Aurelia Butler

The outflows highlight deep-seated concern about the state of China’s economy as its much-awaited pandemic recovery stalls. Consumer spending is flagging, the property market and stock markets are in the doldrums and cash is piling up in savings.Brokers say individuals are responsible for the surge and it shows no sign of letting up, which analysts warn could put further pressure on the yuan as it teeters at eight-month lows. Mainland Chinese holdings under a nascent scheme allowing investment in Hong Kong and Macau wealth products have more than doubled since the end of last year to 814 million yuan ($110 million). New premiums collected on Hong Kong insurance policies leapt a staggering 2,686% to $9.6 billion in the first quarter of 2023.”More and more people realise they cannot put their eggs in one basket,” said Helen Zhao, an insurance broker busy helping mainland clients sign Hong Kong deals, citing Sino-U.S. frictions and pessimism about China’s outlook as motivating factors.Hong Kong insurance has long been a channel for Chinese buying assets abroad, with the policies providing more protection than what’s available on the mainland, and attendant savings and investment products mostly denominated in dollars with a global remit.AIA Group (OTC:AAGIY), Prudential and Manulife all reported a jump in business, citing contributions from mainland investors. A wealth manager at Noah Holdings (NYSE:NOAH) said he recently arranged a group of mainland clients to sign insurance contracts in “long queues”, many unsettled by the abruptness of China’s lurch in December from COVID-19 zero-tolerance to living with the virus.”Some clients were a bit of shocked by the policy U-turn, and they grow pessimistic about China’s economy,” he said. “The burst of insurance buying in Hong Kong reflects a gloomy domestic outlook, and worries about an uncertain future.” Savings insurance products in Hong Kong offer a minimum yield of 4.5%, he said, better than 3% offered on the mainland. He requested anonymity as he isn’t authorised to speak publicly.Noah Holdings said in an emailed statement that offshore insurance is a convenient tool for global asset allocation, while Hong Kong’s location makes it a natural destination for mainland investors. Dollar deposits in Hong Kong, meanwhile, offer a hedge against movements in the yuan and, for a one-year term, yield 4%, according to Bank of China. On the mainland, one-year dollar deposits yield 2.8%, while yuan deposits yield 1.65%. OFFSHORE DEMAND Such returns are the pull factor. The gap between two-year U.S. and Chinese government bond yields is its widest in 16 years, in favour of the U.S., and global stocks are going up while China’s are going sideways.”Offshore demand for policies denominated in Hong Kong dollars is low – U.S. dollar-denominated policies are more prevalent, to provide access to global asset allocation,” said Lawrence Lam, chief executive officer at Prudential Hong Kong.To be sure, total demand remains below pre-COVID levels, and a surge in interest was expected to coincide with China’s borders reopening, since signing policies requires a visit to Hong Kong.Yet it comes as the yuan is looking increasingly fragile. A previous, and larger, rush of outflows in 2016 prompted Beijing to ratchet up capital controls and unveil other measures to curtail insurance buying.The wealth manager at Noah fears that a sustained rush into Hong Kong insurance risks inviting Beijing’s policy tightening. Chinese authorities have already stepped up efforts in the last few weeks to shore up the yuan, with state banks selling dollars and the central bank warning it would guard against the risks of large exchange rate movements.Hao Hong, chief economist at GROW Investment Group, notes the outflows also coincide with exporters’ reluctance to repatriate dollar proceeds – another weight on the currency and sign of low confidence in the economy.The yuan’s real exchange rate, he points out, is below the nadir seen during China’s 2015-16 stock market crash and capital flight.While that makes for a possible source of a yuan rebound later in the year, according to Tan Xiaofen, professor at the School of Economics and Management of Beihang University, caution is likely to drive individual outflows ahead. “We’ve seen some changes to the risk attitudes of mainland visitors, which has moderated to a more balanced approach to their investments,” said Sami Abouzahr, head of investments and wealth solutions at HSBC in Hong Kong.”They remain interested in investment opportunities but are also paying greater attention to their health and legacy needs through medical and legacy planning insurance solutions.” ($1 = 7.2513 Chinese yuan renminbi) More

Attorneys in the regulator’s enforcement unit determined that Celsius misled investors and should have registered with the regulator, according to the report, citing people familiar with the matter. If majority of the CFTC’s commissioners agree with the conclusion, the agency can file a case in federal court as soon as this month, the report said. Celsius and the CFTC did not immediately respond to a Reuters request for comment. Last year’s market turmoil after the collapse of TerraUSD led to the failure of several major crypto companies including Celsius Network. The company filed for bankruptcy last year, leaving its customers with large losses. As part of Celsius’ bankruptcy case, an independent examiner was appointed to investigate accusations that Celsius had operated as a Ponzi scheme and report on how it handled crypto assets. New York’s attorney general sued Celsius founder Alex Mashinsky early this year, claiming he defrauded investors out of billions of dollars in digital currency by concealing the failing health of the lending platform. More

BENGALURU (Reuters) – The U.S. dollar will hold its ground against most major currencies for the rest of the year despite expectations of narrowing interest rate differentials as the U.S. economy stays resilient, according to FX strategists polled by Reuters.Although the greenback is still down around 0.5% against major currencies this year, it has gained nearly 1.3% over just the past week thanks to receding calls for a federal funds rate cut and wilting expectations for a U.S. recession this year.Several U.S. Federal Reserve officials, including Chair Jerome Powell, have argued in favour of at least two more rate hikes, against market expectations of one more, which also helped underpin the currency. The dollar will not give up those recent gains anytime soon, according to the June 30-July 5 poll of 80 FX strategists despite some major central banks, like the European Central Bank and Bank of England, set to keep raising rates for longer. “The tightness of the U.S. labour market may help the economy and the dollar in the very short term,” said Kit Juckes, chief FX strategist at Societe Generale (OTC:SCGLY). “Even if we see (interest) rate convergence, it seems unlikely a new major euro uptrend will start without stronger growth.”Indeed, a majority of common contributors showed the dollar view against most major currencies for the coming six months has been either upgraded or kept unchanged from a month ago.Meanwhile, net USD short positions have eased since hitting a two-year high in May, according to data from the Commodity Futures Trading Commission.Recent data showed the world’s largest economy has remained stronger than expected and has fared better than the euro zone, which slid into a recession earlier this year.”We see room for a dollar rebound in the near term. The U.S. economy looks in better shape than Europe and Asia, which suggests ‘higher for longer’ is somewhat more credible coming from the Fed than most others,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.After rising over 2% in June, the euro, currently at $1.09, was expected to gain a little less than 1% and trade at $1.10 in six months.Sterling, one of the best-performing G10 currencies this year, was forecast to change hands at $1.26, slightly lower than the current level of $1.27.A double whammy of high interest rates and sticky inflation has already dragged on economic activity in Britain.When asked how the dollar would perform against major currencies over the next three months, 45% of strategists, 27 of 60, said it would remain rangebound and 19 said it would strengthen. Only 14 said it would weaken.”The dollar is getting a tailwind from the Fed … the current strength is on a repricing of the Fed (rate) higher,” said John Hardy, head of FX strategy at Saxo Bank.”But at the same time, we have extremely strong global risk sentiment and liquidity and financial conditions are very easy. That normally associates with the dollar weakness. Those two things are balancing each other out.” More

BENGALURU (Reuters) – Australia’s central bank will likely deliver a 25 basis point interest rate increase on Aug. 1 following a pause on Tuesday according to economists in a snap Reuters poll who were split on when and where the cost of borrowing would peak.The Reserve Bank of Australia (RBA) decided to pause again this week after two 25 basis points hikes at its May and June meetings, leaving analysts and market traders guessing on what to expect next.The RBA began tightening policy in May 2022 and had raised rates at every meeting since, other than a pause in April. But it left them unchanged again on July 4 to assess the economic impact of its increases.Inflation slowed to 5.6% on a monthly basis in May from 6.8%, well above the 2.0% target. Along with a still-strong job market and a rebound in house prices, expectations have strengthened for a rate increase at the August meeting.Detailed quarterly inflation data is due on July 26, just days before that meeting.More than 90% of respondents, 23 of 25, in a July 4-5 poll expected the RBA to increase its official cash rate by 25 basis points to 4.35% at the Aug. 1 meeting.”We suspect that the coming forecast update from the RBA staff will likely tip the balance in favour of an August rate hike. The timing of a follow-up move is uncertain, but we’d favour September or October,” said Adam Boyton, head of Australian economics at ANZ.Boyton said he expected a peak cash rate of 4.60% but the outlook was uncertain following the central bank’s recent pause.All major domestic banks, ANZ, CBA, NAB and Westpac forecast a quarter-point increase in August.However, there was no consensus among economists on when and where rates would peak in this cycle.More than 45% of respondents, 10 of 22, expected the central bank to raise rates once more in September, taking rates to 4.60% by the end of this quarter. The other 12 said rates would stay at 4.35%. Of those who had a longer-term view, 11 out of 20 of them expected rates to peak at 4.60% or higher by end-2023, largely in line with market pricing.”Given this pause looks to be more around slowing the pace of tightening than a shift in the view of what is ultimately required, we retain our view of two more hikes and a 4.60% terminal rate,” said Chris Read, Australia economist at Morgan Stanley (NYSE:MS). More

WASHINGTON (Reuters) -A united U.S. Federal Reserve agreed to hold interest rates steady at the June meeting as a way to buy time and assess whether further rate hikes would be needed, even as the vast bulk expected they would eventually need to tighten policy further, according to meeting minutes released on Wednesday.While “some participants” wanted to move ahead with a rate hike in June because progress in cooling inflation had been slow, “almost all participants judged it appropriate or acceptable to maintain” the federal funds rate at the existing 5% to 5.25%, the minutes said.”Most of those participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress,” toward returning inflation to 2% from its current level more than twice that.The minutes added detail to the policy statement and economic projections issued after the June 13-14 session, when the Fed ended its 10-meeting streak of rate hikes with a decision to hold the benchmark federal funds rate steady.Markets were little changed after the minutes, with traders in futures tied to the Fed policy rate continuing to price in a rate hike in July and about a one-in-three chance of another increase before the end of the year.While Fed staff still saw a “mild recession” beginning later this year, they now viewed avoiding a downturn as only a little less likely than their baseline. Meanwhile policymakers wrestled with data showing a continued tight job market and only modest improvements in inflation. Officials also tried to reconcile headline numbers showing continued economic strength with evidence of possible weakness – of household employment figures that pointed to a weaker labor market than the payroll numbers indicated, or national income data that seemed weaker than the more prominent readings of gross domestic product. The logic of waiting, whether it amounted to a “skip” of one meeting or turned into a longer pause, reflected what officials said was still deep uncertainty around whether the Fed had already raised rates enough to tame inflation — and only needed to wait for the impact of tighter policy to be realized — or still needed to lean on the economy harder.”Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy,” the minutes said.The projections issued after the June meeting showed 16 of 18 officials still expected the policy interest rate would need to rise at least another quarter of a percentage point by the end of the year.In that context, Fed Chair Jerome Powell at a press conference after the June meeting said the decision marked a switch in strategy, with the central bank focused more on just how much additional policy tightening might be needed and less on maintaining a steady pace of increases.”Stretching out into a more moderate pace is appropriate to allow you to make that judgment” over time, Powell said.Investors in contracts tied to the overnight federal funds rate feel the Fed is highly likely to raise the benchmark rate by a quarter point, to a range between 5.25% and 5.5%, at its July 25-26 meeting. More