Randomly Noted

Beijing has been pretty quiet on the declining euro, and with good reason.

There’s been some chatter in markets that central banks, including the big names in Asia, are starting to fret about the euro’s decline, and even offloading some holdings.  We may never know for sure. But there’s certainly no great impetus for the People’s Bank of China – our champion of reserve diversification in Asia – to rush euros onto the market.

Not that long ago China was warning the U.S. about a deterioration in the U.S. dollar, reminding the world it had a vested interest in the dollar’s value via its massive holdings of U.S. government debt.  The greenback’s recovery courtesy of the euro’s fall has eased those concerns. China is sitting prettier on its U.S. assets.

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The Indonesian rupiah’s strength is highlighted in today’s “Money Talks” column by DJN’s Rosalind Mathieson; she writes that a politically stable, economically promising Indonesia has given the local currency a big boost (especially compared with the rest of Southeast Asia.) There are risks, but relatively minor ones. Volatility surrounding July’s presidential election isn’t much of a worry, in my view, given the likelihood of Yudhoyono’s peaceful re-election. Rising crude oil prices could swell the fiscal deficit, thanks to the government’s addiction to fuel subsidies. Upside factors include the resource-rich economy’s exposure to a recovery in commodity prices, although Ros points out that a stronger U.S. dollar could weaken the rupiah’s appeal. Continue reading…

How optimistic should one be about India in the wake of the Congress Party-led government coalition’s electoral success? Very, I say. But DJN colleague Ros Mathieson argues the United Progressive Alliance coalition has been “patchy when it comes to acting on promised reforms.” Among the UPA’s “unfulfilled promises ” Ros includes failure to open the banking sector to foreign direct investment or to allow pension funds to invest in the stock market.  Fair enough. Have a look at her “Money Talks” column this morning for more: “MONEY TALKS: India Govt May Not Capitalize On Reformist Mood” Continue reading…

It was a lousy morning for the U.S. dollar in Asia following Friday’s broad-based rejection of the greenback. The euro climbed to the highest it had been in six weeks and among Asian currencies, the Korean won and the Singapore dollar hit six- and four-month highs, respectively, DJN’s Miho Nakauchi reported. The yen gained relative to the USD and EUR, reflecting selling by Japanese exporters on a post-holiday settlement day. USD bounced a bit as the day stretched on but affection for the dollar remains fairly tepid. Brown Brothers Harriman expects several more weeks of a weak USD followed by something of a rebound, reflecting what BBH describes as an improved U.S. economic outlook. Hmmm. In her “Money Talks” column today, DJN’s Ros Mathieson questions the notion of a revived American economy. She notes that the euphoria over “less bad” U.S. economic data is a tad absurd. “We’re so keen to put things in our ‘green shoots’ baskets that we could overlook the ongoing warning signals being sent by economic data,” she writes. Continue reading…

DJN colleague Rosalind Mathieson’s “Money Talks” column today addresses “artificial” versus “genuine” causes of financial market volatility amid the economic crisis. She takes a relatively focused, week-ahead view, noting, among other things, that Japan will be closed until Thursday for “Golden Week.” This means thin forex trading with the yen ”susceptible to efforts by short-term traders…to push it around.” (As Ros predicted, JPY’s getting kicked around today in Asia.) Other likely prompts for speculation or panic:  results of U.S. bank stress tests, the European Central Bank rate decision, and U.S. payrolls data for April. Corporate earnings outlooks are likely to be a mix of so-so and lousy.  Ultimately, risk measures “are likely to remain on the high side” as investors try to navigate fundamental versus transitory market conditions, she writes. Continue reading…

One hopes companies that lost big bucks on speculative investments will have learned their lessons when the global economy revives, and cease and desist from pretending to be hedge funds. Certainly, China Eastern Airlines should feel chastened, having lost hundreds of millions of dollars on fuel derivatives contracts. Today comes news that China Eastern is talking with seven investment banks about restructuring some of these high falutin’ products (for want of a better word – gold star to anyone who comes up with a better alternative.) The airline, based in Shanghai and dependent on infusions of Beijing government money to stay alive, lost money on “accumulators” and “extendible 3-way options,” according to a DJN scoop. Most of these products came from Credit Suisse, Goldman Sachs and Merrill Lynch, and these banks are proposing a switcheroo – exchanging the products for plain-vanilla hedges. Which begs the question: why on earth would an airline – and, mind you, not a particularly robust one – have engaged in anything other than routine, prudent currency or jet fuel hedges? CEA’s also haggling with Citibank, Deutsche Bank, UBS and Morgan Stanley, according to DJN. By the way, other mainland China airlines made bad bets on fuel hedging and had to set aside money to settle contracts as oil prices fell. Continue reading…