Tag Archives: Economy

China lets yuan slide, starts fight to halt turbulence

By Lu Jianxin and Patrick Graham

SHANGHAI/LONDON (Reuters) – China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared it would trigger competitive devaluations.

For the second time this week China’s stock markets were suspended for the day before an announcement late in the evening in Shanghai that authorities were abandoning the new circuit-breaking mechanism for halting trade in overly volatile markets.

That heightened anticipation about how Chinese markets may respond on Friday.

The People’s Bank of China shocked traders by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), 0.5 percent weaker at 6.5646 per dollar on Thursday, the lowest since March 2011.

That tracked record losses in the more open offshore currency market and was the biggest daily fall since an abrupt devaluation of nearly 2 percent last August.

But dealers said the PBOC had then intervened heavily to reverse a more than 1 percent fall in offshore rates for the yuan after they hit a record low of 6.7600 per dollar.

The yuan took back all of its losses to stand a quarter of a percent stronger at 6.6755 in European and U.S. trade.

“It’s very similar to the previous round (in August) where they weaken the official rate and then intervene against the dollar offshore to beat back the speculators,” said a yuan trader with one international bank in London.

“That would be a way of starting to stabilize the market.”

The PBOC’s China Foreign Exchange Trade System (CFETS) repeated on Thursday that there was no basis for the yuan’s continuous depreciation and that it was stable against a basket of currencies in 2015.

But the central bank’s fixings have also helped drive the yuan down this week against other major currencies, including a 3.5 percent fall against the yen and 0.8 percent against the euro.

That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters.

“That’s the fear of the market,” said Sim Moh Siong, FX strategist for Bank of Singapore, adding that it was a zero sum game as other currencies weakened in response, and the end result would be greater volatility.

Others were unsure what policy Beijing was pursuing.

“Frankly speaking, we are still not quite sure where the PBOC boundary is at the current stage,” said Singapore-based Oversea-Chinese Banking Corporation (OCBC).

“The fear of the unknown has become the largest risk for RMB in the near term, despite China’s sizable current account surplus.”

The Australian dollar, often used by foreign exchange dealers as a liquid proxy for the yuan, fell more than half a U.S. cent. The Korean won, however, recovered almost all of its initial falls with banks saying the Bank of Korea had probably also intervened to support the currency.

OCBC noted that against a basket of currencies, the RMB index was still only fractionally down for 2016.

ANZ bank said in a note that the PBOC’s action would nevertheless “create one-way expectation of RMB depreciation, propelling capital flight and leading to significant financial instability”.

DECLINING RESERVES

Data on Thursday showed China’s foreign exchange reserves fell by the most on record last month, down $108 billion in December alone and by $513 billion overall last year.

That suggests an accelerating outflow of money from China which may largely be the result of the opening up of its financial markets over the past year, but also a sign that the world’s second-largest economy is in deepening trouble.

Michael Every, Rabobank’s Head of Markets Research, Asia-Pacific, said once Beijing had won the diplomatic triumph of getting the yuan included in the International Monetary Fund’s reserve currency basket in November, he expected policymakers would let it slip to cope with a slowing, deflationary economy.

“Why people are panicked is because (i) they didn’t see this coming, and/or (ii) the global economy needs a consumer of last resort, and China is sending a signal that they won’t be it,” he added.

A sustained depreciation in the yuan puts pressure on other Asian countries to weaken their currencies and makes commodities denominated in U.S. dollars more expensive for Chinese buyers, which could further depress demand and commodity prices.

Shanghai stocks slid 7.3 percent to trigger the halt in trading, a repeat performance of Monday’s sudden tumble. Japan’s Nikkei shed 2.3 percent in sympathy, and Hong Kong’s Hang Seng Index was down 2.8 percent.

The halt mechanism, intended to calm market volatility, was instead “killing investors” and creating panic, a retail investor in Guangzhou complained.

China’s securities regulator also unveiled new rules on Thursday to restrict selling by big shareholders who have been locked into their holdings for six months since Beijing banned them from offloading stocks to arrest a summer market crash.

In rules that take effect on Jan. 9, they can’t sell more than 1 percent of a listed company’s share capital every three months.

“This is crazy,” said Alberto Forchielli, founder of Mandarin Capital Partners. “Chinese regulators set off on this path in July and they cannot get out of it. They have ruined whatever hope investors still had in the market.”

(Reporting by Lu Jianxin, Lee Chyen Yee and Samuel Shen in Shanghai and Patrick Graham in London; Additional reporting by Lisa Jucca and Masayuki Kitano; Writing by Wayne Cole and Will Waterman; Editing by Ruth Pitchford)

Dow off to worst January start ever as China fears grow

By Caroline Valetkevitch

(Reuters) – U.S. stocks sold off further on Thursday, giving the Dow its worst start to a year since the 30-stock index was created in 1928, dragged down by another drop in Chinese equities and oil prices at 12-year lows.

China allowed the biggest fall in the yuan currency in five months, adding to investor fears about the health of its economy, while Shanghai stocks <.SSEC> were halted for the second time this week after another steep selloff.

Oil prices fell to 12-year lows and copper prices touched their lowest since 2009, weighing on energy and materials shares. Shares of Freeport McMoran <FCX.N> dropped 9.1 percent to $5.61. All 10 S&P 500 sectors ended in the red, though, and the Nasdaq Biotech index <.NBI> fell 4.1 percent.

“People see the weakness in China and in the overall equity market and think there’s going to be an impact on corporations here in the United States,” said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

“When you have a market that begins a year with weakness, people are sort of suspect anyway. The economy isn’t moving all that well, the outlook is modest at best, and they don’t want to wait for the long term. China creates more uncertainty.”

The Dow Jones industrial average <.DJI> closed down 392.41 points, or 2.32 percent, to 16,514.1, the S&P 500 <.SPX> had lost 47.17 points, or 2.37 percent, to 1,943.09 and the Nasdaq Composite <.IXIC> had dropped 146.34 points, or 3.03 percent, to 4,689.43.

The Dow has lost 5.2 percent since the end of 2015 in the worst first four trading days since the 30-stock index’s creation.

Stocks extended declines late in the session, and the CBOE Volatility Index <.VIX>, the market’s favored gauge of Wall Street anxiety, ended up 21.4 percent at 24.99, its highest since Sept. 29.

Investors also braced for Friday’s U.S. government jobs report, which could show how well-insulated the U.S. economy is from international stresses.

Billionaire investor George Soros, speaking at an economic forum in Sri Lanka, drew similarities between the present environment and the financial crash of 2008. He said global markets were facing a crisis and investors needed to be very cautious, Bloomberg reported.

Apple, which generates a lot of its business in China and is still the most valuable U.S. company, fell 4.2 percent to its lowest level since the August market swoon.

Yahoo <YHOO.O> fell 6.2 percent to $30.16 after Business Insider reported the company was working on a plan to cut its workforce by at least 10 percent. Alibaba <BABA.N>, in which Yahoo has a stake, was down 6 percent at $72.72.

Volume has been heavy this week. About 9.9 billion shares changed hands on U.S. exchanges Thursday, well above the 7.2 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Declining issues outnumbered advancing ones on the NYSE by 2,704 to 415, for a 6.52-to-1 ratio on the downside; on the Nasdaq, 2,492 issues fell and 390 advanced for a 6.39-to-1 ratio favoring decliners.

The S&P 500 posted 1 new 52-week highs and 82 new lows; the Nasdaq recorded 16 new highs and 302 new lows.

(Additional reporting by Tanya Agrawal and Saqib Iqbal Ahmed; Editing by Saumyadeb Chakrabarty and Nick Zieminski)

Global stocks, oil tumble as China economy concerns mount

By Rodrigo Campos

NEW YORK (Reuters) – Shares on major exchanges fell for a sixth straight day on Thursday and crude oil prices touched multi-year lows as investors fretted over the state of China’s economy and its ability to stabilize its stock market.

In a move that deepened concerns over China’s economic health, the People’s Bank of China set the yuan midpoint rate lower for an eighth consecutive day. The 0.5 percent decline was the biggest between daily fixings since August.

China suspended a circuit breaker implemented at the start of 2016 that stopped trading for the day when the benchmark index fell 7 percent, a halt already triggered twice this week. Analysts and investors said the mechanism, put in place to avoid market volatility, may have backfired.

“People see the weakness in China and in the overall equity market and think there’s going to be an impact on corporations here in the United States,” said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

Rounding out its worst four-day start to a year in more than a century, the Dow Jones industrial average <.DJI> fell 392.41 points, or 2.32 percent, to 16,514.1.

The S&P 500 <.SPX> lost 47.17 points, or 2.37 percent, to 1,943.09 and the Nasdaq Composite <.IXIC> dropped 146.34 points, or 3.03 percent, to 4,689.43.

A gauge of major stock markets globally <.MIWD00000PUS> fell 2.2 percent and Nikkei futures <NKc1> were down 2.6 percent.

CURRENCY WAR BREWING

Investors fear China’s economy is even weaker than had been imagined, with Beijing, in a bid to help exporters, allowing the yuan’s depreciation to accelerate. The move risks triggering a cycle of competitive devaluation, said Mexican Finance Minister Luis Videgaray.

The U.S. dollar tumbled 0.9 percent against a basket of currencies <.DXY>, losing 1.4 percent to $1.0929 versus the euro <EUR=> and 0.7 percent to the yen <JPY=> at 117.63.

Brent crude cut a loss of more than 6 percent to trade down 1.6 percent, while U.S. crude <CLc1>, down as much as 5.5 percent earlier, was down 2.3 percent.

The benchmark U.S. Treasury yield <US10YT=RR> touched its lowest since late October. U.S. 10-year Treasury notes were last up 8/32 in price to yield 2.1491 percent, from 2.177 percent late on Wednesday.

Gold touched $1,110 an ounce for the first time in nine weeks as the dollar fell and investors rushed into perceived havens. Spot gold <XAU=> rose 1.35 percent to $1,109.10 an ounce. Its 4.6 percent gain up to Thursday was the best four-day run for gold in a year.

Copper prices <CMCU3> touched a low not seen since May 2009.

(Reporting by Rodrigo Campos, additional reporting by Caroline Valetkevitch; Editing by Nick Zieminski, Meredith Mazzilli and Dan Grebler)

Oil dives below $35, lowest in 11 years, as U.S. supply swells

By Catherine Ngai

NEW YORK (Reuters) – Crude oil prices plunged 6 percent on Wednesday, diving below $35 per barrel for the first time since 2004 as data showing a shockingly large build-up of U.S. gasoline supplies fed fears that a global surplus was still growing.

The sell-off, the biggest one-day drop for global benchmark Brent futures since the start of September, takes losses this year to more than 8 percent, a descent stoked by worsening Chinese economic data, the world’s No. 2 oil consumer, and a fierce row between Saudi Arabia and Iran that some say may be more bearish than bullish.

The focus on Wednesday was U.S. government data showing a 10.6 million-barrel surge in gasoline supplies, the biggest build since 1993, which some traders said signaled a slow-down in demand that could prolong the global glut. The figures overshadowed a 5.1 million-barrel fall in crude stocks. [EIA/S]

“Gasoline was the sole source of strength within the complex, and that looks to have ended,” said John Kilduff, a partner at energy hedge fund Again Capital.

Brent futures <LCOc1> fell $2.19 to settle at $34.23 a barrel. Earlier, it fell to as low as $34.13, its lowest level since the start of July 2004.

U.S. crude futures <CLc1> fell $2.00 to settle at $33.97 a barrel, its lowest close since February 2009.

Traders shrugged off rising geopolitical risks, including an apparent North Korea nuclear test. Many reckoned that the row between Saudi Arabia and Iran posed little threat to oil shipments, but made an agreement on output even less likely.

“I think we’ll see a price war soon to keep market share,” said Tariq Zahir, an analyst at Tyche Capital Advisors. “Prices will get lower and I think we’ll hit $32 again.”

Following an 18-month rout, the fierce selling this year has caught some by surprise, and prompted others to pick up bearish options at lower prices. The $30 February WTI put <CL300N6> was the second most traded strike price at 12,700 lots after $30 March puts <CL300O6> at 21,500 lots.

The CBOE volatility index <.OVX>, a gauge of options premiums based on moves in the U.S. oil exchange traded fund, was up 5.5 percent after moving sideways on Tuesday.

“We’ve entered some unchartered territories, so it’s no surprise that traders are pumping volatility,” said John Saucer, vice president of research and analysis at Mobius Risk Group.

Feeding into the weak market sentiment, a survey showed that China’s services sector expanded at its slowest pace in 17 months in December, following on from weak factory data on Monday.

(Additional reporting by Simon Falush in London, and Henning Gloystein, Jacob Gronholt-Pedersen and Roslan Khasawneh in Singapore; Editing by Marguerita Choy)

Fed Raises Interest Rates, Citing Ongoing U.S. Recovery

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signaling faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis.

The U.S. central bank’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

“With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate,” Fed Chair Janet Yellen said in a press conference after the rate decision was announced. “The economic recovery has clearly come a long way.”

The Fed’s policy statement noted the “considerable improvement” in the U.S. labor market, where the unemployment rate has fallen to 5 percent, and said policymakers are “reasonably confident” inflation will rise over the medium term to the Fed’s 2 percent objective.

The central bank made clear the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

“The process is likely to proceed gradually,” Yellen said, a hint that further hikes will be slow in coming.

She added that policymakers were hoping for a slow rise in rates but one that will keep the Fed ahead of the curve as the economic recovery continues. “To keep the economy moving along the growth path it is on … we would like to avoid a situation where we have left so much (monetary) accommodation in place for so long we have to tighten abruptly.”

New economic projections from Fed policymakers were largely unchanged from September, with unemployment anticipated to fall to 4.7 percent next year and economic growth hitting 2.4 percent.

The Fed statement and its promise of a gradual path represented a compromise between policymakers who have been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth.

“The Fed is going out of its way to assure markets that, by embarking on a ‘gradual’ path, this will not be your traditional interest rate cycle,” said Mohamed El-Erian, chief economic advisor at Allianz.

Fed officials said they were confident the situation was ripe for them to make a historic turn in policy without much disruption to financial markets, which had expected the hike this week.

U.S. stocks rallied on the news, in part because the Fed made clear it would proceed slowly with further tightening. Yields on U.S. Treasuries rose, while the dollar was largely unchanged against a basket of currencies. Oil prices fell sharply before paring losses.

POLICY STILL ACCOMMODATIVE

Yellen on Wednesday said the Fed had no desire to curb consumers from spending or businesses from investing. She emphasized that interest rates remained low even after the rate hike, near levels economists regard as appropriate for a recession.

“Policy remains accommodative,” Yellen said. “The U.S. economy has shown considerable strength. Domestic spending has continued to hold up.”

Fed policymakers’ median projected target interest rate for 2016 remained 1.375 percent, implying four quarter-point hikes next year. Based on short-term interest rate futures markets, traders expect the next rate hike in April.

A Dec. 9 Reuters poll showed economists forecasting the federal funds rate to be 1.0 percent to 1.25 percent by the end of 2016 and 2.25 percent by the end of 2017.

The rate hike sets off an immediate test of new financial tools designed by the New York Fed for just this occasion, as well as a likely reshuffling of global capital as the reality of rising U.S. rates sets in.

To edge the target rate from its current near-zero level to between 0.25 percent and 0.50 percent, the Fed said it would set the interest it pays banks on excess reserves at 0.50 percent, and would offer up to $2 trillion in reverse repurchase agreements, an aggressive figure that shows its resolve to pull rates higher.

The impact on business and household borrowing costs is unclear. One of the issues policymakers will watch closely in coming days is how long-term mortgage rates, consumer loans and other forms of credit react to the rate hike.

(Additional reporting by Lindsay Dunsmuir and David Chance in Washington, Ann Saphir in San Francisco and Jonathan Spicer and David Gaffen in New York; Editing by Paul Simao)

Federal Reserve Expected to Raise Interest Rates Wednesday

The U.S. Federal Reserve is widely expected to vote to raise a key interest rate for the first time in nearly a decade when it meets on Wednesday, according to multiple published reports.

The effects of such a vote could have wide-ranging implications throughout the economy, affecting things like interest on savings accounts, mortgages, auto loans and credit cards.

The rate the Federal Reserve is considering raising is called the effective federal funds rate. It deals with how banks borrow money from one another, thus setting a bar for all other lending.

The rate has been close to nothing since 2008, during the Great Recession. The rate was at 5.26 percent in July 2007, according to the Federal Reserve Bank of St. Louis, but the bank lowered the rate nearly every month through the end of 2008 to help jumpstart a struggling economy.

The rate has not been raised since that. In fact, it hasn’t been raised at all since June 2006, when the Federal Reserve raised it to the 5.26 percent level at which it stood until the recession.

But the economy is in better shape than it was during the recession. The civilian unemployment rate is down to 5 percent, according to the Federal Reserve Bank of St. Louis. In 2009, after the fallout from the financial crisis, it reached 10 percent. That was its highest level in 27 years.

Why is the Federal Reserve even considering raising the rate again? Essentially, the bank needs to find a balance that ensures the economy stays stable and healthy.

The Washington Post reported that if the Federal Reserve waits too long to raise the rate, it could create bubbles in the stock market or rampant inflation, where prices rise at a rate that employee wages aren’t able to match. But if the Federal Reserve hikes the rate too early, it could jeopardize the recovery — especially if people can’t obtain affordable loans for what they need.

A vote to raise the rate is seen as a vote of confidence for the economy. CBS News reported if the Federal Reserve doesn’t act Wednesday, especially because just about everyone on Wall Street is expecting it to, it could lead to a decline in the stock market because it would suggest the bank’s policymakers think the economy couldn’t cope with a rate increase, even one that’s fractional.

And any rate increase is expected to be slight. CNN reported that the Federal Reserve is expected to raise rates slowly, from its current level of about .12 percent to a new level near .25 percent. Any effects on the economy aren’t expected to be felt for several months, according to the report.

Still, some question the timing of the increase and whether the economy is truly as healthy as evidence suggests.

Middle Class American Families are No Longer the Majority

The Pew Research Center released a new analysis on Wednesday, reporting that low-income and high-income Americans combined now outnumber the Middle class. The report also said that Middle class Americans are “falling behind financially.”

According to CNBC, the report states that at the beginning of 2015, 120.8 million adults lived in middle-income homes while 121.3 million Americans lived in lower and upper income households. The study classifies middle class Americans as adults earning two-thirds to double the national median which is approximately somewhere between $42,000 and $126,000 a year for a three-person family.

The shift of the economic classes has been developing over the past few decades. According to the Huffington Post, the report states that low income American citizens have increased from 25% to 29% since 1971. Within that same time period, the upper class has risen from 14% to 21%. Meanwhile, the middle class has decreased from 61% to around 50%.

The Pew Research Center’s analysis also claimed that middle income Americans were making less money. The average income of middle class households fell by 4% between 2000 and 2014 and median wealth fell by 28% between 2001 and 2013.

This shift “could signal a tipping point,” according to the report.

More Americans are now starting to make more money and join the upper class, which the study notes as “economic progress.” However, the study warns that the upper class can make more money at a faster pace than the middle and lower classes, which can widen the gap between the different classes.

China Third Quarter Growth Weakest Since 2009

Policymakers are feeling the pressure to make new support measures as China’s economic growth in the third quarter fell to 6.8%, the weakest it’s been since 2009.

Chinese leaders are scrambling to reassure global markets that Beijing has the capability to manage the world’s second-largest economy even after suffering from the devaluation of the yuan and a stock market plunge that took place over the summer.

According to Reuters poll of 50 economists, China’s growth in the third quarter last year also saw a drop to 6.8%. The lowest expansion seen was in 2009, when China saw it fall to 6.2%

Some investors fear that growth levels could already be weaker than the official data suggests, creating skepticism about the reliability of Chinese official data.

“We expect the government to maintain loose monetary policy and step up fiscal spending in response to the economic slowdown,” economists at China International Capital Corp (CICC), a domestic investment bank, said in a note.

“We believe that loosening measures may help cushion the slowing momentum in economic growth but it’s difficult to reverse the long-term downward trend.”

Beijing is still in line with its full target for the year as the first two quarters saw economic growth of 7.0%, despite property downturn, industrial overcapacity, and weak exports and imports. Currently, the government claims that the reports have not been inflated to meet official forecasts.

Market Continues Roller Coaster Ride

The Market hit a flat track today as U.S. stocks rebounded a bit after the Dow plunged more than 200 points in the late afternoon on Wednesday.  The Dow Jones industrial average ended up 77 points, or 0.5%, after initially bouncing in and out of positive territory.

This roller coaster has put investors in a jumpy frame of mind while most braced for next week’s Federal Reserve meeting on interest rates.  

The Dow, which typically moves about 150 points between peak and tough throughout the trading day, has experienced average daily swings of more than 400 points since August 19.

The market ride was punctuated by the Dow’s 1,000-point nosedive on August 24, its largest one day point decline on record.

ISIS Creates Currency as Part of “World Domination” Plan

ISIS has announced the creation of their own “gold dinar” with an aim to take down the American economy.

The move is being called the “second blow” to the U.S. in a newly released video.  The first blow was the 9/11 attacks.

The video, titled “The Rise of the Khilafah and the Return of the Gold Dinar”, was released Saturday.  The video says the goal is to end “the capitalist financial system of enslavement, underpinned by a piece of paper called the Federal Reserve dollar note” along with installing the monetary system “intended by Allah.”

“One of the great forms of corruption that the world came to witness was the dark rise of banknotes borne out of the satanic conception of banks which mutated into a fraudulent … financial system of enslavement orchestrated by the Federal Reserve in America, a private corporation and system that would, through the use of deceit and force, deprive people of their due by imposing on them the usage of the piece of paper that came to be known as the dollar bill,” the narrator states.

The video shows minting of gold, silver and copper coins and then terrorists handing them out to people in the streets.

“We are witnessing the return of days, like those during the time of the prophet,” says one shop keeper who hugs and kisses the terrorist.

The terrorist group is considered one of the richest in history because of oil fields they control and their smuggling of oil.  U.S. official say the group generates as much as $3 million U.S. dollars per day.