Emerging-Market Currencies Fall; Lira in Worst Rout Since 2008 – Bloomberg

  • Mexico’s peso drops to record low, erasing a brief advance
  • Stocks in developing nations climb to two-month high

Lira Replaces Rand as World’s Most Volatile Currency

Emerging-market currencies dropped as the lira headed for its biggest five-day loss since the global financial crisis after a support pledge by Turkey’s central bank failed to convince traders.

  • The MSCI Emerging Markets Currency Index fell 0.3 percent at 12:37 p.m. in New York.
  • Turkey’s lira weakened 2.8 percent to new record lows.
  • Mexico’s peso slid 0.4 percent to all-time lows; currency briefly erased losses during U.S. President-elect Donald Trump’s speech, but resumed declines right after.
  • The MSCI Emerging Markets Index added 0.2 percent, set for a second day of gains.

W. Africa Crude-More Angolan oil sold, Nigerian crude still under pressure – Reuters

LONDON Jan 11 (Reuters) – Several additional Angolan cargoes traded, leaving less than a handful to sell. Nigerian differentials came under yet more pressure due to thin buying interest on the back of uncertain loadings.

 
 

* Reports that Saudi Arabia cut February exports to some Asian buyers buoyed oil prices, and also helped spur demand for other medium and heavy crude oil cargoes, including those from West Africa.

* The spread between Brent and Dubai crude DUB-EFS-1M narrow to $1.65 per barrel, the lowest since October 2015. A narrow spread makes crude oil priced off Brent, including West African grades, more attractive to Asian buyers.

* U.S. inventories of crude and refined oil rose sharply and more than expected last week, with stocks of distillates hitting six-year highs, as crude imports and refining hit record highs, government data showed on Wednesday.

* Still, U.S. imports of Nigerian crude increased to 333,000 bpd in the week to Jan. 6, up from 220,000 bpd in the last week of 2016, and the highest weekly import total since late October, according to data from the U.S. Energy Information Administration.

NIGERIA

* Offer levels were falling for several Nigerian crude oil grades, with Qua Iboe now available from different sellers at premiums of as low as 75 cents to dated Brent.

* One buyer said they had received no fewer than six offers of Qua Iboe, underscoring the excess. Nearly every grade was still on offer, with a total of some 30 February-loading caroges.

* Exxon sold a cargo of Erha crude, though the buyer and the premium were unclear.

* Shell had recently offered Bonny Light at a premium of $1.10 per barrel to Brent, but buyers said the price would have to be far lower.

* Shell and Litasco were also offering Bonga at premiums of around $1.40 per barrel.

* Glencore had sold a cargo of Ghana’s TEN crude oil for February loading, though the buyer was not immediately clear.

ANGOLA

* Sonangol and BP had sold cargoes of Angolan oil, whittling the February loading cargoes available to three or four, traders said.

* BP had sold a cargo of Dalia to Unipec and also sold a cargo of Kissanje, though the buyer was not clear.

* Sonangol also sold a cargo of Palanco to Unipec, which has purchased several Angolan and other medium and heavy grades in recent weeks.

* Cargoes of CLOV and Girassol were still available.

TENDERS

* Final submissions were due in a tender from India’s IOC, with the award expected on Thursday.

* While the request was for March-loading crude oil, traders were expected to try to place end-February loading barrels into it due to the excess of unsold Nigerian cargoes. (Reporting by Libby George; Editing by)

 

Pound Looks Past Economic Resilience as Brexit Only Game in Town – Bloomberg

  • Sterling falls despite better-than-forecast production data
  • Investors writing off good news given outlook: Mizuho’s Jones
The pound fell to the weakest in more than two months as a larger-than-forecast increase in industrial output failed to soothe investors worried about Brexit.

Sterling fell as much as 0.7 percent to $1.2097 before trading 0.4 percent weaker at $1.2130 by 11:50 a.m. in London, after official data showed industrial production rose 2.1 percent in November from a month earlier, more than double the median prediction by economists in a Bloomberg survey. Manufacturing also rose more than expected. 

The pound’s 1.7 percent decline against the dollar this year has only been surpassed by Mexico’s peso and the Turkish lira among major currencies amid uncertainty over the U.K.’s strategy to leave the European Union. U.K. Prime Minister Theresa May, who on Sunday flagged regaining control of immigration as a priority over retaining access to the bloc’s free-trade zone, is scheduled to speak in the House of Commons on Wednesday.

“Investors in the U.K. and overseas appear to be writing off good news on the basis that bad news lies ahead,” said Neil Jones, the head of hedge-fund sales at Mizuho Bank Ltd. in London. “If a market can’t go up on good news, it must go down. Today is no exception.”

  • “The main driver is Brexit-related uncertainty and that keeps the pound a sell,” says Manuel Oliveri, a currency strategist at Credit Agricole SA in London.
    • Bank of England Governor Mark Carney and Theresa May are unlikely to come up with any surprise at hearings on Wednesday, leading to risk being on the downside for the pound, Oliveri says.
  • “The market is getting very short cable at a strongly supported level,” according to Richard Benson, the London-based managing director and co-head of portfolio investment at Millennium Global Investments Ltd.
    • If the U.S. dollar weakens today on Trump’s comments, cable will likely see a big stop run. The market is looking for the pound to break lower. It may be very disappointed, he says.
    • The fundamental outlook for the U.K. looks very poor though, he says.

The Three Worst Currencies of 2017 Show That Politics, Not Economics, Are Driving Markets – Bloomberg

Societe Generale’s Juckes sees politics weighing on peso, pound, and lira.

Forget about current-account deficits, purchasing-power parity, and government debt.

The new year’s currency action suggests politics is trumping economics in the world’s foreign-exchange markets, according to Societe Generale Global Strategist Kit Juckes. Consider the three worst-performing currencies in the first ten days of the year, he said in a note on Wednesday.

 
Source: Bloomberg

These laggards “all face significant political headwinds: terror attacks and government interference in monetary policy in Turkey, Brexit-dithering in the U.K., and fears of U.S. protectionism in Mexico,” he writes. “The takeaway, two weeks into the year, is that as expected, politics is at least as important as economics in driving markets in 2017.”

Political pressures appear to be factoring into the Turkish central bank’s reluctance to hike rates despite hotter-than-expected inflation, which has fostered acute weakness in the lira. In Britain, the pound has been battered amid statements from Prime Minister Theresa May that point towards a ‘hard’ Brexit, despite evidence of firm economic activity.

These currencies are extending their year to date losses relative to the U.S. dollar in a big way on Wednesday.

 
Source: Bloomberg

Mexico’s peso, meanwhile, has been cementing its position on the “front line” of market reactions to President-elect Trump’s policy agenda; most recently demonstrated by the swift plunge in the currency after Ford Motor Co. said it would forgo building a new plant in Mexico.

The six best- and worst-performers — the Australian dollar, Russian ruble, Columbian peso, British pound, Mexican peso, and Turkish lira — all share one key characteristic, according to Juckes: they’re relatively high-beta. So it’s not as if investors are shunning volatile currencies per se, in stark contrast to 2016 when safe-haven currencies were the strongest out of the gates, and those of commodity exporters struggled.

The major event on Wednesday’s calendar looks set to be a test of Juckes’s observation, as the world awaits the first press conference from President-elect Trump in six months.

Dollar surge, political nerves send sterling to 3-month low – Reuters

* GBP heading for fourth week of falls vs euro

* Brexit, trade data, N. Ireland fracturing all weigh

* Graphic: sterling and gilt yields bit.ly/2dgAXn1 

* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh

By Marc Jones and Jemima Kelly

LONDON, Jan 11 Sterling hit a three-month low against the dollar on Wednesday, as a renewed surge by the U.S. currency compounded a lengthening list of political strains weighing on the pound.

As well as fears of a messy divorce from the European Union, the threat of Scotland breaking away has re-emerged for the pound this week as well as a collapse of Northern Ireland’s decade-long power-sharing government.

Sterling spent the day in the red after lacklustre trade data, but its slide steepened to almost 1 percent around mid-afternoon as a news conference by U.S. President-elect Donald Trump lifted the dollar against the main world currencies.

It drove the pound as low as $1.2045, a level last seen during a flash crash in October, though it was soon on the recovery path and steadied at $1.2130 – a more modest 0.3 percent lower – as London trading wound down.

“We are still left with the impression that the real economy has yet to be hit by Brexit. It is the politics rather than the economics hitting the pound,” said Rabobank strategist Jane Foley.

The earlier data had shown Britain’s trade performance deteriorated at the end of last year, as a record value of goods imports outweighed record exports, showing the pound’s drop since June’s Brexit vote is yet to reset the balance.

Sterling has fallen almost 20 percent against the dollar in that time and is on course for its fifth week of falls in the last six. Against the euro it has lost 12 percent since June and is heading for its fourth straight weekly drop.

It hovered little changed at 86.50 pence by 1715 GMT.

That came after Prime Minister Theresa May sidestepped questions on Brexit during weekly jousting in parliament. Attention had also briefly focused on Northern Ireland which is highly likely to hold fresh elections after a devolved government crumbled.

It raises the prospect of a lengthy renegotiation between Northern Ireland’s two divided governing partners on the terms of power-sharing, part of the 1998 Good Friday peace agreement, as well as further complicating the Brexit debate.

Rabobank’s Foley said her clients were not yet raising worries about the impact on sterling of the fracturing in Belfast. Instead all the focus is on the path to Brexit.

UBS Wealth Management currency strategist Geoffrey Yu added: “Fresh shorts are being put on – this is kind of a repeat of what happened around the (ruling Conservative) party conference in October, with the market pricing in a harder Brexit.” (Additional reporting by Patrick Graham; Editing by Adrian Croft)

UK banks’ share of corporate currency business dips – Reuters

By Patrick Graham | LONDON

The share of Britain’s biggest banks in the market supplying UK companies’ daily foreign currency needs fell for a second year running in 2016 as firms made more use of new trading platforms and brokers, an industry report showed on Wednesday.

Banking researchers East and Partners surveyed more than 2,000 small, medium and large British firms and found falls in both the volume of business done with banks and the number of companies using them as a primary provider.

Barclays, HSBC and Lloyds remained the top three providers of currencies to companies, but all lost market share, to 14.3 percent, 13.5 percent and 10.6 percent respectively. 

Most other banks also saw declines. The only mainstream lenders gaining share were ING, Bank of America Merrill Lynch and Bank of China.

The biggest non-bank provider was U.S. group Western Union, rising to 3.4 percent from 3.0 percent, followed by Monex, CMC, IG Markets, Saxo Bank and American Express. Small boutique providers doubled their share to 3.8 percent.

“High Street banks continue to hold more than half the market but at best saw no growth or decline in their share,” East and Partners’ head of client servicing Simon Kleine said.

“There is a lot more shopping around, and we can see the effects both in terms of market and wallet share. Some international banks have seen small increases in share and there’s been a resurgence in growth by many non-bank providers.”

By offering companies currency at much tighter spreads between buy and sell prices than the rates banks give each other and their biggest clients, brokers have been instrumental in making forex trading as a whole more competitive.

The biggest brokers say they have grown strongly by providing more consumer-friendly software for firms to use or by watching over the currency needs of company managers too busy to notice that, say, the dollar has hit levels where they would like, or need, to buy or sell.

That has made millions for a generation of forex entrepreneurs but has also begun to draw a response from banks.

A number have tightened the spreads offered on ordinary corporate transfers and some, such as German lender Deutsche Bank, have invested in new client service centres in cheaper locations outside London.

(Reporting by Patrick Graham; Editing by Ruth Pitchford)

Expert Seeks Restructuring of Nigeria’s Forex Regime Expert Seeks Restructuring of Nigeria’s Forex Regime – Thisday

By Obinna Chima

The Managing Director of the Financial Derivatives Company Limited, Mr. Bismarck Rewane has said that for Nigeria to escape from what he described as a ‘forex trap,’ the government must work towards adopting a properly functioning market. Rewane, who made this remark in his 2017 outlook on the naira, said a well functioning forex market allows the exchange rate to respond to market forces and reduce market distortions.

According to him, Russia and Kazakhstan recently did that and their currencies sank for a short period and then recovered sharply. On the other hand, Venezuela fell into the trap and has become a basket case, he said.
The FDC boss stressed that the Central Bank of Nigeria (CBN) will need to eliminate or phase out regulations that stifle market activity; ceate a sense of two-way risk in the market; reduce its market making role and stop indirect or overt rate determination; increase market information on the sources and uses of foreign exchange; there must be liquidity, transparency and openness; and that the CBN as a regulator must be firm in dealing with market infractions. 

“Forex policies usually complement trade and investment policies. The Nigerian government will in 2017 strive towards greater coordination of these policies, and will move from its current bias for a command economy monetary policy towards a mixed economy.

“I believe that with oil prices at $55pb and production back up to 2mbpd, the naira will slip in the interbank markets to N350-N380/$. It will fall in the parallel market to N520/$ before recovering sharply to N425/$. These projections are based in the assumption that the market will be reformed and that sanity will return to what is now essentially a foreign exchange asylum,” he said.
According to him, the exchange rate of N305/$ is neither a realistic nor an effective price of the currency at this time.

“This is because you cannot get dollars at this price unconditionally. In the parallel market, the naira is trading at N495/$, whilst transfers are going at N505/$. Any market structure where the same product is selling at different prices at the same time is described in economics as a price discriminating monopoly market structure.
“Typically this market is characterized by barriers to entry that allow those with influence or connections to buy in the cheaper market, e.g. N305/$ and sell in the more lucrative market, e.g. N500/$. This is what is probably happening right now (round tripping).

“However, before we look at the outlook for the naira in 2017, we need to examine the fundamentals that determine exchange rates. We also have to understand why Nigeria’s attempt at unifying its exchange rates has proved abortive so far. The forex market is a product of policy-making regulatory and market player interaction.

“Many fundamentals go into the determination of an exchange rate. These include balance of trade, the terms of trade, investment flows and the international competitiveness of the economy. There is also the interest rate/ inflation differential, which impacts the purchasing power parity of the currency,” he said.

Rewane noted that when a currency is appropriately priced, it will be in equilibrium and will have minimum deviation from the real equilibrium exchange rate path.

To this end, he said When the Nigerian case is tested against a number of such indicators, “it is not far-fetched to see why the Nigerian currency value is misaligned from its monetary policy anchors. It is also clear why there has been a slow but consistent erosion of confidence in the naira.”

“Rational investors and domestic economic agents always make decisions in their own enlightened self-interest and not because of emotional and irrational considerations. Historically the Nigerian economy, and by implication the naira, has been a beneficiary of oil windfalls and a victim of oil shortfalls.

“History shows that after a windfall, the naira remains relatively stable for an average of 5-6 years before the next oil shock. Immediately after every shock, the government embarks on adjustment measures including a devaluation. However, since 2008 the shocks have become more frequent and shattering,” he said.

Bitcoin crashes below $800 as China probes manipulation of exchanges – Businessday

Investors in increasingly popular Bitcoin felt the pain today as the price of the crypto-currency fell by 20 percent or over 1,200 Yuan in heavy trading in China, and down more than $100 to just under $800 a coin on comparable US markets.

This follows China’s central bank saying it had launched “spot investigations” on bitcoin exchanges in Beijing and Shanghai in order to fend off market risks.

Chinese authorities have been worried in recent months that the weakness in the Yuan was being fuelled by capital flight out of the country through the use of Bitcoins.

The investigation of the Bitcoin exchanges, including BTCC, Huobi and OKCoin, was to look into “possible market manipulation, money laundering, unauthorized financing and other issues”, according to the statements posted on the People’s Bank of China’s website.

The Chinese currency lost more than 6.5 percent against the U.S. dollar last year.

Bitcoin was the top performing currency in the world in 2016 up some 126 percent while the Nigerian Naira was one of the worst performers (see Fig : 1).

Many Nigerians have recently begun buying Bitcoins both as a means of making purchases (as the dollar shortages bite) and also a store of value or investment.

The volatile nature of the currency though is a signal to potential Nigerian investors to carefully approach such investments.

 

PATRICK ATUANYA

BREAKING: Senate rejects ban on importation of cars through land borders – Punch

By Leke Baiyewu, Abuja

The Senate has called for the reversal of the Federal Government’s policy banning the importation of cars through land borders.

 

The ban took effect from January 1, 2017.

According to the Senate, the ban will lead to a loss of 500,000 jobs.

The lawmakers, who heavily criticised the policy during the plenary on Wednesday, described the ban as anti-poor.

 

The issue was brought through a a motion titled, ‘The Ban on the Importation of Vehicles Through the Land Borders into the Country’, jointly moved by Senators Barau Jibrin (Kano North), Kabiru Gaya (Kano South), Sabi Abdullahi (Niger North), Shehu Sani (Kadana Central) and Ali Wakili (Bauchi South).

The lawmakers overwhelmingly rejected the policy, while asking Nigeria Customs Service to immediately suspend implementation of the policy.

The Deputy President of the Senate, Sen. Ike Ekweremadu, who presided over the plenary, specifically urged President Muhammadu Buhari to listen to the cries of Nigerians and reverse the policy.

Ekweremadu said, “From the contributions made, it is obvious that the policy is unpopular. We are representatives of the people and the people have spoken through us that they do not want this policy. I think those in government should listen to them.”

The Senate also directed its Committee on Customs and Excise to investigate the circumstances that led to the sudden decision of the Federal Government to place a ban on importation of vehicles through the land borders.

More lawmakers who took their turns to speak on the policy condemned it.

Oil rises as Saudi tells Asian customers of output cuts – Reuters

By Amanda Cooper | LONDON

Oil prices rose for the first time in three days on Wednesday, following news of Saudi supply cuts to Asia, but persistent doubt over output reductions and signs of rising shipments from other producers kept gains in check.

Brent crude futures were up 41 cents at $54.05 a barrel by 1133 GMT (6:33 a.m. ET), while U.S. West Texas Intermediate crude futures were up 39 cents at $51.21 a barrel.

Brent has surrendered nearly 40 percent of the gains made between late November and early January. Analysts, however, said the slide was unlikely to become more aggressive, given the likelihood of Saudi Arabia and its Gulf neighbors at least sticking to their pledge to cut output. 

“Few envision that Brent crude at sub-$50 a barrel is a viable price (in the first half of 2017) amid OPEC production cuts tightening up the market,” SEB commodities strategist Bjarne Schieldrop said.

Whether “last night’s low of $53.58/barrel turns out to be the low point remains to be seen. However, we do think that buying in the territory between the current price of $53.88/b and down to $50/b is probably as good as it gets for buyers in H1.”

Saudi Arabia, the world’s top oil exporter, has told some of its Asian customers that it will reduce their crude supplies slightly in February.

But there is still plenty of oil to fill the gaps left by the Organization of the Petroleum Exporting Countries. North American drilling is on the rise, while European and Chinese traders are shipping a record 22 million barrels of crude from the North Sea and Azerbaijan to Asia this month.

There is still doubt among many market watchers over whether the planned cuts will be enough to rebalance a market that has been oversupplied for the past two years.

“Traders continued to fret about rising U.S. supply and compliance by OPEC to agreed-upon production cuts,” ANZ bank said.

The U.S. Energy Information Administration (EIA) said on Tuesday that crude production in the United States this year would rise by 110,000 barrels per day to 9 million bpd.

Another concern is high U.S. crude stockpiles, with the EIA scheduled to release its latest figures on Wednesday.

OPEC’s second-biggest producer Iraq plans to raise crude exports from its southern port of Basra to an all-time high of 3.641 million bpd in February, keeping shipments high even as OPEC production cuts take effect this month.

(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Dale Hudson/Ruth Pitchford)