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China Crushes Yuan Bears, Snubs Moody’s as Currency Takes Off

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Currency Exchange Bureaus As China Roils Markets For Second Day As Yuan Tumbles With Stocks
  • China Crushes Yuan Bears, Snubs Moody’s as Currency Takes Off

China is dishing out a tough lesson to currency traders and strategists alike: don’t bet against the yuan.

The currency jumped its highest level in seven months offshore, extending Wednesday’s gain of 1.2 percent, despite analyst forecasts for declines this quarter. Surging interbank rates are squeezing bears by driving up the cost of short positions.

The rally, which broke months of calm against the dollar, comes as a rebuke to Moody’s Investors Service, which downgraded China’s sovereign debt rating last week. The government has made its displeasure clear, calling the move “absolutely groundless.” The central bank had already been tackling pessimistic traders by repeatedly strengthening the daily fixing, while an opaque change to the setting announced Friday added to the complexity of betting on future movements.

“The Moody’s downgrade and a weaker spot rate compared to the fixing could have spurred the authorities to change the fixing mechanism and potentially intervene in the market,” said Jason Daw, Singapore-based head of emerging-market currency strategy at Societe Generale SA.

The onshore yuan gained 0.4 percent to 6.7935 per dollar at 10:18 a.m. in Shanghai, after fluctuating in a narrow band around 6.9 for most of this year. The rate in Hong Kong rose 0.2 percent, taking its gain to 2.2 percent since the Moody’s rating change on May 24. The city’s overnight deposit rate touched 65 percent on Wednesday, while the spread between the offshore and onshore exchange rates reached the widest since March.

Analysts are scrambling to adjust to the shift. Credit Agricole SA scrapped a forecast of 7.25 per dollar that’s been in place since December, replacing it on Tuesday with a year-end level of 7.05. Australia & New Zealand Banking Group Ltd. strengthened their end-2017 target to 6.95 from 7.10. Credit Suisse Group AG, United Overseas Bank Ltd. and UniCredit SpA are mulling adjustments.

State Role

Propping up the yuan has been a policy priority this year as Chinese authorities try to stem capital outflows and prevent financial shocks before an important leadership reshuffle in the ruling Communist Party in late 2017. The stakes have increased in recent weeks after a regulatory clampdown on leverage roiled domestic bond and equity markets.

While the role of government intervention in the latest squeeze is unclear, people familiar with the matter have said in recent days that Chinese banks were selling dollars both offshore and onshore, while the central bank consistently set stronger reference rates in May than analysts predicted. The surge in interbank rates echoed similar moves in January of both this year and last that burned bears.
The People’s Bank of China didn’t immediately respond to faxed questions about the yuan on Wednesday.

Last Friday, the government said policy makers may add a “counter-cyclical factor” to the yuan’s daily fixing. Analysts said the change would give authorities more control over the fixing and could restrain the influence of “herd” behavior in the market.

U.S. Risk

Concern over the currency being “consistently weaker” than the fixing at the end of the Chinese trading day is behind the change to the calculations, said Gao Qi, a currency strategist in Singapore at Scotiabank. He said he expects the difference between the level the yuan reaches at the end of the day and the fixing rate to narrow in future.

The central bank may also be seeking to shore up the currency before a possible interest-rate hike in the U.S, according to Fiona Lim, a senior currency analyst at Malayan Banking Bhd.

“The PBOC is probably trying to introduce more guidance into the yuan now in order to boost market confidence ahead of a prospective dollar rally,” said Lim, whose firm strengthened its year-end forecast by almost 2 percent on Wednesday. “The fixing is now less transparent and the influence of the market has been limited.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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