Bitcoin Extends Loss After China’s Central Bank Warns Investors – Bloomberg

  • PBOC officials tell bitcoin platform to rectify issues
  • Bitcoin surged 120% in 2016 as yuan depreciation quickened

Bitcoin extended Friday’s tumble amid concern China will tighten rules on the digital currency to curb capital outflows.

The cryptocurrency slid 0.5 percent to $893 at 4:27 p.m. in Hong Kong, after falling as much as 10 percent on Friday. The People’s Bank of China’s Shanghai branch said in a statement late Friday that its officials, along with the city’s financial office, asked bitcoin trading platform BTCChina.com to conduct self-checks and rectify any problems. The State Administration of Foreign Exchange has scrutinized some major bitcoin exchanges, possibly to investigate the use of the digital asset to evade capital controls, QQ.com reported.

Bitcoin rallied since early 2015 as Chinese buyers turned to alternative assets to hedge against the weakening yuan and take cash out of the nation. By buying bitcoin onshore and selling it offshore for another currency, investors can evade the tightening scrutiny on fund outflows. Other than a ban on financial institutions’ involvement, Chinese regulators had largely taken a hands-off approach on the cryptocurrency.

“Bitcoin is one of the rocks they haven’t turned yet in terms of controlling the flows,” said Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia. “It’s inevitable that there’s going to be something but the question is what the regulations will be when it happens.”

This is not the first time China’s government has sent bitcoin tumbling. In 2013, it banned financial institutions from handling bitcoin transactions, sparking a slide in price. The PBOC reiterated that stance in Friday’s statement, saying that bitcoin is a virtual commodity without the legal status of a currency. It characterized recent bitcoin moves as “unusual.”

Bitcoin has become increasingly volatile since rallying to a record-high $1,162 on Thursday, slumping 11 percent that day after the yuan jumped. In December it surged 28 percent.

Policy makers are likely to require more reporting from bitcoin exchanges and incorporate their flows into the monitoring of the $50,000 quota Chinese citizens are given to convert yuan to foreign exchange — though it will be more challenging to do so with the decentralized cryptocurrency, said Kapron.

BTCC — which runs BTCChina.com, one of the most active Chinese exchanges — said in a statement on its website that it works closely with the PBOC to ensure that it’s operating in accordance with Chinese laws. Huobi, another major Chinese platform, will also conduct strict self-checks as required by regulators and it plans to work with other bitcoin firms to establish industry standards, chief operating officer Zhu Jiawei said in a message.“The policy risks of bitcoin trading in China are higher” as the nation has capital controls, said Dong Dengxin, director of Finance and Securities Research Institution at Wuhan University of Science and Technology. “If bitcoin trading disturbs China’s financial order, there’s a possibility it will be deemed illegal or banned.”

Bitcoin surged 120 percent in 2016 as the yuan dropped the most since 1994 and Chinese bonds and equities declined, though its total value of around $15 billion still pales in comparison with most mainstream asset classes in the nation.

The digital asset traded at 6,209 yuan ($895) on Chinese firm OKCoin Co.’s platform, around parity to the dollar price based on spot rates. As recently as Friday morning, bitcoin’s yuan price had traded at a premium to its dollar price.

“Until there’s more clarity over what the PBOC is planning or what exactly they mean, I think it will be difficult for bitcoin price to retrace the rally,” said Kapron.

Dollar Rises as Traders Boost Bets for March Hike After Job Data – Bloomberg

  • Traders raise odds for March rate increase to 35% from 31%
  • ‘Dollar domination will continue,’ Mizuho’s Varathan says

The dollar strengthened for a second day against the yen, spending most of the Asian day above 117, after U.S. jobs and wage data for December bolstered the case for the Federal Reserve to raise interest rates this year.

The odds the U.S. central bank will tighten at its March meeting rose to about 35 percent Friday, from 31 percent the day before. The pound weakened after U.K. Prime Minister Theresa May signaled her determination that Britain will leave the European Union. Japanese financial markets were shut for a holiday.

“Dollar domination will continue in a broad-based manner,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “At least until wider risk aversion overtakes the yield-hardening theme, in which case I expect dollar-yen to turn south.”

  • USD/JPY climbs 0.4% to 117.46 after advancing 1.5% on Friday; a narrow trading range in Treasury futures and a closed JGB market contributed to depress price action
  • USD/JPY reached session high of 117.53 after Nikkei newspaper reported Japan’s Ministry of Finance will boost the maximum sales amount of so-called front-loading bonds to a record 56 trillion yen in the year beginning April 1; resistance: 118.66, Dec. 15 high; 119.53, 76.4% Fibonacci retracement of June 2015 to June 2016 decline
  • GBP/USD slips 0.8%, following 1.1% drop on Friday; May told Sky News on Sunday leaving the European Union would be about “getting the right relationship, not about keeping bits of membership”; pair hit intraday low of 1.2181, breaking below the support of 1.2200 seen in Dec./Jan.
  • AUD/USD gains 0.1% to 0.7306; touched session high of 0.7328 after Australia November building approvals rose 7% m/m vs est. 4.5%; bounces off 0.7300 from option-related bids with strikes expiring around these levels this week and local corporate demand after session low of 0.7289
  • Bloomberg Dollar Spot Index gains 0.3% after jumping 0.6% on Friday
  • USD/JPY options are most active Monday accounting for 35% of total volume, according to trades reported by DTCC; USD/CNY second at 21%
  • Spot USD/CNY shrugs off PBOC reference to reducing forex reserves gradually to trade little changed at 6.9342

CBN reduces weekly forex sale by 25% as Nigeria’s Eurobonds appreciate – Vanguard

By Babajide Komolafe

THE Central Bank of Nigeria (CBN) last week reduced its weekly foreign exchange sale to banks by 25 percent, even as prices of Nigeria’s Eurobond rose amid renewed investor’s interest. Previously the CBN have been selling $7.5 million dollars per week    to banks through the interbank foreign exchange market. Financial Vanguard investigations however reveal that the apex bank sold $6 million to banks last week, indicating 25 percent reduction.    The dollars were sold at an average interest rate of N304 per dollar.

The reduction notwithstanding, the Naira appreciated against the dollar at the interbank market as the interbank foreign exchange rate dropped by 0.12 percent to N314.625 per dollar. Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele Foreign reserves The Naira however depreciated against the dollar to N493/ USD at the parallel market. Analysts at Cowry Assets, a Lagos based investment firm, however predicted stability of the Naira this week, following steady rise in the nation’s foreign reserves.

According to the CBN the foreign reserve rose further by $373 million to $26.22 billion on Wednesday January 5th, from $25.84 billion on Thursday December 30, 2016. ‘’This current week, we expect stability of the Naira exchange rate as the    increasing  reserve spur confidence on the ability of the Central Bank    of Nigeria (CBN) to intervene more aggressively in the official market window”, said Cowry Asset analysts. Eurobonds appreciate Meanwhile, Nigeria’s Eurobond listed on the London Stock Exchange enjoyed price appreciation following increased demand by investors.

According to data of closing prices and yields of Eurobond posted by the Debt Management Office (DMO), the 10 year, 6.75% January 28, 2021 bond, gained $2.03, while its yield fell to 5.67 percent; the 5 year, 5.13% July 12, 2018 gained $0.43 while its yield fell to 3.18 percent; the10 year, 6.38% July 12, 2023 bond gained      $2.62 while its yield fell to 6.36 percent. However, prices of FGN bonds traded on the Over The Counter, OTC, secondary market depreciated while yields rose due to drop in market liquidity triggered by treasury bills sale by the CBN. Reacting to the developments analysts at Meristem Securities Limited, aanother Lagos based investment firm, stated in the company’s investment outlook for this week that ‘’activities in the Treasury bond space were characterized by bearish sentiments. Bargain hunting activities The average bond yield advanced by 0.31 percent at the close of the week to 16.67%. ‘’In the coming week, we expect pockets of bargain hunting activities on bonds currently trading at low prices.” Meanwhile, the DMO on Friday announced its intention to raise about N430 billion through bonds sale in the first quarter of this year. According to the bond issuance programme for the first quarter of 2017, Q1’17, posted on its website on Friday, the agency sell      between N110 billion    and N140 billion bonds maturing in 2021 and 85 billion, as well as N105 billion bonds    in 2026. It will also sell between N45 billion and N 55 billion in bonds maturing in 2027 and between N100 billion and N130 billion of bonds maturing in 2036.

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South Africa’s net foreign reserves fall to $40.809 bln in Dec – Reuters

JOHANNESBURG Jan 9 (Reuters) – South Africa’s net foreign reserves fell to $40.809 billion in December from $41.077 billion in November, the Reserve Bank said on Monday.

Gross reserves rose to $47.356 billion from $47.043 billion, the central bank’s data showed.

The forward position, which represents the central bank’s unsettled or swap transactions, fell to $1.771 billion in December from $2.412 billion in the previous month. (Reporting by Olivia Kumwenda-Mtambo; Editing by Himani Sarkar)

 

Experts predict manufacturing rebound on oil price, budget – Businessday

By ODINAKA ANUDU

Experts say the rising crude oil price and the 2017 budget recently presented to the National Assembly by Nigeria’s President Muhammadu Buhari could force manufacturing rebound and ease the pains of stakeholders this year.

“Going by the budget presentation and new year message of Mr. President, the manufacturing sector, and trade may perform better this year, especially with the improvement we are seeing in the crude oil price,” Frank Udemba Jacobs, president of the Manufacturers Association of Nigeria (MAN), told Real Sector Watch in an e-mail response to questions.

The price of Brent Crude was $56.47 per barrel last Thursday, signifying about $20 rise from July of 2016. This signals that there could be more dollar inflows this year, as crude oil remains Nigeria’s major source of foreign exchange inflows.

Higher dollar inflows mean more dollars for manufacturers to import machinery, spare parts, as well as packaging and raw materials, analysts say. 

Similarly, the 2017 budget made provisions for N85 billion for the revival of export processing zones and the Export Expansion Grant as well as the recapitalisation of development banks in Nigeria.

While the 2017 budget set aside N50 billion for the expansion and development of new export processing and special economic zones, it also voted N20 billion for the revival of the Export Expansion Grant (EEG) in the form of tax credits to companies.

Fifteen billion naira was likewise voted for the recapitalisation of the Bank of Industry and the Bank of Agriculture.

“The budget talked about developing SME, manufacturing and trade in so many ways. For instance, recapitalisation of Bank of Industry, resuscitation of the Export Expansion Grant (EEG), development of local inputs for manufacturers and the emphasis on infrastructure are some of the pronouncements made in the budget presentation that tend towards the development of SME, manufacturing and trade,” Jacobs said.

He cautioned, however, that the expected improvement would depend on the effective implementation of the proposals highlighted in the budget as well as the quantum of dollars allocated to the manufacturing sector.

Bassey Edem, national president of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said the manufacturing sector and the entire economy could get out of recession if the capital infrastructure funds in the budget are spent on railways, roads and power.

Edem said a rise in oil price is good news for manufacturers, stating that if the right steps are taken the economy could start seeing the light from the last quarter of 2017.

Ifeanyi Okeleke, CEO of Kenfrancis Farms Limited, forecast that there would likely be less pressure on the foreign exchange market this year, with the oil price going north.

“Again, the 2017 budget has a lot of areas that show government commitment to the real sector. This is a strong statement that the government sees the potential in the real sector. If you check export analysis of the third quarter of 2016, you will see that agriculture, manufacturing and solid minerals played a key role,” Okeleke said.

Weaker demand sees interbank foreign exchange transactions drop to 4-month low – Businessday

Trading activity in Nigeria’s Spot foreign exchange (FX) market between the banks and their clients for the week-ending December 30, 2016 stood at US$284.82 million, the lowest weekly turnover since September 16, 2016, according to data compiled by BusinessDay.

Turnover in the aforementioned week also represents a 62 percent decline from the $512.59 million recorded the previous week.

A slump in trading activity was anticipated in the 3-day business week cut short by Christmas festivities.

Some market participants said trading levels were soft due to weaker foreign exchange demand from businesses, which had closed shops for the year and a disappointing inflow of diaspora remittances.

Activity in the Spot foreign exchange market among banks for the same trading week revealed a 44 percent decrease, as a total turnover of $24.68 million (average daily turnover of $8.23 million) was recorded against the $65.17 million total turnover (average daily turnover of $13.03 million) reported the previous week, a market report obtained by BusinessDay showed.

In the week-ended January 6, 2017, the exchange rate in the Bureau-de-Change (BDC) market remained flat at ₦399 to the US$ throughout the week, while the inter-bank market rate fell by 0.08 percent to close at ₦305 to the US$ against the ₦305.25 close recorded at the end of the previous week.

As a result, the spread between the inter-bank and BDC exchange rates increased by 25 kobo to ₦94, representing a 0.27 percent increase from the spread of ₦93.75 recorded the previous week.

In the OTC FX Futures market, contracts worth $88.81 million traded in about twelve deals for the week-ended January 6, 2017, compared to the previous week’s total of $128.61 million traded in about six deals.

Nigeria’s foreign exchange market is reeling from low oil prices and weak autonomous inflows. Despite a currency float in June, liquidity is yet to return to pre-2014 levels, although inflows have since outpaced outflows since the float, which saw the naira shed almost half its value.

Foreign investors have stood on the side lines of Nigeria’s interbank foreign exchange market because of the fear that the low dollar liquidity in the market would make it difficult for them to repatriate the proceeds of whatever investment they bring in.

However, experts are betting that there will be improved liquidity in 2017.

Improved liquidity is expected on the back of several initiatives already taken by the government, which could translate into increased inflows of dollars into the country.

The first source of major dollar inflow expected in early 2017 is the proceeds of the US$1 billion Eurobond which the Debt Management Office (DMO) and the Ministry of Finance have already finalised plans to issue latest by March.

Besides the US$1 Eurobond, the federal government is also in negotiations with different multilateral lending institutions including the World Bank, the African Finance Development Bank (AfDB), among other institutions, which is expected to translate into increased dollar inflows.

In November 2016, AfDB gave Nigeria US$600 million of an agreed US$1 billion loan. The balance of US$400 million is will be given to the country this year.

The country also has an agreement in principle with the World Bank for a US$2.5 billion facility. The federal government is expected to tap into this agreement this year as part of its US$30 billion borrowing plan.

Prepayment agreement signed with India for crude oil sales will also bring in addition dollar inflows into the country in 2017.

The Minister of State for Petroleum Resources, Ibe Kachikwu has an agreement in principle with India for prepayments of up to US$15 billion for the country’s crude oil. Some payments on the back of this agreement are expected this year once finalized.

But the biggest source of improved dollar inflows in 2017 will come from higher crude oil production and the higher prices of crude oil in the international markets.

At an average crude oil price of US$55 per barrel and average production of 2.0mbpd, the country’s oil export earnings is expected to rise by a minimum of US$11 billion, boosting external reserves and strengthening the capacity of the Central Bank of Nigeria (CBN) to defend the currency.

Analysts at FBN Quest note, “Over time, other inflows will materialize. These could include sizeable multilateral loans, an asset sale or two and advance payments for crude oil. Ours is the scenario of the piecemeal solution to the exchange rate impasse. A number of transactions finally trigger the autonomous inflows on a scale to make the liberalisation a reality. The regime may not be floating but could then be termed “market-driven” (to use the CBN’s own words). This process would be more rapid, as the Egyptian example shows, if the FGN was prepared to take IMF loans. Such a step, however, is off-limits for historic reasons.”

The improvement in inflows is therefore expected to trigger their return to the market, which would ease the pressure on the naira.
The nation’s external reserves have been on a consistent rise since November, rising to a two month high of US$26.2 billion on 5 January.

 

LOLADE AKINMURELE

Offshore Yuan Falls for Second Day as Bears Reload After Squeeze – Bloomberg

  • StanChart, NAB strategists predict continued weakness
  • Traders increase bets that offshore yuan will decline

The yuan’s volatile start to 2017 showed no signs of abating, with the offshore currency tumbling for a second day as China’s central bank weakened its fixing by the most since June.

The exchange rate fell 0.5 percent to 6.8844 per dollar as of 5:24 p.m. in Hong Kong, extending a 0.9 percent drop on Friday that was the biggest in a year. The offshore yuan is set to post the biggest two-day slump since June today, after moving 0.5 percent or more in four of the six trading sessions so far this year, a magnitude it only surpassed 11 times in all of 2016.

Yuan bears were confronted by a short squeeze last week, with soaring funding costs helping the offshore currency to a record weekly advance. National Australia Bank Ltd. and Standard Chartered Bank strategists are among those who say the gains won’t last, predicting a return to yuan weakness on the back of dollar strength. The People’s Bank of China weakened the currency’s daily reference rate by 0.87 percent on Monday after the greenback rallied.

“Most people are quite realistic in expecting the firmer dollar environment to weigh on the yuan,” said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank. “The liquidity conditions have not normalized yet, but expectations have not shifted drastically even with the recent bout of strong yuan appreciation.”

Falling Rates

Offshore liquidity improved on Monday. The overnight yuan interbank rate in Hong Kong, known as Hibor, fell 47.3 percentage points to 14.05 percent, while the offshore yuan’s overnight deposit rate slumped to 12.5 percentage points after reaching a record 105 percent on Friday. The onshore yuan was little changed at 6.9355.

Risk reversals show bearish bets on the currency rose, with the six-month rate rising to 2.055 percent from 1.970 percent on Friday. Other indicators showed some traders are betting the surge in volatility won’t last long. While expectations for swings in the currency over the next month jumped by 1.2 percentage points last week, a gauge tracking wagers for yuan turbulence over six months fell and is now near a one-year low relative to the short-term measure.China’s foreign-exchange reserves fell for a sixth straight month in December, dropping $41.1 billion to a five-year low of $3.01 trillion, which was in line with the median estimate in a Bloomberg’s survey of economists. The PBOC’s effort to stabilize the yuan was the main reason for the drop last month and last year, the State Administration of Foreign Exchange said in a statement.

“With FX reserves dropping toward $3 trillion, FX intervention becomes less palatable to them,” said Eric Robertsen, Singapore-based head of global macro strategy and currency research at Standard Chartered Bank, in a Bloomberg Television interview. “Over time, we expect that with further dollar strength, the yuan should continue to weaken.”

— With assistance by Helen Sun

Naira outlook brightens on rising foreign reserve – Businessday

By HOPE MOSES-ASHIKE

Pressure on the naira is expected to ease this week following a noticeable accretion in foreign reserves by 4.88 percent to $26.22 billion as of January 5, from $25.0 billion in December 15, 2016.

In addition to this, the expected dollar supply to Bureau De Changes (BDCs) by the International Money Transfer Operators (IMTOs) will also help shore up the naira.

The nation’s currency has remained stable, closing at N305/$ since last two week at the interbank spot market, according to data from the FMDQ.
Naira depreciated at both the BDC and parallel market segments by 0.62 percent and 0.61 percent to N485/$ and N493/$, respectively.

The 1-month, 3-month, 6-month and 12-month forward contracts were stable at N305.25, N320.18/$, N330.537/$, N346.07/$ and N378/$, respectively.

However, spot rate appreciated by 0.08 percent to N305/$ as there was $7.5 million intervention sales by CBN to banks during the week.

“We expect stability of the naira/USD exchange rate as the increasing reserve spur confidence on the ability of the Central Bank of Nigeria (CBN) to intervene more aggressively in the official market window,” analysts at Cowry Asset Management Limited said.

Up to May 31, the exchange rate was pegged to $/N199, reinforcing CBN’s commitment to a managed FX rate. It depreciated in the parallel market, and fell to a historic low of N490/$, further widening the gap between the parallel and interbank rates (which closed at N305.5/$).

The CBN liberalised the exchange rate with the introduction of flexible exchange rate regime in June. CBN sold about $1.56 billion in forward auction via Special Secondary Market Intervention Retail Sales (SMIS).

‘Huuuge’ Dollar Rally Predicted by Citigroup If Trump’s Plan Triumphs – Reuters

By Lananh Nguyen

  • Fiscal stimulus, job market could spur big greenback move
  • Dollar may rise above 90 cents per euro, 130 yen: Englander

Financial markets may be witness to a massive rally led by the dollar if Donald Trump pulls off the biggest fiscal stimulus push since the 1980s.  

That’s the view of Steven Englander, global head of Group-of-10 currency strategy at Citigroup Inc. He estimates the greenback could jump more than 10 percent against both the euro and yen if the president-elect and Congress carry out most of their stimulus programs while the labor market strengthens. That could “easily” propel the dollar past 90 cents per euro and 130 yen, Englander said, without specifying a timeframe.“We can see a huuuge, not a baby, USD move ahead,” Englander wrote in a note following the release of December’s employment report. “This would be the biggest fiscal shock since the Reagan period” if Trump’s plans are carried out and the Federal Reserve stays hawkish.

Englander’s estimates are more bullish than the median forecast of analysts surveyed by Bloomberg, who expect the dollar to finish this year at about $1.06 per euro. That’s not far from $1.0528, where it traded as of 2:26 p.m. Friday in New York. The greenback is predicted to weaken to 115 yen by year-end from 117.05 Friday.

The Bloomberg Dollar Spot Index, which measures the greenback against 10 major peers, has surged more than 5 percent since Trump’s election victory in November. The currency has risen on speculation that the president-elect’s spending pledges will fuel inflation and prompt the Fed to tighten monetary policy.

FOREX-Dollar sits on payroll gains, needs new energy – Reuters

* Major currencies in tight range on Monday with Tokyo off

* Dollar holds Friday’s rally, still short of recent peaks

* U.S. wage growth lifts yields, but jury out on reflation trade

* Yuan fixed lower, still firmer than many expected

By Wayne Cole

SYDNEY, Jan 9 The dollar marked time in Asia on Monday after signs of wage pressure in the December U.S. jobs report proved enough to lift Treasury yields, but with bulls wary of a setback following last week’s wave of profit-taking.

A holiday in Tokyo kept trading light and the dollar index was barley changed at 102.22, near the middle of last week’s wide 101.30 to 103.82 range. 

The dollar was a fraction firmer on the yen at 117.30 , with near-term resistance put at 117.77 and support around 116.80/90. It had already recovered all the way from a 115.06 trough on Friday, but remains well short of the next major chart target around 118.60.

The euro was steady at $1.0534, after ricocheting between $1.0339 and $1.0621 last week.

There were enough hints of inflationary pressure in Friday’s mixed U.S. payrolls report to support the case for more interest rate hikes and reverse a down move in yields and the dollar.

Yields on U.S. 10-year notes rose from 2.33 percent to 2.42 percent on the data. Yet that remained some way from the December peak of 2.64 percent, and the spread over German yields was also off its highs.

“It is interesting to note that while there has been some volatility in the meantime, U.S. equities, the USD, and 10-year yields are all sitting at roughly similar levels to when the Fed hiked nearly four weeks ago,” analysts at ANZ said in a note to clients.

“It does look like markets are asking whether the reflation theme is now in the price, suggesting that something additional will be needed to set markets into new trading ranges.”

The outlook for U.S. rates may become a little clearer when Federal Reserve Chair Janet Yellen appears at a webcast town hall meeting with educators on Thursday.

Two regional Fed presidents will speak later Monday, and there are no less than five speeches lined up for Thursday. The main economic release of the week is not until Friday, when retail sales figures for December are out.

Dealers in Asia will also be keeping a wary eye on the yuan after Beijing engineered a sharp tightening in liquidity last week that squeezed speculators out of short yuan/long U.S. dollar positions.

China’s central bank kept up the pressure on Monday setting a firmer fix for the yuan than many had expected at 6.9262 per dollar, even though that was down from the previous fix.

Yet the defence is proving expensive. Figures out over the weekend showed China’s foreign exchange reserves fell to nearly six-year lows in December as Beijing fought to stem an outflow of capital that could ultimately force another devaluation of the currency. (Editing by Simon Cameron-Moore)