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“China cannot ignore the one-two punch of deflation and capital outflows without having to ultimately realign its currency strategy,” Henry Mcvey, head of KKR’s Global Macro & Asset Allocation team, said in a research note Tuesday. “If it does choose to ignore these items, then we believe GDP growth could stagnate further the way it did in Japan during the 1990s (i.e., high real rates restrain growth amidst too much debt).”
KKR, which oversees $99 billion in assets as of September, estimates that the “fair value” of the yuan is about 7 per dollar, or 7.1 percent weaker than Tuesday’s close. With volatility as much as 10 percent, the yuan could weaken to 7.5 per dollar in an “overshoot” scenario, Mcvey said.
China doesn’t need to devalue the exchange rate to boost trade, because its companies have already grabbed export market shares even when the currency was strengthening over the past few years, he said. Instead, the argument for a weaker yuan stems from the need to offset capital outflows.
Financial markets expect the ECB to cut its deposit rate by at least 10 basis points and expand its asset-buying program. However, with so much already priced in, some traders are primed for a repeat of the sharp gains in the euro seen in December when the ECB's measures fell short of market expectations. According to Reuters
Brent crude oil futures LCOc1 rose to a high of $39.97 per barrel around 0700 GMT before dipping back to $39.92 by 0731 GMT, still up 27 cents from their last close and over 40 percent higher than the2016 lows hit in January.
U.S. crude futures CLc1 were at $36.70 per barrel, up 20 cents from their last settlement and also over40 percent above February's 2016 low.
OPEC and non-OPEC oil exports will meet in Moscow on March 20, an Iraqi official has told a state paper, according to Reuters.
"Of the 18 defaults since the start of the year, half have been in commodity sectors," credit rating agency Moody's said in a report, adding that five of the defaults were in the oil and gas sector while four were in metals and mining.
Analysts at Bernstein said that poor economics could lead to more oilfield closures.
Analysts said that falling U.S. output, expected to dip from over 9 million bpd currently to 8.19 million bpd in 2017, was also lending support to the market although they added that concerns over slowing demand and an ongoing global production and storage overhang was capping any potential for bigger price gains.
Reference: Bloomberg, Reuters
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