Dollar back on trend, hits two-week high vs. yen – Reuters

By Patrick Graham 

The U.S. dollar racked up its biggest rise in more than two weeks in 2017’s first full day of European trading on Tuesday, as dealers and investors in London returned to push the greenback close to December’s long-term highs.

One of January’s big question-marks, China’s yuan, was proving more stable in its more freely traded offshore markets, a bullish survey of manufacturing purchasing managers helping it 0.1 percent higher and also supporting the Australian dollar.

A bout of year-end profit-taking had halted progress in the index used to measure the U.S. currency’s strength against a basket of its peers and weakened it to as much as $1.07 per euro last week. 

It rose 1.3 percent on the day on Tuesday to trade at 103.51 against the index, compared to a 14-year high of 103.65 hit on Dec. 20. It was up 0.7 percent at $1.0377 per euro and 118.29 yen, the latter rate its strongest since Dec. 16.

Analysts with some of Europe’s biggest banks argued for a resumption of the drive that has led the greenback sharply higher since elections in early November on expectations Donald Trump will provide a boost to public spending and growth.

“In the near term the market should probably pick up where it left off, we’re certainly seeing that … this morning,” said Barclays’ G10 currency strategist Hamish Pepper.

“The past fortnight wasn’t a period that materially changed the trend that was dominant into the end of the year and it is hard to see the data or the Fed minutes this week changing that.”

A holiday in Japan thinned trade in Asia, but the yuan gained 0.1 percent in offshore markets after the Caixin/Markit survey showed Chinese factory activity picked up more than expected in December, with output reaching a near six-year high.

A rise in overnight rates in Hong Kong CNHHIBOR= also made it prohibitively expensive for speculators to fund bets against the Chinese currency, adding to regulatory moves taken to halt investment-led outflows of capital at the start of the year.

The greenback has been on the rise since September, but its jet higher since Trump’s election has prompted speculation of an attack on parity with the euro.

Treasury yields have jumped in anticipation of more U.S. government borrowing and higher Federal Reserve interest rates at a time when central banks in the euro zone and Japan are working to keep their short-term yields in negative territory.

U.S. two-year debt US2YT=RR pays 200 basis points (bps) more than German debt and almost 140 bps more than Japanese bonds.

Yet there have been signs of more doubt in recent weeks, with analysts beginning to wonder how much further appreciation a Trump White House will really tolerate once in office.

Analysts from Rabobank said the dollar would need substantial support from further rate rises this year to continue to rise.

“The fact that the EUR/USD spiked to highs close to 1.0653 last week will have worried USD bulls,” they said in a morning note.

“Although the move higher in EUR/USD was clearly exacerbated by thin volumes, it has helped to illustrate that a move to parity could be further away than it appeared a few weeks ago.”

(Editing by Andrew Heavens)

China begins first freight train service to London – Xinhua – Reuters

Jan 3 China has begun its first freight train service to London from Yiwu, a famed wholesale market town in the eastern province of Zhejiang, the Xinhua news agency reported.

The train will travel for 18 days over more than 7,500 miles (12,000 km) to reach Britain from China, Xinhua said. It will pass through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France before arriving in London.

Former British Prime Minister David Cameron raised some eyebrows with allies by pitching Britain as the pre-eminent gateway to the West for investment from China and proposing to make London the main international trading centre for offshore yuan.

Prime Minister Theresa May has said the relationship with China remains “golden” as she seeks to bring in billions of dollars in Chinese investment as Britain prepares to leave the European Union. (Reporting by Guy Faulconbridge; editing by Michael Holden)

Re-Energized Dollar Looms Over the Rest of the World – WSJ

On Wall Street, the rising dollar has been one of the most visible signals of growing optimism in the U.S. economy; for many other countries, it spells trouble.

 

Freshly cut $1 notes at the U.S. Bureau of Engraving and Printing in Washington. Most analysts expect the U.S. currency to strengthen in 2017. ENLARGE
By   IRA IOSEBASHVILI

On Wall Street, the rising dollar has been one of the most visible signals of growing optimism in the U.S. economy. For many other countries, it spells trouble.

Most analysts expect the U.S. currency to strengthen in 2017, extending a gain that has boosted the value of the dollar by more than one-third since the U.S. credit downgrade in 2011.

That expectation is mostly because a strengthening economy appears likely to enable the Federal Reserve to enact its plan for multiple rate increases in 2017. Higher rates make it more attractive to hold dollar-denominated assets, attracting money into the U.S.

“Right now, there is an incredible amount of pressure to sell just about every type of currency and buy the dollar,” said Christopher Stanton, chief investment officer at Sunrise Capital LP, which manages $700 million.

Mr. Stanton recently bet that the U.S. currency will appreciate against the Australian dollar, Japanese yen and euro in the next few months.

A stronger dollar raises the buying power of U.S. consumers and businesses by making imported items cheaper and reducing the costs of traveling abroad. By the same token, however, it hurts U.S. exporters by making their goods less competitive overseas, cutting into corporate earnings and potentially weighing on stock prices.

In emerging markets, sustained dollar strength could undercut prices for oil and other dollar-denominated commodities, pressuring developing economies that export raw materials. Emerging-market companies and governments that have borrowed heavily in the U.S. currency will also find their debt more difficult to service.

For China, the rising dollar is exacerbating capital outflows and tightening liquidity, shaking markets that had enjoyed a period of relative stability for most of 2016. Chinese bond markets plunged in reaction to December’s Fed meeting, at which the U.S. central bank decided to lift rates and signaled several more boosts. Chinese regulators injected money to allay a possible credit squeeze, while stocks also fell.

China’s central bank has also had to drain $300 billion of its reserves in the first three quarters of the year, more than it spent in all of 2015, as it fought to slow the yuan’s decline against the dollar. China’s currency is down 4.3% against the dollar since October, falling to a record low. Other emerging-market currencies have been hit far worse: the Turkish lira is off nearly 15% in the last three months of the year.

Expectations of fiscal stimulus under President-elect Donald Trump “have absolutely re-energized the dollar,” said Alan Ruskin, head of G10 foreign exchange strategy at Deutsche Bank.  “This is a major shift in policy dynamics.”

The Wall Street Journal Dollar Index, which measures the dollar against a basket of 16 currencies, rose 3.1% in 2016 on a late-year surge against the euro, yen and emerging markets.

Roughly 60% of clients surveyed by Citigroup believe the dollar will be either “moderately higher” or “sharply higher” against developed and emerging market currencies next year.

Some worry, however, Mr. Trump’s proposals on infrastructure spending and tax cuts may not come to fruition. And past fiscal expansions have had mixed effects on the U.S. currency.

The ICE Dollar Index rallied more than 80% between 1981 and 1985, driven by a mix of fiscal stimulus pushed through by then-President Ronald Reagan and a series of rate increases by the Federal Reserve in the decade’s early years.

But tax cuts under President George W. Bush failed to boost the dollar in the 2000s, as they were accompanied by a dovish Fed and uncertain equity markets, a Deutsche Bank report said.

Investors also expect the Fed to keep a close eye on the currency’s ascent, and raise rates at a slower pace if the dollar’s rally appears to be bruising the U.S. economy.

Thanos Bardas, a portfolio manager at Neuberger Berman overseeing $255 billion, said he took profits in December on bets that the dollar will rise against the yen, wary that the U.S. currency has risen too quickly in a short period of time.

“The markets have an extremely rosy outlook,” he said. “The smart trade is to trust but verify.”

Write to Ira Iosebashvili at ira.iosebashvili@wsj.com

NEITI condemns N1.1trillion tax waivers to oil firms – The Guardian

By Roseline Okere
By granting Pioneer Status, the Federal Government has waived $2.1 billion (N1.1 trillion) to 22 oil companies through tax holiday as at 2014.

These companies are operators in the marginal field segment of the Nigerian oil and gas industry, according to the latest report from the Nigerian Extractive Industries Transparency Initiative (NEITI).

Pioneer Status is a tax holiday incentive, designed by the Federal Government and backed by the law granted to targeted industries, products and services, designated as priority areas and growth drivers of the economy.

Some have argued that these are monies lost to government and to Nigerians in general, as these could have been ploughed back into the petroleum sector, particular the downstream infrastructure including refineries, depots, jetties, pipelines network and a host of others to improve products distribution in the country.NEITI, the revenue watchdog, also shares this view in its 2014 Oil and Gas report, which regarded the tax waivers, as a loss of revenue to the federation, which it noted, would hamper development projects in the economy.

A copy of the report obtained by The Guardian stated that granting pioneer status to oil and gas companies has greatly undermined the optimal collection of revenue due from Petroleum Profit Tax (PPT).

The agency therefore, said that pioneer status should not be granted to any company in the oil and gas sector, unless it is evidently clear that the company is actually pioneering an aspect of the industry in the country.

It therefore, called for a “Regular review of the pioneer status to discover some of the companies granted tax waivers that had outgrown pioneer status.

“A coordinating desk should be established in the Ministry of Finance for all the agencies that process tax incentives while the final approval for tax waivers should be issued by the Minister of Finance,” it stated.

Speaking recently on the benefits of pioneer status, Seplat Petroleum Development Company Plc’s Chief Executive, Austin Avuru, noted that the grant of pioneer status made it possible for the company to boost oil and gas production, provide employment opportunities, impact on their communities and help grow the Nigerian economy.

At the presentation of report by the Tax Justice and Governance Platform, tagged: “Pioneer Status in Oil and Gas Industry; Is It Worth It?,” discussants argued that the pioneer status given to oil and gas companies was not worth it, noting that as long as these companies are making profit, they will be adding little or nothing to the development of the nation.The group urged the National Assembly to monitor the action of government agencies in granting tax incentive. “The FIRS should ensure that PS beneficiaries file tax returns annually with sanction imposed on defaulters. NIPC capacity in monitoring pioneer companies should be strengthened, while removing matured companies from the pioneer status list. Government should sign a Memorandum of Understanding (MOU) with marginal field operators on the establishment of guaranteed margins for the companies.”

Explaining the benefits of pioneer status to companies, the Nigerian Investment Promotion Council (NIPC) said in a document on “Investing in Nigeria,” that the grant of Pioneer Status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years.

It noted that the profit so made is expected to be ploughed back into the business.

The Agency stated: “Pioneer status is a tax holiday granted to qualified or (eligible) industries anywhere in the Federation and five-year tax holiday in respect of industries located in economically disadvantaged local government area of the Federation. At the moment, there is a list of 71 approved industries declared pioneer industries, which can benefit from tax holiday.

“To qualify, a joint venture company or a wholly foreign-owned company must have a minimum share capital of N10 million and incurred a capital expenditure of not less than N5million, whilst that of qualified indigenous company should not be less than N150,000.00. In addition, an application in respect of Pioneer Status must be submitted within one year the applicant’s company starts commercial production otherwise the application will be time-barred.”

Sterling hits two-month low against rallying dollar – Reuters

By Jemima Kelly | LONDON

Sterling hit a two-month low against a dollar that soared to its highest levels in 14 years against a basket of currencies on Tuesday, the first day of London trading in 2017.

The pound had earlier hit a two-week high against the euro after a survey suggested British manufacturing growth had climbed to a two-and-a-half-year high last month.

The monthly purchasing managers’ index (PMI) for the manufacturing sector rose to 56.1, the strongest reading since June 2014. That exceeded all forecasts in a Reuters poll, which pointed to a decline to 53.1, adding to signs that the economy ended 2016 strongly.

 
 

But as the dollar surged after the equivalent U.S. manufacturing PMI hit a two-year high, sterling weakened against the greenback, falling to $1.2200 – its weakest since the end of October – before recovering to $1.2255, still down 0.2 percent on the day.

Against the euro, though, sterling rose 0.2 percent to 84.98 pence, having earlier traded as strongly as 84.51 pence.

“One has to distinguish between the broad dollar strength we are seeing right now and … sterling weakness,” said Societe Generale currency strategist Alvin Tan.

“In the near term, euro/sterling is probably a better gauge for sterling direction, because the consensus is quite bullish dollar. But one has to be careful about euro/sterling as we get into the spring because I think European political risks will rise, and the euro could weaken for its own reasons.”

The pound tumbled 16 percent against the dollar and 14 percent against the euro in 2016, its worst annual performance in eight years, with the bulk of those falls coming after Britain voted on June 23 to leave the European Union.

Uncertainty over how Britain leaves the bloc and worries over the likely economic impact are continuing to weigh on the currency and mean that even positive data surprises tend to have only a limited – and temporary – impact on the pound.

“The main question for most economists is still the timing of the negative impact of the referendum outcome,” said RBC Capital Markets currency strategist Adam Cole said. “It’s going to be hard for sterling to make a lot of traction on the back of economic data which is still lagging events.”

PMI surveys for the construction industry and the UK’s dominant services sector are due on Wednesday and Thursday.

(Additional reporting by Alistair Smout; Editing by Kevin Liffey)

Production from Nigeria’s OML 18 Excites San Leon – Thisday

By Ejiofor Alike

Africa and Europe-focused San Leon Energy Plc, a partner of the Erotron consortium that acquired Oil Mining Lease (OML) 18 from Shell Petroleum Development Company (SPDC), has stated that production from the Nigerian oilfield has been encouraging.

Under the Master Services Agreement between the two firms, San Leon provides services to Eroton in OML18, through its oilfield services subsidiary.

 

According to the work programme, numerous wells have been identified which require re-entry for recompletions in new zones using a service rig and San Leon expects to provide workover rig, drilling rig and production facility construction services to Eroton starting in 2017.

In an operational and cash flow receipts update relating to its indirect interest in the onshore field, which was released at the weekend, San Leon noted that it has seen an encouraging performance from OML 18.
The firm said that reperforation operations on a well on the field had proved successful, with gross OML 18 production increasing to approximately 61,000 barrels of oil per day.

According to the company, the well has now been temporarily shut in to allow minor production upgrades and additional work-over operations and current gross production on the field currently around 53,000 bopd.
San Leon said the reperforation programme would continue to be implemented across a number of wells on the OML 18 field in the coming months.

San Leon also reported that wells on its Krakama field are now ready to produce and that production here is expected to come online during the first two months of 2017. The firm also expects production to start on the Buguma field in March 2017.

San Leon also reported that it has been informed by its partner, Eroton, that compliance with all financial covenants and rations stipulated in their Reserve Bank Lending (RBL) facility agreement have been met.
Commenting on the status of the field, the Chief Executive Officer of San Leon, Oisin Fanning stated that: “We are encouraged by the performance of the OML 18 field to date, including the approximate doubling of production over what was expected when the RBL was first put in place. We are confident, and fully supportive of Eroton in its attempts to satisfy all the conditions of the RBL facility in order to declare dividends in order for San Leon to receive its first cashflow from OML 18.”

The company, however, identified two conditions that have not been met to include: reservation of nine months’ worth of upcoming debt repayments due in the debt service reserve account, as well as the submission of audited financial statements by Eroton whereby 60 per cent of audited net profits can be paid to dividends account.

The company stated that it has been informed by Eroton that the timing for the satisfaction of these conditions is also influenced by the receipt by Eroton of the outstanding balance of historic cash calls from the Nigerian National Petroleum Corporation (NNPC), which was expected during 2016 but did not occur.
“Only once all the RBL debt service reserve account conditions have been fulfilled will Eroton be in a position to complete its audited financial statements for the year ended 31 December 2016, whereupon the Eroton Board will be in a position to declare and pay dividends to its shareholders,” the company added.

The company added that it would continue to work with Eroton to explore other interim mechanisms to enable cash distributions to be made to San Leon, pending satisfaction of all of the RBL debt service reserve account conditions.

Bitcoin jumps above $1,000 for first time in three years – Reuters

By Jemima Kelly | LONDON

Digital currency bitcoin kicked off the new year by jumping above $1,000 for the first time in three years late on Sunday, having outperformed all central-bank-issued currencies with a 125 percent climb in 2016.

Bitcoin – a web-based “cryptocurrency” that has no central authority, relying instead on thousands of computers across the world that validate transactions and add new bitcoins to the system – jumped 2.5 percent to $1,022 on the Europe-based Bitstamp exchange, its highest since December 2013.

Though the digital currency has historically been highly volatile – a tenfold increase in its value in two months in late 2013 took it to above $1,100, before a hack on the Tokyo-based Mt. Gox exchange saw it plunge to under $400 in the following weeks – it has in the past two years been more stable.

 
 

Its biggest daily moves in 2016 were around 10 percent, still very volatile compared with fiat currencies, but markedly lower than the trading of 2013, which saw daily price swings of as much as 40 percent.

Bitcoin may have been boosted in the past year by increased demand in China on the back of a 7 percent annual fall in the value of the yuan in 2016, the Chinese currency’s weakest showing in over 20 years. Data shows most bitcoin trading is done in China.

Bitcoin is used to move money across the globe quickly and anonymously and does not fall under the purview of any authority, making it attractive to those wanting to get around capital controls, such as China’s.

It is also may appeal to those worried about a lack of supply of cash, such as in India, where Prime Minister Narendra Modi removed high-denomination bank notes from circulation in November.

“The growing war on cash, and capital controls, is making bitcoin look like a viable, if high risk, alternative,” said Paul Gordon, a board member of the UK Digital Currency Association and co-founder of Quantave, a firm seeking to make it easier for institutional investors to access digital currency exchanges.

Though bitcoin is still some way off the all-time high of $1,163 that it reached on the Bitstamp exchange in late 2013, there are now more bitcoins in circulation – 12.5 are added to the system every 10 minutes. Its total worth is at a record-high above $16 billion, putting its value at around the same as that of an average FTSE 100 company.

(Reporting by Jemima Kelly; Editing by Peter Graff)

Nigeria to close capital’s airport for 6 weeks from 8 March – Reuters

ABUJA Jan 3 (Reuters) – Nigeria plans to close the airport in the capital Abuja for six weeks from 8 March to repair its runway, the aviation ministry said on Tuesday, pushing the move back later than previously scheduled.

The decision to shut the airport and divert Abuja-bound flights to Kaduna, an airport used primarily for domestic flights about 160 km (100 miles) to the north, was taken after airlines threatened to stop flying to the capital.

The government had said the six week closure would begin in February. But a statement issued on Tuesday, which said the aviation minister would discuss the matter with stakeholders, said the “proposed closure” was set to start on 8 March.

No reason was given for the change of date.

The meeting with aviation industry figures, on Thursday, is to brief them on efforts being made to ensure that the use of Kaduna’s airport is “seamless and hitch-free” said aviation ministry spokesman James Odaudu.

Analysts have said that the temporary closure of Abuja airport, the country’s second busiest after the commercial capital Lagos, will have a negative impact on Africa’s biggest economy, which fell into recession in 2016 for the first time in 25 years.

Passengers travelling to Abuja will have to fly to Kaduna and travel in bus shuttles, guarded by security provided by the government, to the capital on a pot-holed road where kidnappings have taken place in the last few years.

Kaduna’s international airport handled 12 flights in December 2015, the last month for which Nigeria’s airports authority has figures, compared with 812 that used Abuja International.

The government has said German company Julius Berger will carry out repairs on Abuja’s damaged runway. (Reporting by Felix Onuah; Writing by Alexis Akwagyiram)

Nigerian naira flat on official and black markets, stocks down – Reuters

By Oludare Mayowa

LAGOS Jan 3 (Reuters) – Nigeria’s naira traded flat at the official interbank window and on the parallel market on the first trading day of the year, while stocks fell almost one percent in trading dominated by losses in petroleum, banking and brewery shares.

 
 

The naira closed at 305 a dollar on the official window, the same rate it closed at on the last working day of 2016. The currency initially traded at 315.50 to the dollar but gained after the central bank sold $1.5 million in the market.

On the parallel market, the naira was trading at 490 to the dollar at 1425 GMT, its closing level last year.

“In the week ahead, we expect pressure on the naira to linger, especially at the parallel market, as unmet demand from the official market continues to stoke imbalances,” United Capital said in a research note to clients on Tuesday.

The major stock market index fell 0.96 percent to 26,616 points, dragged down by losses in banking, petroleum and breweries.

The Pan-African banking group Ecobank Transnational Inc. and chocolate maker Cadbury posted the biggest losses, 4.95 percent each. Energy company Oando followed at 4.89 percent.

Other big declines included Nigerian Breweries, which was down 4.05 percent; Sterling Bank, which fell 3.95 percent; and Guaranty Trust Bank, down by 2.83 percent.

The naira lost around a third of its official value against the dollar in 2016 and the stock market declined 6.17 percent over the same period, reflecting a slump in Africa’s largest economy. (Editing by Alexis Akwagyiram, Larry King)

 

Naira stabilises at N490/$ – The News

The Naira on Tuesday stabilised at N490 to a dollar at the parallel market in spite of speculations that it would depreciate to N500 to a dollar by the end of 2016, the News Agency of Nigeria (NAN) reports.

The Pound Sterling and the Euro also closed at N585 and N505 respectively.

At the Bureau De Change (BDC) window, the dollar exchanged at N399, CBN controlled rate, while the Pound Sterling and the Euro traded at N598 and N510, respectively.

Trading at the interbank market saw the dollar closed at N305.

Traders at the market said that Forex scarcity was still having its toll on the market.

NAN reports that in spite of the one billion dollars backlog of Forex cleared by the CBN, the Naira has remained within N490 to a dollar.

Meanwhile, Alhaji Aminu Gwadabe, President, Association of Bureau De Change Operators of Nigeria (ABCON) said that the figure was a far cry from the monthly Forex demand in the country.

“The $1b inflow is far less than what the economy consumes. The entire FX market is over 20 billion dollars monthly.

“The cleared backlog of the CBN are funds that came through the FMDQ OTC foreign investment that came into the economy over time and the CBN has no option than to redeem it, to close the increasing gap of investors’ confidence,’’ Gwadabe said. (NAN)