2023-11-20 11:14

BEIJING, Nov 20 (Reuters) - The People's Bank of China and the Saudi Central Bank recently signed a local currency swap agreement worth 50 billion yuan ($6.93 billion) or 26 billion Saudi riyals, both banks said on Monday, as bilateral relations continued to gather momentum. Saudi Arabia, the world's top oil exporter, and China, the world's biggest energy consumer, have worked to take relations beyond hydrocarbon ties in recent years, expanding collaboration into areas such as security and technology. The swap agreement, which will be valid for three years and can be extended by mutual agreement, "will help strengthen financial cooperation... expand the use of local currencies... and promote trade and investment," between Riyadh and Beijing, the statement from China's central bank said. China imported $65 billion worth of Saudi crude in 2022, according to Chinese customs data, accounting for about 83% of the kingdom's total exports to the Asian giant. Russia remained China's top oil supplier in October despite higher prices for Russian crude, with Saudi imports down 2.5% from the previous month as it continued to restrict supply. Chinese President Xi Jinping told Gulf Arab leaders last December that China would work to buy oil and gas in yuan, but it has not yet used the currency for Saudi oil purchases, traders have said. Beijing is thought to have the world's largest network of currency swap arrangements in place, with at least 40 countries, but seldom reveals the broader terms of its arrangements. "China seems to be using swap lines in a very different way to the U.S.," said Weitseng Chen, associate professor at the National University of Singapore. "(China) uses it as a credit line, so it's on a constant basis, instead of a one-time, one-off thing during a financial crisis." Argentina in October activated a currency swap line with China for the second time in three years to the tune of $6.5 billion to help increase its depleted foreign currency reserves in the midst of a major economic crisis, with annual inflation above 130% and central bank dollar reserves hitting negative levels. ($1 = 7.2111 Chinese yuan) https://www.reuters.com/markets/currencies/china-saudi-arabia-central-banks-sign-local-currency-swap-agreement-2023-11-20/

2023-11-20 11:11

LONDON, Nov 20 (Reuters) - Right-wing libertarian Javier Milei has won Argentina's presidential election, putting an outsider with radical views in charge to fix South America's No. 2 economy battered by triple-digit inflation, a looming recession and rising poverty. Market reaction: + Argentina's domestic markets are closed on Monday for a local holiday + International sovereign dollar bonds rose as much as 2.6 cents before retracing some gains to stand up 0.9-1.2 cents with the curve trading around 30 cents in the dollar + U.S.-listed shares of Argentinian companies rise premarket with financial and energy firms chalking up double-digit gains Below are comments from analysts: FERNANDO D SEDANO, MORGAN STANLEY, SAO PAOLO, BRAZIL "We expect policy changes, yet we are mindful of political limitations." "We expect the next administration to adjust the official FX early on and in a significant manner, and we expect an attempt to eliminate the primary fiscal deficit next year, and a relatively quick lifting of capital and import controls, at least on flows." "We expect at least a roughly 80% adjustment of the official FX in December this year. This is assuming that the current government manages to keep the promised crawling pace of the official FX at a rate of roughly 3% per month in the next three weeks, which we see as a challenging objective now." LUCILLA BONILLA, OXFORD ECONOMICS, LONDON, UNITED KINGDOM "We think sustained fiscal discipline is needed to maintain monetary sovereignty and provide a more balanced and credible backdrop to stabilizing the economy. Although we'd already factored in a sizeable fiscal adjustment for 2024, Milei's victory will result in an even larger consolidation as he has promised to limit the role of the state." "Argentina will have to restructure its debt again, otherwise default by 2025 is likely. Our present value analysis estimates sovereign bond fair value around 30-35. The positive differential that Milei presents to the restructuring is an upside to the debt sustainability analysis, a pivotal factor in IMF agreements." JIMENA BLANCO, VERISK MAPLECROFT, MALAGA, SPAIN "Argentina’s economic future hinges on Milei’s ability to present a credible stabilisation plan with a view to restore macroeconomic order – this would require a major devaluation of the official ARS/USD FX rate to remove the gap with the other FX instruments ahead of lifting capital and currency controls, as well as a contractionary monetary and fiscal policy." "The Latin American precedent has shown that outsiders are forced to moderate – in policy terms, even if not in rhetoric – by the centrist allies they need to legislate, or increasingly turn to using decree powers." DIEGO W. PEREIRA, JPMORGAN, NEW YORK "President Elect Milei is offering a bold reform agenda ahead, but the main challenge is that it may be hindered by political manoeuvrability. Governability risks lay ahead given the lack of party structure, and also the power distribution in Congress after the general elections. "Any stabilization program aiming to successfully reduce inflation must address the consolidated public sector deficit as a whole, encompassing both the headline fiscal deficit and central bank interest payments on remunerated liabilities, together with the strengthening of the central bank balance sheet amid FX reserves rebuilding." SERGIO ARMELLA, GOLDMAN SACHS, NEW YORK "It is indisputable that a swift change from the failed economic policies of the past is imperative. The accumulated imbalances in the economy have grown too large and must be addressed promptly. "In our view, a tangible and structural fiscal adjustment (e.g., moving to a sustainable primary surplus), a responsible independent central bank free from the grip of fiscal dominance, financial liberalization, and structural reforms to make the economy more open, productive, and flexible, are needed to put the economy on a sustainable path." ALEJANDRO ANIBAL DEMICHELIS AND PEDRO BAPTISTA, JEFFERIES "Whilst we believe that the election result should bring positive changes to the country (eg, reducing budget deficit, and removing frictions in the economy), these are unlikely to be easy and/or quick." "To us, governability and risk of social unrest are key concerns as the new administration's push to remove relative price distortions, subsidies (particularly on energy and food) and FX controls could accelerate inflation and the devaluation of the currency near term." CHRIS TURNER, ING, LONDON, UNITED KINGDOM "Given the parlous state of public finances and the very low representation of his party in Congress, it looks as though it will take some time to push reforms through. Investors and corporates will be keen, however, to see developments in the exchange rate. The official rate is ARS350/USD, the 'blue' kerb rate is ARS920/USD, and the 12-month NDF outright is around ARS1600/USD. "We expect bonds to jump in today’s trading, putting bonds closer to the mid-30s range. This assumes no further announcements are made. Further gains are possible if there are any announcements on Milei's economic plans and team. However, no announcement should be expected today as, according to local media, Milei and President Alberto Fernandez will discuss the measures to be implemented during the transition in the afternoon." BRUNO GENNARI, KNG SECURITIES, LONDON, UNITED KINGDOM "A major part of the discussions is likely to focus on the exchange rate regime. Given Milei's commitment to dollarization and his reiteration that he will implement shock policies, it is expected that exporters will delay settlements to take advantage of a correction in the official exchange rate, while importers will try to purchase as many goods and services as possible at the cheaper official exchange rate." RABOBANK, BENJAMIN PICTON, SYDNEY, AUSTRALIA "Comparisons have been drawn between Milei and former U.S. President Donald Trump, who celebrated the election result by posting; "The whole world was watching! I am very proud of you. You will turn your country around and truly Make Argentina Great Again!". "Milei and Trump share an erratic, populist style and a pugilistic approach to foreign policy, but the similarities may end there. Milei’s pledge to dollarize the Argentine economy and restrain social spending will likely lead to a painful period of deflation for Argentines." https://www.reuters.com/world/americas/analyst-view-argentine-far-right-libertarian-milei-sweeps-victory-2023-11-20/

2023-11-20 11:10

A look at the day ahead in U.S. and global markets from Mike Dolan. Thanksgiving may make for a clipped U.S. markets week, but there's plenty to chew on around the world before then - and a feast of intrigue in the artificial intelligence space. Boardroom shenanigans at ChatGPT-developer OpenAI, where former boss Sam Altman was ousted on Friday and then hired by the firm's biggest backer Microsoft (MSFT.O), raises interesting questions about the pace of AI development. A key catalyst for some of the outsize Big Tech share gains this year, the craze around generative AI will also top the agenda as chip giant Nvidia (NVDA.O) reports earnings on Tuesday that will hold a light to a more than trebling of stock this year. The macro week is partly shaped by the OPEC+ meeting on Nov. 26 amid reports the cartel may consider more oil output cuts to shore up recently plunging crude prices. The failure of OPEC+ to buoy oil prices this year shows how much falling global demand is starting to shape prices and how much booming U.S. production is dominating the picture. After plummeting almost 25% in six weeks, U.S. crude prices have backed up a bit after the Reuters report on possible cuts on Friday and held steady about $76 per barrel first thing. That's also drawn a line for now under the recent slide in U.S. Treasury yields , which also bounced on Friday and were propped further by both Federal Reserve hawkishness and unexpected housing starts data from last month. The S&P500 (.SPX) eked out another small gain on Friday, its fourth daily advance in a row and the highest close since Sept. 1. Futures were marginally higher ahead of Monday's bell - but the VIX (.VIX) volatility gauge was also slightly higher than Friday's two-month closing low. The dollar was a big loser first thing Monday (.DXY), also hitting its lowest since Sept. 1. Softening U.S. debt yields have undermined the greenback but China's yuan led the way to three-month highs as the central bank there left a key interest rate unchanged and guided the renminbi higher, just as exporters rushed to convert dollar receipts. Japan's yen also surged as Tokyo stocks briefly hit their highest in 33 years (.N225), while speculation about a tightening of the Bank of Japan's monetary policy persisted and centred around accelerated wage growth. Currency markets were also in thrall to Argentina's weekend election result, in which right-wing libertarian Javier Milei become the new president on a radical ticket of how to fix an economy battered by triple-digit inflation and rising poverty. Milei is pledging economic shock therapy. His plans include shutting the central bank, ditching the peso and dollarizing the economy and slashing spending with potentially painful reforms. In Europe, the debt markets started the week with relief after Moody's late on Friday confirmed Italy's investment grade sovereign credit rating and surprised markets by upping the outlook to stable. The risk premium between German and Italian 10-year yields tightened to 170 bps - the lowest since Sept. 21. British stocks (.FTMC) and sterling were firmer as UK finance minister Jeremy Hunt is due to present his Autumn government budget statement on Wednesday amid reports he was considering cutting income tax or national insurance and tweaking savings vehicle incentives to encourage more stock holdings. In single stock moves, however, German chemicals giant Bayer (BAYGn.DE) lost 19% - on track for its worst day on record - after it aborted a large late-stage trial testing a new anti-clotting drug. Key developments that should provide more direction to U.S. markets later on Monday: * U.S. Oct leading indicator, Canada Oct inflation * Federal Reserve Bank of England Governor Andrew Bailey, Bank of France Governor Francois Villeroy de Galhau and Bank of Spain Governor Pablo Hernandez de Cos all speak * U.S. Treasury auctions 20-year bonds and 3-, 6-month bills * U.S. corporate earnings: Zoom, Agilent Technologies, Keysight Technologies, TechPrecision, Symbotic, Remark Holdings https://www.reuters.com/markets/us/global-markets-view-usa-2023-11-20/

2023-11-20 11:04

Nov 20 (Reuters) - Venezuela is close to approving a license for Shell (SHEL.L) and the National Gas Company of Trinidad and Tobago to develop a promising offshore natural gas field and export its production to the Caribbean country, two people close to the matter said. Trinidad and Tobago's Prime Minister Keith Rowley on Monday confirmed that the parties were negotiating the license and added that Energy Minister Stuart Young was expected to visit Caracas this week. The license could set in motion a long-running effort by Trinidad to boost its gas processing and petrochemical exports, while providing Venezuela with a much-needed extra source of cash. The two countries aim to speed cross-border energy development since the U.S. in January issued a two-year authorization allowing the Dragon field's development. Venezuela, which holds Latin America's biggest gas reserves, and neighboring Trinidad, the region's largest liquefied natural gas (LNG) exporter, would complement each other's needs to produce and export gas. Both nations are discussing a 25-year exploration and production license for the Dragon field, which holds up to 4.2 trillion cubic feet of gas and lies in Venezuelan waters near the maritime border between the two countries. Some terms are still to be settled, but if all goes well a deal could be signed in coming days, the people said. Shell would operate the project with a 70% stake and Trinidad's NGC (NGCTT.UL) would hold the remaining 30% under proposed terms, the people said. Venezuela's state-run oil firm PDVSA, which discovered Dragon's reserves and paid for existing infrastructure, would not have a stake in the project, but Venezuela would receive cash or a portion of gas production as royalties. PDVSA in 2013 finished testing gas output at Dragon, but the field has never been commercially active due to the company's lack of capital and, more recently, U.S sanctions. The U.S. last month temporarily eased sanctions on Venezuela and amended the authorization for Dragon, allowing Caracas to receive proceeds from gas sales. Since then, negotiations have moved faster, a third person said. Shell declined comment. NGC referred questions on the talks to Trinidad's energy ministry. The ministry, PDVSA, and Venezuela's oil ministry did not reply to requests for comment. Rowley also said he hopes a long-running dispute between Venezuela and its neighbor Guyana over a potentially oil-rich territory does not have implications for projects with Trinidad. "I would not like to see the relationship between Venezuela and Guyana ever get to a point where consequent actions will negatively damage us", the prime minister said. VOLUMES, PRICES, PIPELINES The proposed license would allow an initial volume of 300 million cubic feet per day (mcfd) of Venezuelan gas to go to Trinidad for LNG production, starting in late 2026, and an additional 50 mcfd to petrochemical plants, the people said. Trinidad and Tobago has the capacity to process 4.2 billion cubic feet per day (bcfd) into LNG, petrochemicals and power, but its gas production is about 2.7 bcfd. The lack of gas has led to the shutting of one of its LNG processing units. The parties have agreed in principle to a price that would land gas across the border at less than $3 per mcf, the sources said. PDVSA has pushed for a signature bonus of some $65 million to be paid upfront. But Shell and NGC want to tie any payment to certain milestones, such as first gas, the sources added. The parties are considering two separate lines to transport the gas: one partially built by PDVSA to Guiria, on Venezuela's eastern coast. A second line would connect to Shell's Hibiscus field in Trinidad. If the parties agree that some of the gas will pass through Guiria, an additional short pipeline linking Guiria to Point Fortin, home of Trinidad's LNG plants, might be needed. That option would allow Venezuela to process the gas on its shore, keeping what it needs to supply the domestic market and potentially exporting gas liquids in the future. But adding a new line might extend the time for the project to begin output to five years, rather than three years as hoped, the people said. https://www.reuters.com/business/energy/venezuela-close-approving-offshore-gas-license-with-trinidad-shell-2023-11-20/

2023-11-20 10:33

LONDON, Nov 20 (Reuters) - Kristalina Georgieva, head of the International Monetary Fund, and a spokesperson for China's foreign ministry said on Monday they were ready to work with Argentina's president-elect Javier Milei. Argentina elected right-wing libertarian Javier Milei as its new president on Sunday, rolling the dice on an outsider with radical views to fix an economy battered by triple-digit inflation, a looming recession and rising poverty. The IMF has a $44 billion loan program with Argentina. "We look forward to working closely with (Milei) and his administration in the period ahead to develop and implement a strong plan to safeguard macroeconomic stability and strengthen inclusive growth for all," Georgieva said in a post on X. China, another key lender to Argentina, also congratulated the South American country on its election. "We stand ready to work with the Argentine side to continue our friendship, boost our respective development and revitalization with win-win cooperation, and promote the steady and long-term development of China-Argentina relations," foreign ministry spokesperson Mao Ning told a regular press briefing. https://www.reuters.com/world/americas/imf-china-ready-work-with-new-argentina-leader-milei-2023-11-20/

2023-11-20 06:55

NEW YORK, Nov 20 (Reuters) - The dollar index fell to its lowest in more than two months on Monday, continuing a drop from the prior week, as investors largely believe the U.S. Federal Reserve has completed its interest rate hike cycle and look towards when the central bank may start to cut rates. The dollar index hit a low of 103.37, its weakest level since Sept. 1, after a tumble of nearly 2% last week, which marked the biggest weekly percentage drop since mid-July. Markets have priced out any additional Fed rate hikes, as recent data has shown a slowing of the economy and inflation pressures - but not enough to increase fears a sharp recession is looming. On Monday, the Conference Board's October leading economic indicator showed a decline of 0.8%, slightly below the estimate calling for a 0.7% decrease and its 19th straight monthly fall. The economic calendar is relatively light due to the shortened work week in the U.S. with the Thanksgiving Day holiday on Thursday. Markets are now attempting to determine when the Fed may begin to cut rates and are currently pricing in a greater than 50% chance of a cut of at least 25 basis points by May, according to CME's FedWatch Tool. "The market is convinced, both credit, equities and currencies that the Fed has finished raising rates, but the Fed is not willing to say so. We all know this, we've seen this before, we've heard it before," said Joseph Trevisani, senior analyst at FXStreet.com. "So you're getting a gradual weakening in the dollar, simply because the Fed is doing its best to prop up rates, not necessarily the dollar, but to prop up rates." Recent comments from some Fed officials have not ruled out the possibility more rate hikes could be needed should a change in economic data require it. On Monday, Richmond Federal Reserve president Thomas Barkin said inflation is likely to remain "stubborn" and force the central bank to keep interest rates higher for longer than investors currently anticipate. In addition, minutes from the Fed's latest meeting are scheduled to be released on Tuesday, and investors will parse comments for any signals on the central bank's policy path. Against the softer greenback, the euro hit its highest since Aug. 15 at $1.0952, while the yen firmed to a 6-1/2 week high of 148.09 per dollar. Against the yen the dollar was last traded at 148.36 yen , down 0.84%. The euro has been strengthening on expectations the European Central Bank (ECB) is operating with a lag to the Fed, and will keep its rate hike cycle intact after the Fed has finished. In addition, Moody's unexpectedly upgraded the outlook on Italy's 'Baa3' sovereign rating to stable from negative and upgraded Portugal's rating by two notches to 'A3'. Sterling traded at $1.251 , up 0.36% on the day, after reaching a two-month high of $1.2518. https://www.reuters.com/markets/currencies/dollar-back-foot-focus-turns-fed-easing-2023-11-20/