Oil Sinks Commodities as Asian Stocks Fall; Dollar Gains

Oil drove commodities lower, with West Texas Intermediate crude plunging to a five-year low as gold and silver sank with industrial metals. Asian stocks fell with U.S. index futures as a gauge of Chinese manufacturing dropped more than expected, while the dollar strengthened.
WTI lost 2.1 percent to $64.75 a barrel by 10:07 a.m. in Tokyo, headed for its lowest close since July 2009. Gold sank as much as 2.1 percent as silver retreated to a five-year low, while copper and nickel lost at least 1.2 percent. The MSCI Asia Pacific Index (MXAP) fell 0.3 percent, fueled by declines among Australian and South Korean stocks as Japanese shares rose. Standard & Poor’s 500 Index futures dropped 0.2 percent. The Bloomberg Dollar Spot Index added 0.2 percent as the greenback reached a four-year high versus the Australian dollar.
Collapsing oil prices have driven the Bloomberg Commodity Index to its lowest level since 2009, damping the outlook for global price growth amid concerns over slowing economies. Swiss voters yesterday rejected a measure that would have forced their central bank hold at least 20 percent of its balance sheet in gold. China’s official factory index fell to 50.3 for November, below the 50.5 reading projected by economists with similar data for Japan, the euro region and the U.S. also due today.
“Concerns about disinflation and deflation are being fueled by what we’re seeing in energy and commodity markets at this point in time,” Richard Gibbs, global head of economics at Macquarie Group Ltd., Australia’s largest investment bank, said in a Bloomberg TV interview in Sydney. “Clearly the decision by the Saudis to not even countenance a cut in production has strong geopolitical undertones.”
Saudi Arabia, the biggest oil exporter among the Organization of Petroleum Exporting Countries, was a driving force behind the 12-member group’s decision last week to maintain its collective production ceiling at 30 million barrels a day. The oil minister of Iran, which advocated for an output cut, said in an interview late last week that the “shock therapy” of a steep decline in prices is no solution to OPEC’s loss of market share to U.S. shale producers.

Source : Bloomberg

China Drafts Bank Deposit Insurance in Move to Free Rates

China will start an insurance system for bank deposits, a move toward scrapping remaining controls on interest rates and allowing lenders to fail in a more market-driven economy.
The government will insure deposits of as much as 500,000 yuan ($81,367) per saver at each bank covered, the People’s Bank of China said in a draft rule on its website yesterday. It didn’t give a start date or detail what premiums banks may pay, saying only that they may differ depending on lenders’ management and risk conditions. The PBOC is seeking feedback through Dec. 30.
Deposit insurance removes an implicit government guarantee behind China’s state-controlled banks and clears the way for the nation to deregulate savings rates, increasing competition for funds. That may exacerbate a liquidity shortage at smaller banks and boost their chance of failure as savings shift to the biggest lenders.
“Deposit insurance is not only standard in all developed banking markets but in addition it is one of the least contentious of banking reforms -- this looks like an ‘easy win’ for financial sector reform,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., said before the announcement. “China needs deposit insurance now because the mainland economy is less robust and there is, implicitly, a greater risk of small banks having a liquidity crisis.”

Riskiest Part

China’s savers had piled up 112 trillion yuan of local-currency deposits as of Oct. 31., while bad loans have climbed to a six-year high, pointing to stresses within the financial system. The dominance of state-controlled lenders has left savers believing in an implicit government guarantee. China is the only major economy in Asia without a formal deposit insurance system.
Such systems can help to prevent bank runs. At the same time, by acknowledging the possibility of bank failures, the plan may encourage depositors with balances exceeding 500,000 yuan at small lenders to shift to larger ones seen as more stable.
The system can “promote the establishment of market-based risk prevention and resolution mechanisms,” the central bank said in the statement.

Coverage

The insured amount proposed will be enough to cover all the bank deposits of 99.6 percent of savers, the central bank said in a separate statement. BNP Paribas SA has estimated that a system of the type planned may cover 46 percent of deposit balances, based on past PBOC data. Authorities may adjust the 500,000 yuan ceiling, which includes both principal and interest, in line with economic and financial conditions, the statement said.
The rule would apply to all deposit-taking financial institutions and covers both local and foreign-currency deposits, according to the draft. A deposit insurance fund management agency, to be decided by the State Council, will set the premium rates. The ratios will be “much lower than” the starting level or current level in most countries with a deposit insurance system, and the financial impact on lenders is “very small,” the PBOC said in a separate statement.
Money in the plan could only be held by the central bank or invested in government bonds, PBOC notes, high-rated debentures or other channels approved by the State Council.

Slower Growth

Foreign lenders’ branches in China and Chinese banks overseas units aren’t covered, the statement said. Interbank deposits by other financial institutions and deposits by senior bank management in their own bank aren’t insured.
The central bank on Nov. 22 moved further toward freeing interest rates by raising the deposit-rate cap to 1.2 times the benchmark from 1.1 times. Revamping deposit rates is the “riskiest” part of liberalization, the PBOC said in July 2013, when it allowed banks to freely price loans.
China’s economy is poised for the weakest expansion since 1990 and Communist Party leaders have discussed reducing the 2015 growth target from this year’s 7.5 percent goal, a person familiar with the matter said in November.
Deposit insurance is “a clearly defined exit strategy for troubled banks,” Judy Zhang, a Hong Kong-based analyst at BNP Paribas, said in a Nov. 28 note. “It protects the public interest and shows the government is accelerating financial reform to gradually break its implicit guarantee of the financial system. However, it may lead to a deposit shift from small banks to large and medium-sized banks in the short term.”
Smaller banks face the risk of withdrawals by corporate depositors to counterparts with strong capital bases and extensive distribution networks, Zhang said. Besides liquidity risk, smaller lenders may have to bear higher funding costs to keep customers, putting pressure on their earnings, she said.
The deposit insurance system will “significantly” enhance smaller banks’ credibility and competitiveness and create a fair environment for them to compete, according to the PBOC statement.

Source : Bloomberg

WTI Drops a Second Day as OPEC Considers Sparing Three From Cut

West Texas Intermediate crude fell for a second day as OPEC considered sparing three nations from potential output cuts when the group meets in Vienna this week.

Futures slid as much as 0.4 percent in New York. Iraq, Iran and Libya wouldn™t have to trim supplies should the Organization of Petroleum Exporting Countries agree to a reduction, according to two people with knowledge of the proposal. This is not the first time the market is oversupplied, Saudi Arabia™s Oil Minister Ali Al-Naimi said in the Austrian capital.

Oil has collapsed into a bear market as the U.S. pumps crude at the fastest rate in more than three decades amid signs of a supply glut. Some OPEC producers are resisting calls to reduce production while Venezuela and Ecuador seek action to support prices ahead of discussions on Nov. 27.

WTI for January delivery dropped as much as 31 cents to $75.47 a barrel in electronic trading on the New York Mercantile Exchange and was at $75.68 at 10:06 a.m. Sydney time. The contract lost 73 cents to $75.78 yesterday. The volume of all futures traded was about 43 percent below the 100-day average. Prices have decreased 23 percent this year.

Brent for January settlement dropped 68 cents, or 0.9 percent, to $79.68 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark crude ended the session at a premium of $3.90 to WTI.

Source: Bloomberg

Yen Approaches Seven-Year Low Before Kuroda Speaks Amid Stimulus

The yen approached a seven-year low versus the dollar before Bank of Japan Governor Haruhiko Kuroda speaks today, as policy diverges from the Federal Reserve.

The euro maintained gains from yesterday versus its major peers after European Central Bank Governing Council member Jens Weidmann said expanding bond purchases to government debt would face œlegal hurdles. New Zealand™s dollar held its first decline in three days before a quarterly Reserve Bank survey of inflation expectations. The BOJ today releases minutes of its Oct. 31 meeting, when it surprised markets by expanding stimulus two days after the Fed ended its bond-buying program.

The yen slipped 0.1 percent to 118.43 per dollar at 8:47 a.m. in Tokyo from yesterday, when it fell 0.4 percent. It reached 118.98 on Nov. 20, the weakest since August 2007. The yen was little changed at 147.26 per euro, after yesterday™s 0.8 percent slide. The euro traded at $1.2434 from $1.2442.

The BOJ last month lifted the annual target for enlarging the monetary base to 80 trillion yen ($675 billion), from 60 trillion yen to 70 trillion yen. The policy board voted to retain the plan at the end of a two-day meeting on Nov. 19. Kuroda is scheduled to speak at 10 a.m. in Nagoya today.

The Fed is moving to raise interest rates for the first time since 2006 after curtailing its quantitative-easing program. Futures traders predict there™s a 50 percent chance rates will rise in September for the first time since 2006.

The New Zealand dollar was little changed at 78.60 U.S. cents, after weakening 0.3 percent yesterday.

Source : Bloomberg