Don961 » September 25th, 2016
Frank26 » September 25th, 2016
Don961 » September 25th, 2016
Frank26 » September 25th, 2016
Walkingstick » September 25th, 2016
The Chinese Yuan will officially join the SDR basket as the fifth reserve currency on October 1st. This will likely be the dominant theme for all Yuan pairs in the coming week. An unchanged interest rate released by the U.S. Federal reserve this past week provides a less volatile environment for the Dollar/Yuan before Yuan’s official inclusion.
Both the offshore Yuan (USD/CNH) and onshore Yuan (USD/CNY) failed to break out major levels and remain below the key resistance of 6.70, due to a lack of sufficient Dollar strength.
After all the Fed and Bank of Japan headlines, traders will want to shift attention to China: the Chinese currency will prepare for the SDR entry; volatility in Yuan’s onshore and offshore borrowing rates may increase once again ahead of one of the most important Chinese holidays - the National Day; and China will release key manufacturing prints for the month of September.
Main focuses for Yuan pairs are shifting back home. Over the past week, we have already seen major developments added to the momentum of Yuan’s rise as a global currency. China’s Central Bank designated Bank of China’s New York branch as Yuan’s clearing bank in the U.S. on September 21st and picked Industrial and Commercial Bank of China’s Moscow branch as Yuan’s clearing bank in Russia on September 23rd.
The PBOC also approved the Yuan’s directly trading with Saudia Riyal and United Arab Emirates Dirham in China’s interbank market effective on September 26th. The Central Bank signed bilateral currency swap deal with Hungarian Central Bank and issued membership to four other central banks allowing them to trade in China’s interbank FX market. Amid these latest moves to accommodate the Yuan as a global currency, Yuan rates are likely to stay stable as well.
The major threat to dramatic moves in Yuan’s major counterpart, the U.S. Dollar, has been curbed in the short-term following a flat interest rate from the Fed. The next release of the FOMC minutes will be on November 2nd, which leaves a window for the Yuan to make a smooth transition for the SDR inclusion.
Unusual surges in the funding cost of the offshore Yuan may emerge again, as what was seen around the 3-day national holiday a week ago. HIBOR O/N, the overnight Yuan borrowing rate in Hong Kong began to pick up ahead of the holiday last week and jumped to the second highest level on record after markets reopened. It is not uncommon that Yuan liquidity tightens ahead of a major holiday but the condition normally eases after the holiday; such high levels are rare as well. Therefore, markets have been growing increasingly skeptical that China’s Central Bank was intervening the market, aiming to squeeze out Yuan shorts.
The onshore Yuan borrowing rate was in an uptrend as well: the borrowing cost of the Yuan in Shanghai interbank market (SIBOR) increased for 13th consecutive days until September 22nd. Looking forward, China’s onshore markets will close from October 1st to 7th for the National Day celebration, when no Yuan reference rate will be issued by the PBOC.
This increases the likelihood that the regulator may use other tools to guide markets, especially during the critical transition period for Yuan’s SDR inclusion. Traders will want to keep a close eye on HIBOR, SHIBOR and Yuan fix next week to find out clues on the PBOC’s intention. If tightened Yuan liquidity is seen again, no matter driven by holiday shutdown or regulator’s intervention, the Dollar/Yuan rate may drop further as Yuan’s borrowing cost increases.
Last but not least, China will release official and Caixin Manufacturing PMI prints, key measures for the health of the economy and drivers for Yuan’s intraday moves. The August and September PMI reads sent out mixed signals: In August, the official PMI read showed contraction while Caixin PMI indicated expansion; in September, Caixin PMI read dropped while the official print rose.
The September prints may give out more clues on what is really going on in the Chinese manufacturing sector. The major issue that Chinese manufacturing firms are facing is low demand and overcapacity. According to a survey conducted by Bloomberg, the consensus forecast for the official PMI is 50.5 and for the Caixin PMI is 50.1, both in expansion territory. If the PMI prints come out weaker-than-expected, the Yuan could weaken against the U.S. Dollar during the session, though it is very unlikely to break the key level of 6.70 with Yuan’s SDR inclusion on the horizon.
Samson » September 25th, 2016
Bank to upgrade global system in bid to create new solutions to complex customer needs
Standard Chartered (StanChart) bank is investing US$100 million (S$135 million) over the next five years to revamp its global banking system so that it can better cater to the increasingly complex needs of clients who operate across the world.
The bank, which is focused on Asia, Africa and the Middle East, said in a statement yesterday that it aims to offer innovative products and services that will suit clients' "ecosystems" - their domestic and international network of suppliers, distributors and customers.
As part of the new strategy, it has invested in a blockchain, or distributed ledger, technology. Blockchain technology has been touted as a game changer for trade finance. It is a digital system that will eliminate the paper-based system that dominates trade finance today, which, in turn, will cut costs and the potential for fraud.
The idea, said head of transaction banking Alex Manson, is to "create a new generation of banking solutions that integrate financial, informational and physical flows within clients' ecosystems". These solutions range from "plain vanilla cash, trade and foreign exchange to complex supply chain and structured financing solutions". The bank also released a white paper yesterday on how corporate supply chains are changing and how banks can best support their clients in this new environment. For example, the report noted that as corporations source directly from suppliers rather than through intermediaries, their payment requirements become more complex.
Companies may need to shorten payment terms to small suppliers, for whom supplier financing programmes are less likely to be accessible, and explore a variety of payment methods, including payments to unbanked producers. So, their banks must ensure efficient and convenient payment methods across sales channels. This could mean offering innovative payment methods that are appropriate to each market, such as mobile wallets and prepaid cards, as well as efficient cash and cheque processing.
Another tip: Offer tailor-made financing tools that facilitate the client's growth, rather than simply accelerate the payment of purchase orders or invoices.
"In recent years, a large number of third-party bank-agnostic financing platforms have emerged, but these platforms are not designed to deliver clients' bespoke financing requirements," the report noted.
"Consequently, banks need to take a more innovative approach to financing, including pre-shipment, post-shipment, post-acceptance and distributor financing across tier one but also tier two suppliers and buyers of all sizes."
Banks also need to improve coordination across their operations. "One contributor noted that if they ask for a quote to take a customer exposure off the balance sheet, they may get two different prices from branches of the same bank," said the report.
Some companies said that they also hate having to spend weeks trying to find the appropriate banker to deal with in each country.