2024-08-13 04:33

SHANGHAI/HONG KONG, Aug 13 (Reuters) - A global markets sell-off spurred by an unwinding of yen-funded carry trades has turned the spotlight on China's yuan, which is also used widely as a cheap funding currency. While August has seen the yuan rise sharply by 2% against the dollar, traders say yuan carry trades are distinct and unlikely to unravel anytime soon. WHAT IS THE YUAN CARRY TRADE? In typical carry trades, investors borrow low-yielding currencies such as the Japanese yen and Swiss franc to invest in higher-yielding assets, mostly currencies but also to finance leveraged trades in stocks. The yuan carry trade is similar, but with limitations because the currency is not fully convertible. A large proportion of yuan carry trades are by Chinese exporters parking cash in dollars. In another version, foreigners borrow yuan to invest in mainland markets. A third type of carry trade involves using the cheap offshore yuan to buy bonds denominated in dollars and other currencies. HOW DID THE YUAN CARRY TRADE EVOLVE? Until 2022, when the Federal Reserve started aggressively raising rates and Beijing moved to an easing bias to aid a struggling economy, Chinese interest rates had for years been higher than their U.S. counterparts. As dollar yields surged, Chinese exporters found they could earn as much as 5% a year if they retained their earnings in dollars, compared to paltry returns on yuan term deposits. Rampant dollar hoarding by exporters has been a major factor behind the yuan's depreciation since April 2022. The yuan's depreciation meant foreigners could trade dollar-yuan swaps onshore, earning a fat spread on these trades. Overseas investors could borrow cheap offshore yuan and convert those into U.S. dollars or other currencies to invest in stocks and bonds. The investors would benefit from conversion rates as the yuan depreciated, as well as the usual return on the assets. HOW LARGE IS THE YUAN CARRY TRADE? It is hard to gauge the total size of the yuan carry trade, according to analysts, but it is smaller than yen-funded global trades, given the yen is a more liquid and open global currency. Macquarie estimated Chinese exporters and multinational companies have accumulated foreign currency holdings of more than $500 billion since 2022. Foreign companies have also been sending more of their earnings from China abroad instead of reinvesting in the country. Meanwhile, foreign holdings of onshore yuan bonds increased by 920 billion yuan ($128.12 billion) since the end of 2022 to a record high in June, official data showed. That is evidence of what traders call the reverse yuan carry trade, in which foreign investors profit from lending U.S. dollars and borrowing yuan via currency-hedged swap trades and then buying yuan bonds. COULD CHINESE YUAN BE THE NEXT CARRY TRADE TO UNWIND? The recent unwinding of the hugely popular yen carry trade after Japan raised interest rates sent the yuan higher and raised questions about the viability of yuan carry trades. UBS said short positions in the offshore yuan have decreased given the currency's correlation to the yen. Onshore carry trades could unwind if and when Chinese yields rise and dollar-yuan interest rates converge. "The yuan carry trade will unwind once China's domestic demand turns around," said Macquarie's chief China economist Larry Hu. "It then depends on when policy stimulus could become decisive enough." ($1 = 7.1809 Chinese yuan) Sign up here. https://www.reuters.com/markets/currencies/what-is-chinese-yuan-carry-trade-how-is-it-different-yens-2024-08-13/

2024-08-13 00:45

Brent falls after gains on Monday Iran says retaliation may be avoided U.S. beefs up naval forces in Mediterranean HOUSTON, Aug 13 (Reuters) - Brent and U.S. crude oil futures fell on Tuesday as traders grew less nervous about the potential for a wider war in the Middle East, with Iran yet to act on threats to retaliate on Israel for assassination of a Hamas official in Tehran. Benchmark Brent crude futures settled down $1.61, or 1.96% at $80.69 a barrel. U.S. West Texas Intermediate crude finished down $1.71, or 2.14%, at $78.35 a barrel. "The markets had priced in an imminent attack by Iran against Israel within 24 to 48 hours," said Phil Flynn, senior analyst at Price Futures Group. "That hasn't happened. The market is taking that risk premium out of the price for crude." The International Energy Agency kept its 2024 global oil demand growth forecast unchanged but trimmed its 2025 estimate, citing the impact of lacklustre Chinese consumption on economic growth. Brent on Monday gained more than 3%, closing at $82.30 a barrel after hitting the lowest closing price in seven months, $76.30, a week earlier. Also on Monday, the Organization of the Petroleum Exporting Countries cut expected demand in 2024 even though the group and its allies, known as OPEC+, aim to raise output from October. Escalation in the Middle East could endanger crude supply from a leading oil-producing regions, but wider war seemed less likely as Iran suggested renewed cease-fire talks with Hamas could prevent retaliation. "We're seeing evaporation of the geopolitical risk premium," said Jim Ritterbusch, president of Ritterbusch Associates. The U.S. has prepared for what could be significant attacks by Iran or its proxies in the region as soon as this week, White House national security spokesperson John Kirby said on Monday. Markets also await Wednesday's U.S. consumer price index report that will give a crucial read on inflation. Sign up here. https://www.reuters.com/business/energy/oil-prices-ease-markets-refocus-demand-worries-2024-08-13/

2024-08-13 00:37

NEW YORK, Aug 13 (Reuters) - The dollar softened against the yen on Tuesday and was weaker against a basket of its peers in calmer trading, as markets await U.S. inflation data that could indicate the outlook for Federal Reserve interest-rate cuts. Dollar/yen weakened after data showed U.S. producer prices increased less than expected in July as a rise in the cost of goods was tempered by cheaper services, indicating that inflation continued to moderate. Treasuries rallied, pushing yields lower after the PPI report. The more closely watched consumer price index report on Wednesday will also help guide the Fed's interest-rate policy. "Today's PPI release has definitely been taken as promising news for markets," said Helen Given, associate director of trading at Monex USA. "Traders are treating this as sort of a prelude to tomorrow's CPI, which markets have been bracing for as a possible volatility event after last month's reading showed prices actually went down." Currency markets have been rocked by a sharp rally in the yen since July that has prompted - and been driven by - an unwinding of a popular investment strategy called the carry trade and contributed to a slide in stocks. Yet, with the dollar down 0.35% against the yen at 146.71, markets on Tuesday appeared to be over the worst of the recent turbulence. The yen slid to 38-year lows in July as investors piled into the carry trade, in which they borrow yen in Japan where interest rates are low, then sell it for other currencies to buy higher-yielding assets elsewhere. A number of factors, particularly a surprise rate hike by the Bank of Japan and expectations of U.S. rate cuts due to a slowing labor market, have combined to reverse the carry trade stampede, leaving the yen up around 8% since mid-July. Government sources told Reuters on Tuesday that Japan's parliament plans to hold a special session on Aug. 23 to discuss the central bank's decision last month to raise rates. "The market wants to test what the appetite is for it to go higher. The reality is the rate spread between U.S. and Japan is still going to be very wide," said Amo Sahota, director, Klarity FX. "The market has been oversold very quickly, but now it's trying to get itself back to neutral. I think it's treading very carefully, dipping their toes back into the water again, and seeing what the current is like." The dollar index fell 0.5% to 102.56, with the euro up 0.61% at $1.0999. POUND PERKS UP Sterling rose 0.81% to $1.2869, with data earlier in the session showing the UK's jobless rate fell to 4.2% in June from 4.4% in May, defying economists' expectations of a slight rise. Job vacancies declined while wage growth slowed. Low survey response rates have recently caused investors and economists to put less weight on Britain's labor market data. "Last weekend's panic spiral around the potential for a hard landing looks at this point like it was quite overblown, and markets look to be moving back toward stability," Given said. "Any downside surprise on CPI, as we got this morning on PPI, is likely to have a greater effect on USD and move the buck into further negative territory." Sign up here. https://www.reuters.com/markets/currencies/dollar-tenses-data-verdict-rate-cut-risks-2024-08-13/

2024-08-13 00:37

CAIRO, Aug 13 (Reuters) - Two crude oil tanker ships reported coming under attack in the Red Sea off the coast of Yemen on Tuesday, although neither reported damage, maritime security agencies said. The attempted assaults on those vessels, identified as the Liberia-flagged Delta Atlantica and the Panama-flagged On Phoenix, bear hallmarks of Iran-aligned Houthi militant attacks on international cargo shipping in solidarity with Palestinians in the war between Israel and Hamas. The Houthis have not claimed responsibility. The vessels and crew in both incidents were safe and proceeding to their next ports of call. Since November, the Houthi campaign has sunk two ships and killed at least three sailors. It has persisted despite U.S. and British strikes on equipment and launch sites in Yemen. Three senior Iranian officials on Tuesday told Reuters that only a ceasefire deal in Gaza stemming from hoped-for talks this week would hold Iran back from direct retaliation against Israel for the assassination of Hamas leader Ismail Haniyeh on its soil. With an increased risk of a broader Middle East war after the killings of Haniyeh and Hezbollah commander Fuad Shukr, Iran has been involved in intense dialogue with Western countries and the U.S. in recent days on ways to calibrate retaliation, sources told Reuters. The Red Sea and Gulf of Aden Joint Maritime Information Center (JMIC) identified the Delta Atlantica and the On Phoenix as ships targeted in attacks on Tuesday. The captain of the ship identified as the Delta Atlantica reported three incidents, including two approaches by drone boats, according to the United Kingdom Maritime Trade Operations (UKMTO) agency and British maritime security firm Ambrey and JIMC. Delta Tankers confirmed reports that Delta Atlantica and her crew were safe. Managers for the On Phoenix did not immediately comment. The threat of Houthi attacks has forced many ships that take the Suez Canal between Asia and Europe to reroute around Africa. This drives up transportation costs, delays goods and increases pollution from ships. Sign up here. https://www.reuters.com/world/middle-east/ship-captain-reports-incident-southwest-yemens-hodeidah-ukmto-says-2024-08-13/

2024-08-12 23:11

NEW YORK, Aug 12 (Reuters) - Citigroup's (C.N) , opens new tab head of digital assets for its markets unit, Shobhit Maini, is leaving the bank after more than 14 years, according to an internal memo seen by Reuters. Maini, who joined Citigroup in 2010, according to his LinkedIn page, was global head of digital assets for Citi markets since 2021. He is leaving Citi to pursue an entrepreneurial opportunity in the digital asset space, said Lee Smallwood, head of markets innovation and investments at the bank, in the memo. Citigroup declined to comment. Maini did not immediately respond to a Reuters request for comment. Deepak Mehra will now lead digital assets for the markets unit in an expanded role, the memo said. Mehra is currently international lead for Citi markets' strategic investments. Bloomberg News earlier reported Maini's departure. Citigroup is involved in several digital money and tokenization projects. Last year it became the first digital custodian participant of the BondbloX Bond Exchange (BBX). BBX, which was launched in 2020 to simplify bond investing, is the world's first fractional bond exchange. Sign up here. https://www.reuters.com/business/finance/citigroups-head-digital-assets-markets-unit-departs-memo-says-2024-08-12/

2024-08-12 22:58

Aug 13 (Reuters) - The International Atomic Energy Agency (IAEA) said late on Monday that its representatives inspected a damaged cooling tower at the Russia-controlled Zaporizhzhia Nuclear Plant in Ukraine but could not immediately determine the cause of a fire there at the weekend. Moscow and Kyiv have accused each other of starting the fire at the vast dormant nuclear power plant in Ukraine, with Russia blaming a drone attack and Ukraine saying it was likely Russia's negligence or arson. The IAEA team found no immediate sign of drone remains and assessed that it was unlikely that the primary source of the fire began at the base of the cooling tower, the IAEA said in a statement on its website. "The team has not been able to draw definitive conclusions (on the cause of fire) on the basis of the findings and observations so far," the agency said. Neither Moscow or Kyiv have reported signs of elevated radiation. The IAEA said damage was most likely concentrated on the interior of the tower at the water nozzle distribution level, at roughly 10 metres (33 ft) high. "The team confirmed that there were no significant signs of disturbance of the debris, ash or soot located at the base of the cooling tower," the IAEA said. "The nuclear safety of the plant was not affected, as the cooling towers are not currently in operation." Russia captured the plant from Ukraine shortly after launching a full-scale invasion of its smaller neighbour in 2022, which it calls a "special military operation". Sign up here. https://www.reuters.com/world/europe/iaea-unable-determine-cause-zaporizhzhia-nuclear-plant-fire-2024-08-12/