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China rate cut knocks legs from under yuan rally, more volatility seen

November 23, 2014 - reuters.com

* Rate cut decreases attractiveness of yuan * Yuan down 1.17 pct year to date * More volatility likely * PBOC must balance support for exporters vs 'global' yuan By Pete Sweeney SHANGHAI, Nov 23 (Reuters) - China's surprise interest rate cut is another step toward softening the country's exchange rate, setting the yuan on course to end the year lower for the first time since its landmark revaluation in 2005. The People's Bank of China (PBOC) cut one-year benchmark lending rates on Friday, a move celebrated by Chinese corporates struggling against a toxic combination of high debt load and weak end demand. ID:nL3N0TB3VW Analysts say it could also signal the end of a rally in the yuan CNY=CFXS since May, especially if the central bank follows up with a cut to reserve requirement ratios, which would flood money markets with cheap renminbi. Investors have long been attracted to yuan-denominated assets, seen as relatively safe given implicit government guarantees, and at the same time higher yielding than similarly rated dollar-denominated instruments. These high yields, along with the prospect of forex appreciation, encouraged speculative "hot money" to flow into China, maintaining upward pressure on the exchange rate. Friday's rate cut now reduces the relative attractiveness of the yuan and makes it more risky to hold going forward. "The rate cut overnight, along with prolonged weakness in the Japanese yen, will increase political pressure on the PBOC to allow a modest devaluation in the currency, both to reflect a normal market response to rate cuts and also to shore up export competitiveness in the face of downward pressure on Asian currencies across the board," Eurasia Group analysts wrote in a research note distributed to clients on Saturday. The yuan dropped sharply at the start of the 2014, losing over 3 percent in the course of two months, a phenomenon widely seen as an attack on currency speculators by Beijing. The currency remains down 1.17 percent for the year, despite rising steadily since May. Markets were already growing wary of that trajectory, however, given a 10-percent rally in the U.S. Dollar Index .DXY in the second half of the year, followed by broad drops in Asian currencies led by the Japanese yen JPY= . ID:nL3N0T317B But economists warn that the PBOC is unlikely seeking to provoke a dramatic drop, and markets did not aggressively revalue the offshore yuan CNH=D3 in response to the announcement. "China has a broader agenda, involving economic reform and rebalancing, which sets it apart from the other countries involved in global currency tensions," wrote HSBC economists in a research note, arguing the ultimate outcome would be more forex market volatility, as opposed to steady rises or declines. "Structural reforms could be accompanied by lower growth, inflation, gradually lower interest rates, and a smaller savings-investments gap (implying a smaller current account surplus). All of these actually indicate less room for further currency gains." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Yuan may weaken further in 2015 ID:nL3N0T317B Factbox: interest rate and RRR changes ID:nL3N0TB4CZ Bank FX purchases/PBOC FX assets http://link.reuters.com/syc53w Yuan rebounds as PBOC sits idle http://link.reuters.com/pyc53w ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Jeremy Laurence) ((pete.sweeney@thomsonreuters.com; +86 21 6104 1777 / +86 158 2104 8958; Reuters Messaging: pete.sweeney.thomsonreuters.com@reuters.net)) Keywords: CHINA ECONOMY/YUAN

Putin stands by hawkish Russian central bank - for now

November 23, 2014 - reuters.com

* Central bank shows streak of independence * Putin says bank still "being watched" By Lidia Kelly and Oksana Kobzeva MOSCOW, Nov 23 (Reuters) - With Russia's economy battered by economic sanctions and plunging oil prices, President Vladimir Putin has allowed the central bank to administer strong medicine, sharply raising interest rates even as it freed the rouble to float. Such tough measures may well help push the country deeper into recession next year, but have so far staved off financial panic, runaway inflation or a currency meltdown like the one that helped catapult Putin into power in the 1990s. Those who follow the central bank say the hawkish moves are a result of Putin, known for closely managing Russia's machinery of power, giving the bank's technocrats free rein. "There is ongoing criticism of the central bank and of the whole government being Putin's lap dog," said a high-ranked government source. "But all things considered, the central bank is now much more autonomous than it is broadly perceived." The high interest rates will hurt. The European Bank for Reconstruction and Development says recession is certain, predicting 0.2 percent contraction for the full year of 2015. Politicians have grumbled. Economy Minister Alexei Ulyukayev sent a letter to the Kremlin in the summer urging greater "cooperation" between the bank and the government, viewed as a plea for looser policy. "There is a tension between the government and the central bank as regards growth. The effect of these stabilisation policies is going to be to deepen the recession," said Christopher Granville, managing director of London-based consultancy Trusted Sources. Putin himself has complained about high borrowing costs. But so far, he seems to trust the hawkish instincts at the bank. "What the central bank is doing is in line with what the leadership wants, in a strategic way," said Granville. "Stability is the absolute top priority, rather than avoiding negative growth at all costs." Still, there is always a chance that Putin can change his approach. Remarks he made on Tuesday hinted as much. Speaking to Finance Minister Anton Siluanov, he called for "teamwork between the central bank and the government". OBSESSION Exchange rates are an obsession for Russians since the 1990s, when hyperinflation after the fall of the Soviet Union wiped out the financial system, destroyed savings and brought the economy to its knees. A second currency collapse and default in 1998 propelled Putin into power the following year, and a stable rouble has been one of the most prized achievements of his rule ever since. Putin himself makes much of the central bank's independence. "We - from the executive power level - do not meddle in the policy of the central bank," he said this month when meeting IMF head Christine Lagarde. "The central bank, in accordance with the law, conducts an independent policy. But of course we look carefully at what is happening." In an emailed comment, the bank said its independence, "one of the fundamental principles in understanding of monetary policy", was enshrined in the constitution. Some of Putin's critics say he keeps out of monetary policy because he feels insecure about an area outside his expertise. "The central bank of Russia is the most independent institution in modern Russia," said Sergei Aleksashenko, a former deputy central bank governor and critic of the president. "That originates from Mr Putin's inability to understand how monetary authorities operate. He understands the importance and influence of the central bank but is afraid to influence it in a strong manner." GEEKS IN GLASSES Unlike at some ministries and top companies, the bank's management does not include any of Putin's powerful old friends. "It's just a bunch of glasses-wearing geeks; you can argue more or less competent, but geeks," said the high-ranked government source. Putin has put his trust in the bank's governor Elvira Nabiullina, 51, at the bank's helm for 17 months after serving Putin for years as economic advisor and cabinet minister. "She has turned out to be stronger than expected as the central bank governor," said Anders Aslund, senior fellow at the Peterson Institute for International Economics in Washington. Nabiullina, in turn, has put monetary policy in the hands of Ksenia Yudayeva, a U.S. trained economist regarded as one of the brightest in the country. The rouble stability of the Putin years has been underwritten by vast currency reserves earned from selling oil and gas. But when oil prices fell and sanctions were imposed over the Ukraine crisis this year, even Russia's $420 billion war chest showed its limits. After spending $30 billion supporting the currency in a single month, Nabiullina brought forward long-awaited plans to float the rouble, abandoning efforts to keep the exchange rate within an official band. On the morning of Nov. 10, when it was announced, even the heads of the bank's departments were taken by surprise, sources said, emphasising Nabiullina's ability to prevent leaks. Before she cut the rouble loose, Nabiullina sharply hiked interest rates to ensure that savers would hold roubles and prevent a panicked flight, like the one that hit in 1998. The rouble is still some 29 percent down against the dollar, but has rallied in recent days. Earlier this week, Nabiullina stoically defended the decision to float the currency. "It is absolutely impossible to control the exchange rate ... in the current economic conditions that the Russian economy is now in, by keeping its dependency on the price of oil," she told lawmakers in parliament. (Addtional reporting by Alexei Anishchuk, Elena Fabrichnaya and Jason Bush, Writing by Lidia Kelly; Editing by Jason Bush, Timothy Heritage and Peter Graff) ((lidia.kelly@thomsonreuters.com)(+7 495 775 1242)(Reuters Messaging: lidia.kelly.reuters.com@reuters.net)) Keywords: RUSSIA CENBANK/INDEPENDENCE

MIDEAST STOCKS - Factors to watch - November 23

November 23, 2014 - reuters.com

DUBAI, Nov 20 (Reuters) - Here are some factors that may affect Middle East stock markets on Sunday. Reuters has not verified the press reports and does not vouch of their accuracy. INTERNATIONAL/REGIONAL * GLOBAL MARKETS- China rate cut, European stimulus hints lift markets MKTS/GLOB * Oil up first time in 8 weeks on China rate cut, OPEC expectations O/R * MIDEAST STOCKS- Markets edge up as investors hunt for bargains MEAST-STX * PRECIOUS- Gold hits 3-week high after China rate cut, ECB comments GOL-RTRS * Iran nuclear talks may be extended as U.S. sees "big gaps" ID:nL6N0TC0M0 * U.S. plans to arm Iraq's Sunni tribesmen with AK-47s, RPGs, mortars ID:nL2N0TC0IW * Iran supreme leader moves to break impasse over key cabinet post ID:nL6N0TC0JO * Russia has no plan to cut oil output - energy minister ID:nL6N0TC0JK * U.S.-led strikes have killed 910 people in Syria - monitor ID:nL6N0TC0A3 * Merkel against unilaterally recognising Palestine as a state ID:nL6N0TB49H * Turkey's Bank Asya says closed 80 branches, cuts workforce by 1,708 ID:nL6N0TB0TU * FIFA ethics chiefs agree next step for 2018/2022 report [ID: nL3N0TA5JP] * Russia state fund sees Middle East, Asia demand despite sanctions-CEO ID:nL6N0TA3NR * Motor racing-Vettel to replace Alonso at Ferrari ID:nL3N0TA3MW EGYPT * Egypt hopes to attract $10-12 bln at investment summit in March ID:nL6N0TC0A8 * Egypt hires German firm to bore transport tunnels under Suez Canal ID:nL6N0TB4R3 * Egypt's Sisi says pardon for Al Jazeera journalists "being discussed ID:nL6N0TA440 SAUDI ARABIA * Saudi Kayan signs two Islamic financing deals totalling $700 mln ID:nL6N0TA1GZ UNITED ARAB EMIRATES * Swiss agency has more queries over Etihad plan to buy Darwin stake ID:nL6N0TC0DE * Golf-Double-bogeys blunt McIlroy's charge in Dubai ID:nL3N0TC086 * UAE official says groups may appeal against inclusion on terror list ID:nL6N0TA3TD * Dubai Parks and Resorts says institutional tranche of IPO covered ID:nL6N0TA41A * UAE targets Islamist accounts in money-laundering clampdown ID:nL6N0T747A BAHRAIN * Bahrain holds elections, Shi'ite opposition boycotts vote ID:nL6N0TC089 KUWAIT * Kuwait Airways says agrees to buy 10 Boeing 777-ER planes ID:nL6N0TA4B6 * Commercial Bank of Kuwait appoints Mahfouz as CEO ID:nL6N0TA2VK (Compiled by Dubai newsroom) ((dubai.newsroom@reuters.com)) Keywords: MIDEAST FACTORS

UPDATE 1-Poland's ruling party wins most seats in regional elections

November 23, 2014 - reuters.com

* Ruling PO party gets most seats in provincial assemblies * But opposition PiS get highest number of votes * Sunday local election vote results had been postponed * Result likely to increase political tensions (Adds percentage breakdown of votes, updates throughout) WARSAW, Nov 22 (Reuters) - Poland's ruling Civic Platform (PO) party has secured the highest number of provincial assembly seats in last week's vote, the state election commission said, a surprising result seen as likely to further aggravate tensions over the already contentious vote. The official results, published after a vote count dogged by the failure of a new IT system, also showed that the central and eastern European country's largest opposition party, Law and Justice (PiS), received the highest share of votes at 26.85 percent, coming ahead of PO with 26.36 percent of the vote. The results from the Nov. 16 elections defied an exit poll which showed PiS ahead of PO by a four-percentage-point margin, which would have given the party its first nationwide victory in nine years. ID:nL6N0T71PU The centre-right PO won 179 seats in provincial assemblies, the state election commission PKW said on Saturday. The conservative bloc led by PiS came second, securing 169 seats. The junior ruling coalition partner PSL, traditionally popular in rural areas, won 159 seats, or 23.68 percent of the vote, while the leftist SLD party secured 28 seats with 8.78 percent. The commission said 17.9 percent of the total number of votes to provincial assemblies were invalid. The delay in publishing the results, caused by the failure of a piece of software intended to aid the vote count, led the election committee head to say he will resign. Earlier this week PiS called for a re-run of the elections, while President Bronislaw Komorowski dismissed the suggestion as the height of insanity. ID:nL6N0T84B4 Regional elections are held every four years to choose mayors, provincial assembly members and other local authorities. In 2010, PO won 30.9 percent of the votes, followed by PiS on 23.1 percent and the PSL party with 16.3 percent. (Reporting and writing by Marcin Goettig and Wiktor Szary; Editing by Grant McCool) ((wiktor.szary@thomsonreuters.com; +4802206539722; Reuters Messaging: wiktor.szary.reuters.com@reuters.net)) Keywords: POLAND ELECTION/RESULTS

Poland's ruling party grabs surprise win in regional elections

November 23, 2014 - reuters.com

WARSAW, Nov 22 (Reuters) - Poland's ruling Civic Platform (PO) party has secured a surprising win in regional elections held last week, the state election commission said on Saturday, a result likely to further aggravate tension over the already contentious vote. The official results, published after a vote count dogged by the failure of a new IT system, defied an exit poll which suggested that the largest opposition party Law and Justice (PiS) grabbed its first nationwide victory in nine years. ID:nL6N0T71PU The centre-right PO won 179 seats in provincial assemblies, or 33 percent of the total number of seats, the state election commission PKW said. The conservative block led by PiS came second, securing 169 seats. The junior ruling coalition partner PSL, traditionally popular in the countryside, has won 159 seats, while the leftist SLD party secured 28 seats. The commission, which did not give a percentage breakdown of the votes between parties, said 17.9 percent of the total number of votes to provincial assemblies were invalid. The delay in publishing the results, caused by the failure of a piece of software intended to aid the vote count, led the election committee head to resign. Also, earlier this week PiS called for a rerun of the elections, while President Bronislaw Komorowski dismissed the suggestion as the height of insanity. ID:nL6N0T84B4 Regional elections are held every four years to choose mayors, provincial assembly members and other local authorities. In 2010, PO won 30.9 percent of the votes, followed by PiS on 23.1 percent and the PSL party with 16.3 percent. (Reporting and Writing by Marcin Goettig and Wiktor Szary; Editing by Grant McCool) ((wiktor.szary@thomsonreuters.com; +4802206539722; Reuters Messaging: wiktor.szary.reuters.com@reuters.net)) Keywords: POLAND ELECTION/RESULTS

Polish opposition party calls for rerun of elections

November 22, 2014 - reuters.com

* Poland so far unable to give result of Sunday local vote * IT system for counting votes breaks down * Opposition leader calls for new vote * President describes such calls as 'insanity' WARSAW, Nov 22 (Reuters) - Poland's largest opposition party has called for a rerun of regional elections held last Sunday because a computer failure has left the country with no word of the final results. President Bronislaw Komorowski dismissed the suggestion as the height of insanity. The state election commission, the PKW, said on Saturday it did not know when the final results would be announced. The votes are being counted manually. Poland, known in recent years for its political stability in an otherwise volatile region, has been shaken by the failure of the computer system. "The breakdown of the system for counting votes is a scandalous occurrence, an embarrassment," President Komorowski told state television late on Friday. "It is the peak of insanity to demand that the president take actions that would lead to a repeat of the vote," he said. Jaroslaw Kaczynski, the leader of the Law and Justice (PiS) party, the second largest force in parliament, has called for a repetition of the vote, a call joined by the leftist SLD party. An exit poll on Sunday showed the PiS has taken the lead in the vote, signalling a possible shake-up ahead of a national vote next year. ID:nL6N0T72XM Komorowski, who postponed his official visit to Japan because of the problems with the vote, said only courts could void the results of the elections. On Wednesday, the PKW said someone hacked its web page, but it said this did not put the results of the vote at risk. The following day, demonstrators from a protest organised by the far-right party Ruch Narodowy stormed the headquarters of PKW demanding its dismissal. That forced the PKW to temporarily suspend its work. Police arrested several of the demonstrators. Poland holds regional elections every four years to choose mayors, provincial assembly members and other local authorities. (Reporting by Marcin Goettig; Editing by Stephen Powell) ((marcin.goettig@thomsonreuters.com)(+48226539720)(Reuters Messaging: marcin.goettig.reuters.com@thomsonreuters.net)) Keywords: POLAND ELECTION/POLITICS TENSIONS

Rouble decline to continue for two years -Russian ex-minister

November 22, 2014 - reuters.com

MOSCOW, Nov 22 (Reuters) - Russia's rouble, which has fallen almost 30 percent against the dollar this year, will continue to decline over the next two years, Interfax news agency quoted former Finance Minister Alexei Kudrin as saying on Saturday. The rouble RUB= has sunk during an economic downturn, made worse by a fall in global oil prices and sanctions imposed by the West over the crisis in Ukraine. "In the next two years, it (the rouble) will be weakening, meaning it will continue to decline a little. This will be happening slowly," Kudrin, a long-time ally of President Vladimir Putin, told reporters on the sidelines of a conference. Analysts have predicted that the currency will be volatile since the central bank decided this month to let the rouble float freely. Kudrin said in a commentary published on Friday that it would take years of economic growth to woo foreign investors back to Russia and restore trust in the rouble. ID:nL6N0TB0H3 (Reporting by Polina Devitt; editing by Jane Baird) ((Polina.Devitt@thomsonreuters.com; +7 495 775 12 42; Reuters Messaging: polina.devitt.reuters.com@reuters.net)) Keywords: RUSSIA ROUBLE/KUDRIN

China's ICBC to set up offshore yuan centre in Los Angeles

November 22, 2014 - reuters.com

By Dominique Patton BEIJING, Nov 22 (Reuters) - China's Industrial and Commercial Bank (ICBC) signed a pact with the Los Angeles city government to promote cross-border yuan trade and set up an offshore renminbi centre in California, the bank said on Saturday. The move to create an offshore RMB centre in the largest state in the United States would lay the foundations for greater yuan trade with China, ICBC said in a statement. The agreement comes at a time when many other countries are ahead of the United States in establishing cross-border trade in yuan. ID:nL4N0SP4A5 The United States has lagged other markets in seeking to set up offshore yuan trading hubs because the U.S. dollar remains the world's dominant currency and U.S. firms are reluctant to accept the yuan, a Chinese bank executive said. ID:nL4N0SO4SG Beijing wants to promote its currency to more international investors and eventually turn the "redback" into a global reserve currency, while at the same time expanding its already considerable political and economic clout. About 15 percent of China's trade was settled in yuan in the first nine months of 2014, up from less than 1 percent in 2009. In the first nine months of 2014, cross-border payments between the United States and China reached more than 160 billion yuan, ICBC data show. During that time, ICBC's cross-border business was worth nearly 28 trillion yuan, up more than 80 percent from the corresponding period last year. (Reporting by Dominique Patton; Editing by Clarence Fernandez) ((dominique.patton@thomsonreuters.com; +86 10 6627 1027; Reuters Messaging: dominique.patton.thomsonreuters.com@reuters.net)) Keywords: CHINA LOS ANGELES/YUAN

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