The World BusinessMirror
news@businessmirror.com.ph
Saturday, November 26, 2016
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Asia currencies rout set to sideline central banks
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sian currencies’ drop to the weakest this decade will probably deter regional central banks from easing monetary policies as the prospects of higher US rates spurred capital outflows. Indeed, they are more likely to be stepping in to smooth declines in their currencies—the rupee’s drop on Thursday reportedly prompted intervention from the Reserve Bank of India. The Bloomberg-JPMorgan Asia Dollar Index has tumbled to the weakest since 2009, the Philippine peso cracked 50 per dollar for the first time since the global financial crisis and forwards traders are expecting Malaysia’s ringgit will drop within a week to levels last seen in 1998. Bank Negara Ma laysia on Wednesday kept its benchmark interest rate unchanged at 3 percent, signaling policy-makers are focused on protecting the ringgit rather than spurring growth. It has said it intervened in foreign-exchange markets. Bank Indonesia Governor Agus Martowardojo said last week the monetary authority sees narrowing room for further easing. His central bank also sold dollars this month. “Depreciating currencies are making it very hard for the regional central banks to ease monetary policy, as falling FX rate raises con-
cerns about inflationary pressure and acceleration of fund outflows,” Toru Nishihama, an emerging-market economist in Tokyo at Dai-ichi Life Research Institute Inc., said in a phone interview. “Most regional central banks will probably have to stay on hold for quite some time.” International investors sold more than $12 billion of equities and bonds in Asia’s emerging markets after Donald Trump won the US presidential election, which spurred higher Treasury yields and a dollar rally on expectations of his fiscal plans. The Bloomberg-JPMorgan Asia Dollar Index reached 103.29, the lowest level since March 2009, as futures traders see a 100-percent chance that the Federal Reserve will raise US interest rates in December. That’s up from about 70 percent at the end of October. One-month implied volatility for 10 major Asian currencies, excluding the yen, climbed to the highest level this month since February, deterring investors from taking risks in developing economies.
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‘Greater uncertainties’
Before the market volatility triggered by Trump’s victory, Bank Indonesia was on an aggressive strategy to boost an economy that’s growing well below the government’s target of 7 percent. The central bank had cut interest rates six times this year. In Malaysia new Governor Muhammad Ibrahim surprised markets with a cut in July to spur growth. Bank of Thailand said capital flow and foreign-exchange volatility are set to increase and the monetary
authority needs to preserve policy space as Thai economy “would still be facing greater uncertainties,” according to minutes of November 9 meeting released on Wednesday. Malaysia’s central bank said it will continue to provide liquidity for the nation’s currency market. “Based on domestic economic developments, we see fundamental justification for policy-rate cuts in Thailand, Indonesia and Malaysia, but they are likely to be deferred as weaker currencies place a constraint
on policy,” said Mark Baker, portfolio manager for emerging-markets fixed income in Hong Kong at Standard Life Investments.
Korea, Philippines
Among regional central banks that delivered interest-rate cuts this year are Bank of Korea and Bangko Sentral ng Pilipinas. Both central banks have said they stand ready to act if volatility becomes excessive. The Philippines central bank is probably watching the peso, which
pulled back after breaching 50 for the first time since June 2008, though it is hard to say if policy-makers stepped in, Manila-based chief market strategist Jonathan Ravelas said. The rupee dropped as much as 0.4 percent to an unprecedented 68.865. State-run banks sold dollars, probably on behalf of the Reserve Bank of India, three Mumbai-based traders said, asking not to be named. That came as the rupee halted its opening slide, before resuming its decline to fall past the 68.8450 reached in August 2013. Those keenest to ease, such as Indonesia and Malaysia, may be less able to do so under external and foreign-exchange stress, while those that were reluctant, like South Korea, Taiwan and Singapore, perhaps will need more easing, according to a Deutsche Bank AG note dated November 18. For Masakatsu Fukaya, a Tokyobased emerging-markets trader at Mizuho Bank Ltd., Malaysia is the most vulnerable with a possibility of not being able to halt fund outflows that will keep the option of a rate cut “so far away”. Bank Indonesia will also struggle to lower the benchmark rate when the rupiah is sold-off and outlook is uncertain, he said. By contrast, Fukaya expects the Bank of Korea to ease policy in the first half of next year despite the market volatility. “Korea may even welcome certain weakness in the won and they don’t probably worry so much about fund outflows,” he said. Bloomberg News
WTO chief: Details needed to gauge impact of US pullout from TPP deal G ENEVA—The impact of Donald Trump’s threat to pull the United States out of the Trans-Pacific Partnership (TPP) trade deal will depend on what the president-elect lays out as the alternative, the head of the World Trade Organization (WTO) said on Thursday. WTO Director General Roberto Azevedo said he is “ready for a conversation” with the president-elect, but hadn’t had any indication Trump also wants to withdraw the US from the trade body he once called a disaster. Azevedo, who is running for reelection next year in a process in which the United States holds important sway, said he wouldn’t speculate about future US policies. “I am convinced that the WTO can continue to be a very important partner of the United States,” Azevedo said. But he said the trade body would continue its work even if Trump withdraws the world’s biggest economy. “The organization will continue doing what the organization does,” he said.
Director General of the World Trade Organization Roberto Azevedo speaks during the Making Trade an Engine of Growth for All panel at the World Bank/IMF Annual Meetings at the International Monetary Fund headquarters in Washington. The impact of President-elect Donald J. Trump’s threat to pull the United States out of the Trans-Pacific Partnership trade deal will depend on what the president-elect sees as the alternative, the head of the head of the World Trade Organization said on Thursday. AP
However, WTO Spokesman Keith Rockwell clarified later that Azevedo had been referring to the US pulling out of agreements like the Nafta or TTP—not the WTO as a whole. Azevedo acknowledged having heard concerns about some types of trade, and suggested that more could be done to help small businesses benefit, but “I haven’t heard, at this point in time, anybody say that trade is bad for the United States.”
All countries complain about trade rules, he said. “Every single country says that the other side is subsidizing too much, or is introducing barriers, or is not trading fairly. I mean, really, is that the first time we hear that?” Azevedo said. “Trade is not for amateurs. Trade is tough. And negotiating trade deals is as tough as it gets.” In a short video on Monday,
Trump said he plans to withdraw the United States from the TPP, calling it “a potential disaster for our country.” He said he would instead negotiate “fair, bilateral trade deals that bring jobs and industry back onto American shores.” During the presidential campaign, Trump also called the WTO a disaster. Azevedo said the impact of losing the US from TTP or another trade pact would vary based on the terms the Trump administration proposes. “So is that a renegotiation of the TTP, is that a substitution of the TTP with another network of agreements, is that the launching of another initiative to have other trade deals?” he said. Overall, the WTO chief said the outlook for world trade was “dismal.” He said the trade body had revised its forecast for trade growth down to 1.8 percent this year, compared to 2.8 percent previously. That would be the slowest growth rate since 2009, and is “a reason for concern,” he said. AP
Oil trades near $48 as OPEC negotiates cut with Iran, Russia
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il traded near $48 a barrel as Organization of the Petroleum Exporting Countries (Opec) negotiators worked to convince Iran and nonmember Russia to cut output after Iraq’s prime minister signaled his country will curtail production. Futures were little changed in New York. Algeria’s Energy Minister Noureddine Boutarfa will travel to Tehran on Saturday in an effort to bring a deal closer, said a person familiar with the matter. Opec ministers scheduled a breakfast with nonmembers, including Russia, prior to the group’s November 30 summit, two people said. Iraq will participate in a deal to shrink production, Prime Minister Haider Al-Abadi said, reversing his country’s previous opposition and calling for total Opec cuts of 900,000 barrels a day. “At the end of the day, we are probably going to get about a million barrels a day of cuts from Opec and that’s going to drive the market into deficit,” Bart Melek, the head of commodity strategy at TD
Securities in Toronto, said by phone from Toronto. “We are seeing communications from Iraq that they would be happy to participate.” West Texas Intermediate futures for January delivery gained 2 cents to $47.98 a barrel on the New York Mercantile Exchange at the 1 p.m. halt to trading. There was no settlement because of the Thanksgiving holiday in the US. The contract had slipped 7 cents on Wednesday after gaining $2.61 the previous three sessions. Total volume traded was 82 percent below the 100-day average. Brent for January settlement rose 5 cents to $49 on the London-based ICE Futures Europe exchange. The global benchmark crude fell 17 cents to $48.95 on Wednesday. Iran, Opec’s third-largest producer, is insisting it should be allowed to keep increasing output to pre-sanctions levels of about 4 million barrels a day. Russia’s offer to freeze production at record levels— if Opec does a deal—isn’t good enough for some members who are asking for a cut. Bloomberg News