Bulls on China sovereign bonds might need to count on a further deterioration in economic data that forces officials to act on the monetary front.“With further policy easing and less concern on credit risks, China’s government bonds may rise in a six-month horizon,” said Larry Hu, chief China economist at Macquarie Group Ltd. in Hong Kong.(Updates prices throughout.)\--With assistance from Jing Zhao, Xize Kang, Yuling Yang, Ling Zeng, Helen Sun, Shuqin Ding, Tongjian Dong and Claire Che.To contact the reporters on this story: Tian Chen in Hong Kong at tchen259@bloomberg.net;Wenjin Lv in Shanghai at wlv8@bloomberg.net;Cynthia Li in Hong Kong at cli205@bloomberg.netTo contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann, Christopher AnsteyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China Is Walking a Monetary Tightrope as Trade War Plays Out
    Bloomberg21 days ago

    China Is Walking a Monetary Tightrope as Trade War Plays Out

    (Bloomberg) -- Policy makers in Beijing are trying to funnel cash into the economy while warding off a re-inflation of the property market bubble, a task made doubly hard by the uncertainty generated by the intensifying trade war.That tightrope act has become more evident in the past couple of days, with further steps taken to curb lending for mortgages even as the central bank tries to increase credit available to small businesses, the private sector and manufacturers.The People’s Bank of China is leaning on commercial lenders not to reduce home mortgage rates, amid signs that the traditionally frothy sector is poised to take off again, according to people familiar with the matter.At the same time, a report by the central bank released Thursday soft-pedaled a campaign to rein in risks in the banking sector, amid jitters caused by the seizure of regional lender Baoshang Bank Co. a month ago.All of the government’s efforts to manage its domestic conundrums could be thrown into turmoil if the outcome of the high-stakes encounter between President Xi Jinping and President Donald Trump this weekend leads to a re-escalation of trade war tensions. That could put supporting growth front and center of the Chinese domestic agenda again.“Easing and tightening may co-exist, and it depends on where you look at”, said Betty Wang, senior China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. She said policy makers need to balance economic growth with debt management, which means expansion won’t be achieved by sacrificing too much on issues such as risk control.Authorities have recently unleashed an array of subtle measures to cool the property sector, such as curtailing developers’ fundraising to limit what they can pay for land. Stimulus measures aimed at fostering investment and consumption can often end up in an unwanted inflow of cash into real estate.The decrease in borrowing costs between banks “has indeed translated into lower mortgage rates,” said George Wu, chief economist at Changjiang Securities Co. “The pick-up in first- and second-tier property markets this year has also lured lenders.”Another warning sign is the $7.4 trillion pile of household borrowing, which touched an historical high last month. On the back of a boom in property prices, household debt has been climbing for 10 years straight, at a pace that rivals any such run-up in major economies. Guo Shuqing, the head of China’s banking regulator, has warned of debt reaching an unsustainable level for some households.Read More: A $7 Trillion Debt Pile Looms Large Over Chinese HouseholdsThat makes the global shift to monetary easing prompted by the U.S. Federal Reserve a double-edged sword for Chinese policy makers. On the one hand, the prospect of looser monetary policy globally helps China support growth at home. On the other, it makes controlling debt risks harder.The central bank will likely follow the Fed toward easing if the U.S. cuts rates later this year, according to Citic Securities analyst Ming Ming. Economists also forecast a bigger chance for the PBOC to lower market borrowing costs in the third quarter than they did last month, according to economists surveyed by Bloomberg.With or without a trade war, policy makers need to tackle slowing investment and sluggish consumer sentiment. Early indicators for June point to renewed softening in growth, indicating that tax cuts and other supportive measures are feeding through only slowly.After a year of targeted monetary easing, small firms are still struggling to get funding, according to a survey by the PBOC. Should the issue persist, it could impact the job market and further damp consumer sentiment, testing policy makers’ constrained manner toward easing.“The authorities will likely refrain from major policy shifts for now while making only small tweaks” because debt containment remains a focus highlighted by the Politburo at its meeting in April, said Larry Hu, chief China economist at Macquarie Group Ltd. in Hong Kong. Any major changes in stance will have to wait until the end of the year, he said.To contact Bloomberg News staff for this story: Emma Dong in Shanghai at edong10@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net;Ling Zeng in Shanghai at lzeng30@bloomberg.net;Xize Kang in Beijing at xkang7@bloomberg.net;Heng Xie in Beijing at hxie34@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net;Katrina Nicholas at knicholas2@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China's Central Bank Is Said to Push Banks to Curb Mortgages
    Bloomberg22 days ago

    China's Central Bank Is Said to Push Banks to Curb Mortgages

    (Bloomberg) -- The People’s Bank of China has asked commercial lenders not to lower the interest rate of home mortgages from the current level in order to curb the growth of home loans, according to people familiar with the matter.The PBOC offered verbal guidance to state-owned banks, joint stock banks and other commercial lenders, the people said, asking not to be identified as they’re not authorized to speak publicly. Banks received the guidance early this month, according to two of the people.The move signals policy makers remain committed to curbing risks in the real estate market even amid slowing economic growth. Declining fiscal revenue growth has prompted some local policy makers to ease rules on property purchases to boost land sales income, leading to a re-acceleration in the sector earlier this year. The weighted average rate of personal home mortgage loans declined in the first quarter, the first drop in more than two years. China’s new home price growth accelerated in May as loosening purchase requirements in smaller cities boosted demand.One person at a local branch of a state-owned bank said the lender has increased mortgage rates for first-home buyers, with borrowers now paying about 5.15%, up from about 4.9%. The PBOC hasn’t shifted its benchmark one-year lending rate since 2015, and has moved to ease financial conditions multiple times for small and private businesses to aid growth, primarily through the use of its reserve-ratio tool.The PBOC didn’t respond to a faxed request for comment.The move is the latest step taken by Chinese policy makers to curb rekindled debt risks in the real estate market. A financial regulator and the country’s exchanges halted some builders from selling debt, Bloomberg reported this month, citing people familiar with the matter. The National Development and Reform Commission is also said to be reining in offshore bond sales by property developers and local government financing vehicles to ease credit risks.China’s household leverage ratio increased to 53.2% at the end of 2018 from 17.9% in 2008, but the growth momentum will likely ease going forward as policy makers keep a lid on property speculation, according to a May report by the Chinese Academy of Social Sciences.(Update to add details on property market curbs from fifth paragraph.)To contact Bloomberg News staff for this story: Heng Xie in Beijing at hxie34@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net;Ling Zeng in Shanghai at lzeng30@bloomberg.net;Xize Kang in Beijing at xkang7@bloomberg.netTo contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • A Dark Alley in China's Credit Market Suddenly Getting Rough
    Bloomberg24 days ago

    A Dark Alley in China's Credit Market Suddenly Getting Rough

    (Bloomberg) -- One of the most opaque areas of China’s credit markets involves the practice of companies buying their own bonds. That may soon get a lot tougher, contributing to financing difficulties that are already bedeviling the nation’s policy makers.At issue is a sharp increase in scrutiny by financial institutions of the collateral that their counterparties offer up in the repurchase market, a crucial channel for short-term funding. If the debt sold by issuers that indirectly purchased a portion of their own bonds -- which could account for as much as 8% of China’s corporate bonds, according to Citic Securities Co. -- is shunned, that will squeeze liquidity for a swathe of the nation’s businesses.Despite regulators’ actions to prevent any seizing up in the repo market and short-term collateralized lending between banks, some institutions still moved to avoid riskier securities. The moves have showcased the fragility of confidence toward borrowers that lack state backing in a financial system still dominated by state-sector banks.For firms that obtained funding via unorthodox methods, conditions may become particularly challenging. One of those practices is known as structured issuance, where a company will transfer cash to an asset manager to buy a slice of the bonds the company is itself selling. The manoeuvre helps give the appearance of greater demand for its securities and stronger ability to obtain funding. What could make the practice untenable is if asset managers can no longer use those securities held in custody as collateral for repos.“Since some repo transactions have defaulted recently, it is unclear whether companies can continue to borrow money from the structured issuance method, said Meng Xiangjuan, chief fixed-income analyst at SWS Research Co. in Shanghai. “If it stops, some issuers will certainly face difficulties operating their business normally, and their debt-repayment pressure will rise,” she said.CHINA DEFAULT WATCH: Three More Companies Missed PaymentsWhile the practice of self-financing a portion of bond issuance is well known among credit analysts and ratings companies, observers have been loath to name the firms involved, making this a particularly murky part of China’s debt market. Citic Securities, for its part, hazarded a total of about 1.5 trillion yuan ($218 billion) worth of securities outstanding that were sold in part via structured issuance.A shock takeover of Baoshang Bank Co., a city commercial lender linked with conglomerate Tomorrow Group, has had cascading effects. One of the readily quantifiable ramifications has been to raise the funding costs for lower-rated banks, as seen in the rates on their negotiable certificates of deposits.Another impact has been the shock to confidence after regulators warned that Baoshang’s interbank creditors might face losses. They have since had to fight a rearguard action to encourage banks to sustain their interbank and repo operations, and the People’s Bank of China has had to pump liquidity into money markets to avert any systemic upset.Concern became so great that the China Foreign Exchange Trading System, an arm of the PBOC, set up a procedure for the orderly resolution of defaulted repo transactions, pledging to conduct anonymous auctions of the bonds used as collateral -- a move that hides the name of the counterparty that defaulted.“The government has been taking measures proactively to avoid systemic risk” in the interbank market, Goldman Sachs Group Inc. economists including Zhennan Li, wrote in a note Tuesday. Even so, “in coming months, the macro environment looks set to remain complicated, and macro policy more challenging, and we think the probability of a rise of financial stress will remain relatively high,” they wrote.Regulators’ actions have averted a broader surge in premiums for lower-rated borrowers, such as local government financing vehicles that analysts say account for a portion of structured issuance. But strategists remain concerned that the days of such an unconventional fund-raising strategy may be numbered if the securities are no longer accepted as collateral for financial transactions.“In the short run, companies that rely on structured issuance definitely have to sell bonds at higher yields to attract investors,” said Brian Lou, portfolio manager from UBS Asset Management in Shanghai. “Everyone knows the funding chain is really fragile after the Baoshang Bank seizure, and the most important task for institutional investors right now is to allocate assets better and improve risk management.”(Updates the charts.)To contact Bloomberg News staff for this story: Tongjian Dong in Shanghai at tdong28@bloomberg.net;Qingqi She in Shanghai at qshe@bloomberg.netTo contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Christopher Anstey, Lianting TuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Trump Rattles Emerging Markets With Threat of China Tariffs
    Bloomberg25 days ago

    Trump Rattles Emerging Markets With Threat of China Tariffs

    (Bloomberg) -- Emerging-market currencies had their best weekly gain since July 2017 lat week and stocks strengthened for a fourth consecutive week as major central banks adopted a more dovish stance, improving investors appetite for risk assets. Bonds also gained, with yields on local government notes nearing an all-time low as the drumbeat for an interest rate cut in the U.S. got louder.Read here, our emerging-market week ahead story.Listen to the emerging-market weekly podcast, here.The following is a roundup of emerging-markets news and highlights for the week ending June 23.Highlights:The Federal Reserve signaled it was ready to lower rates for the first time since 2008, citing “uncertainties” that have increased the case for a cut as officials seek to prolong the near-record U.S. economic expansionThe decision was not unanimous, with St. Louis Fed President James Bullard seeking a quarter-point rate cutMinneapolis Fed President Neel Kashkari said he had advocated for a 50 basis points rate cut at the last meetingMario Draghi nudged the European Central Bank closer to pumping more monetary stimulus into the economyU.S. President Donald Trump accused the euro area and China of weakening their currencies to gain an economic advantage, calling out European Central Bank President Draghi for a willingness to inject monetary stimulus if neededThe U.S. and China said their presidents will meet in Japan later this month to relaunch trade talks after a month-long stalemate, triggering a rally in financial markets. Trump said Tuesday that he had a “very good” phone conversation with Chinese counterpart Xi JinpingA group of chief executive officers of American corporations are set to meet with Chinese Premier Li Keqiang as the simmering trade war ensnares companies from both countriesChina cut its U.S. Treasury holdings to the lowest in almost two years as the months-long trade conflict dragged on between the world’s two largest economiesChina’s Xi told Kim Jong Un that the world wanted him to make progress in nuclear talks with the U.S., drawing a complaint from the North Korean leader that he had already attempted to compromise with little successSecretary of State Michael Pompeo said the U.S. and North Korea were in a “better place” after the leaders of the two countries exchanged lettersTurkey will retaliate against any U.S. sanctions imposed after it takes delivery of a missile-defense system from Russia, President Recep Tayyip Erdogan saidThe Trump administration is weighing three sanctions packages to punish Turkey over its purchase of the Russian S-400 missile-defense system, according to people familiar with the matterErdogan also slammed the Turkish central bank’s high borrowing costs and said they must come down, a statement sure to worry investors concerned about the bank’s autonomy Iran said it shot down a U.S. drone near the entrance to the Persian Gulf, escalating tensions in a region that’s been on the brink of a military confrontation for weeksTrump on June 22 said the U.S. will impose major new sanctions on Iran on MondayHe called off retaliatory strikes on three Iranian sites following the downing of the U.S. Navy drone because the action would not have been “proportionate”Trump downplayed the attack, suggesting a “loose and stupid” individual may have been responsible for the strike Iran will exceed an agreed cap on its inventories of low-grade uranium on June 27, potentially breaching for the first time a landmark 2015 agreement that was meant to prevent it from developing a nuclear bomb Lebanon’s Eurobonds have entered distressed territory as a budget delay and rising political tension in the region complicate efforts to tackle the nation’s fiscal crisisExchange-traded funds that invest in emerging markets suffered a seventh week of outflows, led by Asian assetsGold prices surpassed $1,400 an ounce for the first time since September 2013 on Friday, buoyed by dovish central banks Asia:China will maintain its long-standing commitment to reform and opening up of the economy in order to continue to expand, Premier Li saidThe People’s Bank of China and the main securities regulator called on big banks and brokerages to increase financing support for leading securities firms at a meeting on Tuesday, according to people familiar with the matterHuawei Technologies Co. is preparing for a 40% to 60% drop in international smartphone shipments as the Trump administration’s blacklisting hammers one of the Chinese tech giant’s most important businessesChina will likely increase the quota for new municipal bond issuance this year, and government debt levels will continue to rise, according to Zhao Quanhou, a researcher at Chinese Academy of Fiscal Science, which is under the Ministry of Finance.New home-price growth quickened last month after government measures to spur demand in smaller cities took effectMinutes of the Bank of Korea’s May 31 meeting showed there were at least two dissenting voicesThe escalating U.S.-China trade dispute and concerns over global economic slowdown have increased volatility in South Korea’s financial markets and somewhat weakened companies’ financial soundness, the Bank of Korea said in a semi-annual Financial Stability Report submitted to parliamentExports are showing no sign of recovery as a downturn in the global technology cycle and the U.S.-China trade war drag onBank Indonesia left its key rate unchanged while it cut reserve ratio requirements for lenders. Governor Perry Warjiyo said on Thursday that policy makers will cut rates, but it’s considering “the timing and the magnitude” The government plans to boost investment and improve balance of payment resilience to boost economic growth, according to Finance Minister Sri Mulyani IndrawatiIndia’s flagging growth prospects and subdued inflation give room for decisive action through easing of both monetary and fiscal policies, minutes of the latest meeting of monetary policy makers showedThe end of political uncertainty associated with elections and continuation of economic reforms will lead to a reversal of the current weaknesses in some economic indicators, Reserve Bank of India Governor Shaktikanta Das saidThe Bank of Thailand’s monetary policy is data dependent with an eye on financial stability as well as the tough export outlook, Somchai Jitsuchon, a member of the central bank’s monetary policy committee, saidThe central bank is closely monitoring baht strength and watching out for currency speculation, Assistant Governor Vachira Arromdee said as the baht reached its six-year high during the weekThe U.S.-China trade war is a serious concern for Thailand that has the potential to undermine global business, Prime Minister Prayuth Chan-Ocha saidExports fell for a third month to 5.79% from year earlier in May, exceeding estimate of a 5% dropBank Negara Malaysia isn’t budging from a trading ban on offshore ringgit derivatives, according to Governor Nor Shamsiah Mohd YunusShamsiah said that companies shifting operations from China to Malaysia to sidestep higher U.S. tariffs could add about 10 basis points to growth this year, on top of the current forecast of 4.3% to 4.8%The Philippine central bank surprised most economists by keeping its policy rate unchanged at 4.5%. The monetary authority said it expects the peso to be at about 52.01 per dollar this year and at about 51.50 next yearThe Philippines has ample supply of dollars to meet any increase in demand during imports season, according to Bangko Sentral ng Pilipinas Governor Benjamin DioknoTrade Secretary Ramon Lopez says the nation’s exports may still grow by about 4% this year when global demand recoversTaiwan’s central bank kept its key rate unchanged at 1.375% as expectedThe ruling Democratic Progressive Party’s executive committee officially nominated President Tsai Ing-wen as its candidate in the presidential election scheduled for JanuaryEMEA:Russia returned to the Eurobond market after the dovish Fed meeting, selling $1.5 billion of debt maturing in 2029 and $1 billion of them maturing in 2035, with yields at 3.95% and 4.3% respectively The dovish market mood has driven Poland’s benchmark bond yield below the inflation rate for the first time in almost two decades Serbia raised 1 billion euros ($1.1 billion) from its first publicly syndicated euro deal, taking advantage of low borrowing costs in Europe to refinance more expensive dollar securities Saudi Arabia may sell euro-denominated bonds for the first time after testing investor appetite for a possible deal, according to two people familiar with the matterSaudi Crown Prince Mohammed Bin Salman said Aramco will go through with an initial public offering as soon as next year, though no decision has been made on where the stock will tradeHe also blamed Iran for the recent attack on tankers near the Strait of Hormuz, adding to accusations that are stoking tensions in a region supplying a third of the world’s oilMSCI Inc. will probably upgrade Kuwaiti equities to its main emerging-market index this week, which could trigger $2.8 billion of inflows from passive funds, according to the head of of the nation’s stock exchangePressure on South Africa’s credit rating is “more to the downside than the upside at the moment,” with state-owned electricity company Eskom the “main focus,” said Fitch Ratings’ managing director, Ed ParkerMoody’s Investors Service said South Africa’s credit-rating outlook is stable, giving the country’s new government more time to tackle key challenges such as low economic growth and embattled state-owned companies to ward off junk statusTurkish opposition candidate Ekrem Imamoglu won the redo of the Istanbul mayor’s race by a landslide on Sunday, in a stinging indictment of President Erdogan’s economic policies and his refusal to accept an earlier defeatThe Istanbul exchange started publishing quotes for the lira overnight reference rate, or TLREF, on June 17. The fixing is calculated using a weighted-average of repo transactions, which are short-term borrowings secured by government securitiesGhana’s first-quarter economic growth slowed after expansion eased in mining and the quarrying industry, which includes oil Uganda’s central bank kept its key rate at a two-year high for a fourth straight meeting as it sees inflation edging higher. The Monetary Policy Committee held the rate at 10%Zimbabwe’s stock market hit a record high, for all the wrong reasonsThe nation’s inflation rate is showing no signs of slowing down, reaching the highest level since it peaked at 500 billion% in 2008An attempted coup failed June 22 in Ethiopia, the prime minister’s office said on its Facebook/Twitter page. The nation has one international bond, a $1 billion facility due 2024 that saw its yield plummet about 200 basis points this year to 5.59% on Friday Latin America:Brazil held its benchmark interest rate at a record low and signaled it will be able to cut borrowing costs to help a frail economy once a key austerity measure advances further in CongressThe government struck a deal with lawmakers to vote the pension reform bill in the lower house of Congress in the first half of July, local newspaper Folha de S. Paulo reportedOdebrecht SA, the holding company of the Brazilian conglomerate that stretches from construction to oil and gas, filed for bankruptcy protection in a Sao Paulo courtThe company’s construction unit, which was not included in the bankruptcy filing, made a proposal to restructure $3.1 billion of its debt in an out-of-court dealMexico’s Senate ratified the North American trade deal with the U.S. and Canada, becoming the first to do so amid a truce reached with Trump over an unrelated tariff threatTrump praised Mexico’s efforts to crack down on migrants crossing the border into the U.S. after the two countries entered an agreement aimed at stemming the flow of people crossing Mexico from Central AmericaState-run oil producer Pemex plans $2.5 billion of debt refinancing in 2019, Reuters reportsArgentina remained in recession in the first quarter as unemployment hit a 13-year high and the central bank maintained the world’s highest interest ratesFormer central bank chief Federico Sturzenegger said monthly inflation could slow to 1% by year-endNation’s primary budget surplus rose to the highest level recorded since the data series began in March 2000, in nominal termsColombia left its benchmark interest rate unchanged as its economic recovery stalls and the peso surges the most in the worldProtests broke out in eastern Caracas on Friday during the third day of visits by the United Nation’s High Commissioner for Human Rights, Michelle Bachelet, in Venezuela\--With assistance from Colleen Goko, Selcuk Gokoluk, Philip Sanders, Aline Oyamada and Alec D.B. McCabe.To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Netty Ismail in Dubai at nismail3@bloomberg.net;Ben Bartenstein in New York at bbartenstei3@bloomberg.netTo contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Alex NicholsonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China Is Missing Out on Huge Bond Rally Taking Off Globally
    Bloomberg28 days ago

    China Is Missing Out on Huge Bond Rally Taking Off Globally

    (Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.China is the one place with a dovish central bank that’s yet to see a spectacular rally in government debt.Including interest payments, the country’s bonds have dropped 0.02% since April, the worst performance among the world’s biggest debt markets. That’s even as the People’s Bank of China signaled its readiness to support the economy, with Governor Yi Gang saying he sees “tremendous” room to adjust policy. Authorities have also repeatedly injected cash into the financial system, boosted liquidity to support smaller banks and ramped up aid to small firms.What gives? Theories include the protracted trade dispute with the U.S., concerns about credit risks after the surprise seizure of a local lender, a flurry of issuance in municipal bonds and a volatile yuan. While the European Central Bank and the Federal Reserve helped send more bonds than ever into negative-yielding territory this week, China’s benchmark 10-year yield hovers stubbornly around 3.3%.“Expectations for PBOC easing aren’t as strong,” said David Qu, who covers China at Bloomberg Economics. “The market has also been waiting for the central bank to accommodate the surge in supply of municipal bonds with more liquidity, but that’s not fully in place yet.”The shock over the government’s seizure of Baoshang Bank to address its credit risks in late May is still rippling through the financial system. Bond traders now reluctant to accept riskier notes as security have clogged up funding among financial institutions, in turn pushing up borrowing costs for brokerages and smaller banks.China also hasn’t actually cut benchmark interest rates since 2015, although it has taken other easing measures, including lowering the amount of money that banks have to put into reserves.A surge in supply of municipal debt isn’t helping either: some 328 billion yuan ($47 billion) of local government bonds will be issued this week, the most this year, data compiled by Bloomberg showed. China’s 10-year government bond yield continues to trade within a narrow 10-basis-point band, and hasn’t dropped below 3% since 2016.Not all is lost for Chinese bonds, though. Global investors may buy into the market now that yields are more attractive than those overseas, according to Kiyong Seong, an Asia rates strategist at Societe Generale SA in Hong Kong. The widening gap between U.S. and Chinese sovereign yields has enticed buyers before.Chinese bonds also tend to be less correlated with shifts in global sentiment, making them a good option for investors looking to diversify, said Charles Chang, Hong Kong-based head of Asia credit strategy at BNP Paribas SA.For now, the many domestic headwinds in China are keeping it from joining in the global bond rally, outweighing signs of support from the PBOC.“Investors have been concerned about the risk of a weaker yuan and the long-term prospects of China assets,” said Seong. “An acceleration in local government bond issuance and sporadic noise in China’s financial market such as the Baoshang case have made investors more cautious.”The yield on the most actively traded contract of 10-year government bonds was little changed at 3.26% as of 3:51 p.m. on Friday.(Updates with Friday trading.)\--With assistance from Yuling Yang.To contact Bloomberg News staff for this story: Livia Yap in Singapore at lyap14@bloomberg.net;Claire Che in Beijing at yche16@bloomberg.net;Jing Zhao in Beijing at jzhao231@bloomberg.netTo contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Magdalene FungFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • China Looks for a Savior in the Shadows
    Bloomberg29 days ago

    China Looks for a Savior in the Shadows

    (Bloomberg Opinion) -- China’s central bank is stretching its arms far and wide to stem convulsions in the real economy. In the process, it’s lending legitimacy to financial firms that have long operated in the shadows. Beijing has invited non-bank financial institutions to play a larger and more formal role in the aftermath of the first regulatory takeover of a commercial lender in two decades. Interbank rates have ballooned since the seizure of Baoshang Bank in late May, raising funding costs for financial companies. This week, the central bank asked its biggest state-owned banks to support large brokerages such as Citic Securities Co., Huatai Securities Co. and China International Capital Corp.As a cash crunch looms, it’s worth asking why the central bank suddenly cares about brokers’ funding channels. Citic Securities, for instance, has only 673 billion yuan ($93 billion) in assets, in line with a mid-size regional bank. It’s also questionable whether brokers deserve bigger credit lines, considering their aggressive over-the-counter margin financing helped engineer the stock market’s spectacular boom and bust four years ago.The simple answer is that brokers, alongside regional banks, have been major suppliers of credit to China’s companies. Non-bank financials, along with official lenders, have created close to 30 trillion yuan, or about $4 trillion, worth of shadow credit that’s gone into the real economy. Asset management products actively managed by the brokers alone came to 3.2 trillion yuan.In theory, securities firms are primarily in the business of helping clients trade stocks and bonds. In China, they have become proprietary traders, which in turn use their balance sheets to supply credit to large swaths of the private sector. Their asset management businesses warehouse non-standard credit assets, typically off-balance-sheet loans to companies. At the end of 2018, assets under management for the top 11 brokers totaled 12.7 trillion yuan.(1)When money is tight, company founders often pledge their shareholdings in exchange for loans from securities firms. This is a unique feature among China’s brokers, with trillions of yuan of such loans outstanding. Citic Securities, for instance, expanded this business to 25.9% of its total equity at the end of 2018, while smaller brokers such as Everbright Securities Co. more than doubled such loans since 2016. Meanwhile, with its traditional tools not cutting it, the People’s Bank of China needs to find a way to plug the large hole that will be left by small regional banks after the Baoshang takeover. China has about 4,000 regional lenders accounting for 32% of the commercial banking system. They penetrate deep into the private sector and into economically weak provinces where major commercial lenders such as Bank of China Ltd. are largely absent.Sales of negotiable certificates of deposits – a key source of funding for smaller banks – plunged after the PBOC declined to guarantee 100% of Baoshang’s liabilities. That will cause their balance sheets to shrink and in turn impair their ability to extend loans to companies.Other risks are emerging. Regional banks are big creditors to securities firms. If they can’t fund themselves, they won’t roll over credit to non-bank financials either. Last week, Shanghai Haitong Securities Asset Management Co. said it didn’t default on any bond repurchase agreements in an attempt to calm jittery traders.China has been through this before. In 2013, overnight rates jumped to as much as 30% as small banks got caught in a duration mismatch between their assets and liabilities. The PBOC eventually pumped in liquidity to bring down rates. That crisis exposed the central bank’s lack of tools and will to clamp down on shadow financing, and ended up spurring more such activity. The 2013 crisis entrenched moral hazard rather than breaking it, the Center for Strategic & International Studies said in a report last October. This time, it’s even worse. The offenders are now being recruited as saviors. (1) In the U.S., investment banks have been strongly discouraged from such balance-sheet lending under the Volcker Rule that was adopted after the global financial crisis.To contact the authors of this story: Shuli Ren at sren38@bloomberg.netAnjani Trivedi at atrivedi39@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Facebook’s Libra May Spark a Currency War
    Bloomberg29 days ago

    Facebook’s Libra May Spark a Currency War

    (Bloomberg Opinion) -- It's one thing for academics in Asia to rant against the tyranny of the dollar, or to make cheery forecasts about its impending eclipse by the Chinese yuan. But now that Facebook Inc. wants to spawn a new global currency – one that could meet the “daily financial needs of billions of people” and perhaps rival the greenback one day – central banks in Beijing, Jakarta, Manila or Mumbai won't exactly be ecstatic.To them, the prospect of being at the mercy of a cabal of tech czars and venture capitalists sitting in Switzerland could well mean swapping the yoke of the U.S. Federal Reserve for a less predictable and potentially more sinister dependence.What if Facebook's crypto, backed by fiat-currency assets and offering stable value, starts out by paying for coffee but over time becomes people's preferred store of wealth? What will it mean for monetary sovereignty? Suppose users of Libra, as the currency will be called, manage to set aside their outsize privacy concerns with Facebook. Were the tokens to take off and – against all regulatory odds at home and abroad – gain global acceptance, there will be several implications for governments around the world.Some of them will be of particular concern in Asia, where  most of the larger economies, starting with China, yearn for a growing role for their currencies in international commerce and as a store of value. Americans enjoy everything a little cheaper because the world – including money launderers, drug dealers and terrorists – wants the U.S. currency, which only the Fed can manufacture. China wants the same privilege for itself; and in a decade or two, India and Indonesia will, too. However, the long, patient game of internationalizing the yuan would get complicated if the Chinese on the mainland themselves take to Libra to bypass the country’s increasingly invasive social scoring system.Shielded by capital controls, Asian central banks at times seek weaker currencies to stimulate their export-led economies. But if people can move their wealth with one scan of a QR code to a digital coin backed by a reserve of low-risk assets – including bank deposits in various currencies and U.S. Treasuries – such stratagems won’t work any more. The People's Bank of China could then respond with its own digital currency, and unlike Facebook, pay interest on it.(2) Other central banks may join the battle for continued relevance. This competition, and not devaluation, could end up becoming the real currency war of the 21st century.None of us has experienced a central bank-sponsored digital currency yet: Our online payments are mediated by commercial banks or fintech. But it’s not a far-fetched idea. Seventy percent of the monetary authorities surveyed by the Bank for International Settlements last year said they’re working on the concept. So far they’ve had no reason to take the leap. Central banks already make digital cash available to financial institutions. Those are called bank reserves. Presumably, the Switzerland-based Libra Association, which will also include Visa Inc., Uber Technologies Inc., venture capitalist Andreessen Horowitz and other founders apart from Facebook, will also rely on a “geographically distributed network of custodians” to tap this closed user group for reserves.Nothing stops a central bank from providing its own digital tokens via commercial banks to compete with Facebook. If that doesn’t do the trick, the monetary authority can pull the ultimate stunt: It can open up its balance sheet to the public. Groups like the U.K.-based Positive Money, which is advocating for “Britcoin” to be held by individuals directly with the Bank of England, see it as the ultimate antidote to “extractive middlemen like banks and now tech companies.” Such a step would carry risks. In normal times, commercial banks can retain customer deposits by paying higher interest. But when panic strikes, deposits might flee to the central bank, even if the latter imposes a negative interest rate. Monetary authorities don’t want a funding shock to their banking systems. However, were Facebook to pose an existential threat, they may be compelled to walk an untrodden path.New purchasing power will increasingly come from Asia and Africa where the demographics are still favorable for high income growth. To the extent that global tech avoids paying national taxes when this purchasing power turns into digital consumption, it’s already a headache. Were Libra or another such project backed by the technology industry to take over where the dollar leaves off, concerns around a fair share of taxes could multiply. For that reason alone, Libra may not end up going anywhere in Asia.  (1) The Libra Association will use its income to pay operating expenses, and then to compensate early investors in the consortium.To contact the author of this story: Andy Mukherjee at amukherjee@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.