Summary: Yuan joins elite currency club
And finally, Katie Allen sums up tonight’s big news from the IMF:
China’s yuan will be added to an elite basket of global currencies used by the International Monetary Fund, in a boost to Beijing’s global economic ambitions.
Shareholders in the Washington-based IMF voted to include the yuan, also known as the renminbi, as the fifth member of its special drawing rights (SDR) currency basket alongside the dollar, the Japanese yen, sterling and the euro.
Christine Lagarde, head of the IMF, said on Monday that including the yuan in the basket was an important milestone in integrating China into the global financial system.
She said:
“It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy,”
China had been lobbying for the IMF to add the yuan to its basket of currencies, which it uses to lend to sovereign borrowers. A vote by representatives of the IMF’s member countries to support the move marks a significant milestone for Beijing as it seeks to put the yuan on a par with the US dollar and play a growing role in global markets.
Analysts had widely expected the vote in favour of the yuan being added, after IMF staff recommended the move earlier this month. Lagarde endorsed that view, saying the yuan appeared to meet important criteria, including being deemed “a freely usable currency”.
For more, read on here:
And that’s all for tonight.
Our earlier summary covered the main developments.
We’ll be back tomorrow! GW
Updated
The US dollar, pound and yen have all lost a little space in the SRD currency basket, to make room for the renmimbi.
The biggest lose, though, is the euro - its share falls from 37.4% to below 31%.
#Euro is the biggest loser of new currency order. Share of Euro in IMF SDR basket will shrink from 37.4% to 30.9%. pic.twitter.com/jQmWo6LNbt
— Holger Zschaepitz (@Schuldensuehner) November 30, 2015
So, does the IMF’s decision mean the yuan is about to overthrow the US dollar and become the world’s pre-eminent reserve currency?
No.
Eswar Prasad, a former senior official for the IMF in China, explains that this won’t happen...
...unless economic reforms are accompanied by broader legal, political, and institutional reforms that are necessary to inspire the trust of foreign investors.
China’s government has made it abundantly clear that such reforms are not on the cards.
So American’s shouldn’t worry too much.
That’s via FastFT:
China's yuan elevated to reserve currency: reaction https://t.co/W0CxWuvAIO
— fastFT (@fastFT) November 30, 2015
This move is a vote of confidence in China’s currency, says Jeremy Cook of foreign exchange firm World First.
It might encourage Beijing to continue to open up the renmimbi, making it easier for small firms in Britain (and beyond) to use it.
Cook explains:
“The impact outside of the investment world is limited in the short term however the hope must be that the move prompts additional longer-term reforms in the flexibility of the currency and the ease with which UK SMEs can use the yuan for international trade and payments.”
Here’s the moment that Christine Lagarde announced that the yuan has the IMF’s seal of approval, and will join its currency basket.
Here’s the official statement from IMF chief Christine Lagarde, confirming that China’s yuan (or renmimbi) has been ranked alongside the dollar, pound, euro and yen:
“The Executive Board’s decision to include the RMB in the SDR [Special Drawing Reserve] basket is an important milestone in the integration of the Chinese economy into the global financial system. It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”
The value of the SDR will be based on a weighted average of the values of the basket of currencies comprising the U.S. dollar, euro, the Chinese renminbi, Japanese yen, and British pound....
EG:
JUST IN: Chinese Yuan to have 10.9% weighting in IMF's currency basket when added. pic.twitter.com/jDhivZW7AP
— CNBC Now (@CNBCnow) November 30, 2015
Lagarde continues...
The inclusion of the RMB will enhance the attractiveness of the SDR by diversifying the basket and making it more representative of the world’s major currencies. The SDR interest rate will continue to be determined as a weighted average of the interest rates on short-term financial instruments in the markets of the currencies in the SDR basket. Authorities of all currencies represented in the SDR basket, which now includes the Chinese authorities, are expected to maintain a policy framework that facilitates operations for the IMF, its membership and other SDR users in their currencies. The paper presented to the Board will be released soon.
Updated
It appears that the yuan will make up almost 11% of the IMF’s currency basket, once it has been admitted to the Special Drawing Rights fold.
New #SDR weightings with Chinese Yuan included: USD: 41.73% EUR: 30.93% CNY: 10.92% JPY: 8.33% GBP: 8.09% #IMF RO
— IGSquawk (@IGSquawk) November 30, 2015
IMF confirms China's yuan to be added as fifth elite currency in its special drawing rights (SDR) basket. Our Q&A https://t.co/yadCBC609V
— Katie Allen (@KatieAllenGdn) November 30, 2015
IMF gives Chinese yuan its approval
It’s official -- the International Monetary Fund has given its approval to adding China’s yuan to the currencies which make up its Special Drawing Reserves.
It’s a symbolic moment in China’s economic development - putting the yuan alongside the euro, US dollar, yen and sterling.
*IMF APPROVES ADDING YUAN TO RESERVE-CURRENCY BASKET pic.twitter.com/rvGgQejzOn
— lemasabachthani (@lemasabachthani) November 30, 2015
Christine Lagarde has called it an “important milestone”, which will also better reflect the state of the global economy:
*IMF'S LAGARDE: ADDING YUAN TO SDR BASKET IS IMPORTANT MILESTONE
— World First (@World_First) November 30, 2015
*LAGARDE: SDR BASKET WITH YUAN BETTER REFLECTS GLOBAL ECONOMY
— lemasabachthani (@lemasabachthani) November 30, 2015
As we explain here, SDRs are the reserve asset which underpin the IMF’s role in supporting the financial system:
Updated
This year’s Black Friday didn’t see a repeat of the pushing, shoving and falling over that generated headlines and bruises in 2014.
But it does appear that UK consumers spent more this time around:
.@johnlewisretail says #BlackFriday its biggest ever trading day. Sales up 11.9% on last year
— Retail Week (@retailweek) November 30, 2015
That’s a win-win for retailers - more sales, without photos of customers fighting over a cheap telly.
China’s slowdown hasn’t just hit commodities.
CNBC asked a group of chief financial officers from Europe and Asia if trading with China had changed this year - and half reported a deterioration in business:
More than 75% of big businesses have been impacted by China's economic slowdown: CFO Survey https://t.co/tnsi8DbkfE pic.twitter.com/pV5iS6twrH
— CNBC World (@CNBCWorld) November 30, 2015
Updated
The Bank of England insists that it could raise interest rates in 2016 - but scepticism is rife.
An experienced City economist had just predicted that rates could remain at just 0.5% for another 18 months:
Citi’s UK economist Michael Saunders has just pushed out his forecast for the first UK rate hike into H1 2017 (o/a strong £, weaker growth).
— Bond Vigilantes (@bondvigilantes) November 30, 2015
Updated
Afternoon summary
This should be a Big Week for economics and finance, with the ECB’s monetary policy meeting on Thursday and a crucial US jobs report on Friday which could cement - or derail - an interest rate hike.
Plus an OPEC meeting on Friday - where oil companies will deliberate over the state of the market.
But today has been quite subdued, so here’s a quick recap:
Iron ore prices have hit their lowest levels on record. Weak demand, and a strong dollar, pushed down commodity prices - analysts say the oversupply in the steel industry could keep iron ore under the thumb.
Mining shares have taken a predictable hit. BHP Billiton was the biggest faller; it also faces a major lawsuit over the fatal accident at a Brazilian mine.
European markets have risen. There’s growing confidence that the ECB will deliver a new dose of stimulus on Thursday.
The UK’s Funding For Lending Scheme has been extended by two years. The move is meant protect small firms from a damaging drop-off in credit.
Shoppers have been firing up their browsers for Cyber Monday. Analysts predict that spending will be up this year:
Greece’s finance minister has said he hopes to agree a debt restructuring deal in February 2016. Failure to do so will hit confidence and postpone the recovery, Euclid Tsakalotos warned.
And the IMF is deliberating whether to add China’s yuan to its Special Drawing Rights basket.
As Bloomberg explains, it’s an eagerly awaited decision.....
International Monetary Fund Managing Director Christine Lagarde and some two dozen officials on the fund’s executive board will gather Monday at headquarters in Washington for one of the most-anticipated decisions outside of actually approving loans for nations in crisis.
The question inside the 12th-floor, oval boardroom: whether to grant China’s yuan status as a reserve currency by adding it to the fund’s Special Drawing Rights basket. The SDR, created in 1969, gives IMF member countries who hold it the right to obtain any of the currencies in the basket -- currently the dollar, euro, yen and pound -- to meet balance-of-payments needs.
Greece targets debt deal in February 2016
Over in Athens, finance minister Euclid Tsakalotos has told investors that
Greece hopes to achieve a deal on debt relief in February 2016:
Speaking at the American-Hellenic Chamber of Commerce today, Tsakalotos said agreement on debt sustainability was vital to rebuilding confidence and returning Greece to economic growth.
He warned:
“If we don’t make the critical decision in let’s say February 2016, and we push the critical decision back to next summer or even 2017, then all the results will be delayed.”
Greece’s creditors agreed to consider debt relief measures as part of the third bailout which was drawn up this summer.
As we covered this morning, the European Stability Mechanism’s boss hopes a deal can be reached - but rules out a haircut on Greek debt. So it may not be an easy discussion
Updated
ECB stimulus hopes push shares higher
After a weak start, the main European stock markets have now turned positive.
Investors are pretty optimistic that the European Central Bank will announce new stimulus measures at its meeting on Thursday:
Here’s the situation:
ECB president Mario Draghi has already signalled that the governing council will act, to spur inflation and demand higher.
But what might he do? One option is to extend the current quantitative easing programme beyond September 2016, to buy up even more government and corporate debt.
Another is to cut the ‘deposit rate’ charged on bank deposits at the ECB, deeper into negative territory.
And anticipation of such moves has already driven bond prices higher, and weakened the euro. So there’s a danger that the ECB might ‘under-deliver’.
Economist Fred Ducrozet reckons Draghi should resist firing all its ammo this week:
... while anything the ECB does deliver this week, it may only deliver it again with decreasing marginal returns.
— Frederik Ducrozet (@fwred) November 30, 2015
Either way, the ECB should signal that it retains ammunition for later. Any market disappointment would likely prove short-lived.
— Frederik Ducrozet (@fwred) November 30, 2015
While Bloomberg’s Maxime Sbaihi is expecting something significant:
Question isn't whether #ECB will move but how. Many options available. Expectations are high: #Draghi can't disappoint. He usually doesn't.
— Maxime Sbaihi (@MxSba) November 30, 2015
Our own Katie Allen has explained why the IMF might add China’s yuan to its basket of currencies, and why it matters:
Chancellor George Osborne says small firms will benefit from the extension to the UK’s’ Funding for Lending Scheme:
It was due to expire in January but I am pleased to say that we are extending the scheme until 2018, supporting more loans. Given the improvement we’ve seen in credit conditions for households and large businesses, as our long-term economic plan moves from rescue to rebuild it is right that we continue to focus the scheme’s firepower on the small businesses that are the lifeblood of the economy.
The Funding for Lending Scheme will be gradually wound down as the recovery strengthens, delivering a managed exit from the scheme.” <end>
FLS could also be a handy weapon if the recovery weakens, of course....
UK extends Funding for Lending Scheme
Just in... the Bank of England and the Treasury have announced that they are extending their “Funding for Lending Scheme” for another two years.
FLS was created after the financial crisis, to encourage the flow of credit to UK companies. It is now mainly focused on smaller firms, who still complain that it’s hard to borrow affordably.
The BoE says that some progress has been made:
A variety of sources indicate that credit conditions for SMEs have been improving: SME lending volumes have increased by £2.1 billion in 2015 so far, and net lending to SMEs by FLS participants was positive in the first two quarters of 2015.
However, credit conditions for SMEs remain tighter than for large corporations.
So today’s move means FLS will be wound down slowly until January 2018, rather than clanging shut and causing a sudden contraction in credit availability.
Or as the Bank puts it:
The extension will also ensure that the scheme is gradually phased out, with borrowing allowances reducing over time, thereby minimising risks to the economic recovery from the withdrawal of funding support.
News Release - Bank of England and HM Treasury announce extension to the Funding for Lending Scheme https://t.co/KdnSKN7QM2
— Bank of England (@bankofengland) November 30, 2015
The move shows that the Bank doesn’t believe financial conditions have yet returned to normality (which is why it has resisted raising borrowing costs) - as trader Nic Dukes tweets:
Clearly the BoE are not going to hike now
— Nicola Duke (@NicTrades) November 30, 2015
These pictures from Australia’s Pilbara region remind us what a huge, and messy, operation iron ore production is:
Iron ore price hits new low
The ‘spot price’ of iron ore has just hit its lowest price on record, according to industry group Metal Bulletin.
A tonne of iron ore will cost you less than $43 today, as the selloff which began in Asia ripples through Europe.
As explained in our earlier post, iron ore prices are falling due to weakening demand for steel - due to oversupply problems and China’s slowdown - and the US dollar rally (as the Federal Reserve will probably raise interest rates this month).
Record low #ironore price yet again today - $42.97 (-$1.53) #MBIOI-62
— MB Iron Ore Index (@IronOreIndex) November 30, 2015
Breaking: Iron ore drops below $43 a ton for the first time ever on @IronOreIndex Drops 3.4% to $42.97/t pic.twitter.com/6IWCWfgYQv
— Jesse Riseborough (@JP_Riseborough) November 30, 2015
Iron ore sub $43 a tonne. pic.twitter.com/whBQXmz53g
— Neil Hume (@humenm) November 30, 2015
Never let it be said that bankers are a cold-hearted lot...
HSBC reduces your entire life to a chart with one line on it. pic.twitter.com/pkzGQybKkQ
— Jim Edwards (@Jim_Edwards) November 30, 2015
The prospect of paying billions to the Brazilian government in compensation for the Samarco dam disaster has pushed BHP Billiton’s shares down to their lowest since 2008.
BHP trading at a 7-year low. Brazil looks for $5.2bln compensation... https://t.co/MpGsJFvgg3 pic.twitter.com/UMvWt5Cj8L
— Jonathan Ferro (@FerroTV) November 30, 2015
It’s been a rubbish year for mining shares.
The emerging market slowdown has brought the commodity super cycle to a shuddering halt, sending metal prices to multi-years lows.
BHP Billiton, for example, has lost 41% of its market capitalisation this year. Anglo American has shed over 66%.
So is it time to ask Santa for some mining shares? Chris Beauchamp of IG suggests not:
The sector continues to be an illustration of the idea that cheap stocks tend to get cheaper, with little sign that we are nearing a bottom in this beleaguered sector.
Before you get carried away with the excitement (?!) of Cyber Monday - beware, your purchases may not arrive as soon as promised.
UK shoppers are expected to splash out around £1bn on online bargains today, having been on a spending spree since Black Friday.
That’s the equivalent of over 20 million parcels in a day - and Stuart Higgins, of logistics firm LCP Consulting, reckons some won’t cope.
He told BBC Breakfast that:
“A staggering 10% of that won’t be delivered on time and that’s because retailers haven’t got their back end fulfilment capabilities - their organisation, processes and infrastructure - in place to cope with the marketing hype that has been created around Black Friday.”
Denmark has suffered an unexpected contraction, hit by a slump in demand for its exports.
Danish GDP shrank by 0.1% in the last quarter, data released this morning shows, compared to a 0.2% expansion in Q2. This was mainly due to a 1.7% decline in exports, while household consumption was flat.
-0.1% GDP growth in #Denmark Q3, 1st neg. number since Q2/2013. Weak export, (surprisingly) stagnating consumption - https://t.co/hfIO3sq2FB
— Niels H. Buenemann (@nielsbuene) November 30, 2015
There’s better news from Sweden, though - it posted a 0.8% rise in GDP in July-September.
Another ugly Monday. A fitting end to an awful month for the miners pic.twitter.com/itxvivI1q4
— Thomas Biesheuvel (@tbiesheuvel) November 30, 2015
The iron ore rout is pulling down mining shares in London.
BHP Billiton, which produces copper, iron, gold, and coal, is leading the FTSE 100 fallers, down almost 6%.
Traders are also reacting to the Brazilian government’s decision to sue BHP, and Brazilian mining giant Vale, over the collapse of a dam which killed at least 13 people and caused serious environmental damage.
Brazil is seeking more than $5bn from the two companies, to cover the cost of compensation and cleaning up after the disaster.
Environment minister Izabella Teixeira told a press conference:
“There was a huge impact from an environmental point of view....
“It is not a natural disaster. It is a disaster prompted by economic activity, but of a magnitude equivalent to those disasters created by forces of nature.
Updated
ESM chief confident on Greek debt deal
The head of one of Greece’s four creditors has declared that he’s optimistic that Athens will get its much-anticipated debt restructuring.
Klaus Regling, managing director of the European Stability Mechanism (which handles bailout loans) told a Finnish newspaper that Greece should get assistance with debt repayments.
However, he doesn’t think that will include an actual ‘haircut’ on debts - more likely it will be more time to repay loans, or a lower interest rates.
The ESM has helpfully tweeted the key points, for those of us who didn’t pay attention during Finnish lessons:
#ESM MD #Regling itv transcript with Finnish daily “Kauppalehti” @KauppalehtiFi @JarnoHa https://t.co/j1zCCN2MZd pic.twitter.com/84iPVfvjsf
— ESM (@ESM_Press) November 30, 2015
#ESM #Regling: the Eurogroup has said it is willing to look at further debt relief measures after a positive conclusion of the first review
— ESM (@ESM_Press) November 30, 2015
#ESM #Regling on #Greece debt relief talks: I’m fairly optimistic we will come to an agreement
— ESM (@ESM_Press) November 30, 2015
#ESM #Regling: The #Greece govt now understands a nominal haircut is not feasible and I think it’s not necessary
— ESM (@ESM_Press) November 30, 2015
#ESM #Regling on debt relief: It’s about ensuring #Greece can service its debt in med term to send signal to potential investors & markets
— ESM (@ESM_Press) November 30, 2015
#ESM #Regling: Institutions will assess debt sustainability again in beginning of 2016 taking in account current econ environment
— ESM (@ESM_Press) November 30, 2015
#ESM #Regling: debt relief could be granted in tranches in order to have conditionality in place for longer than the ESM program until 2018
— ESM (@ESM_Press) November 30, 2015
#ESM Regling on IMF joining Greece program: I’m optimistic we will come to agreement, because European partners & IMF want to help Greece
— ESM (@ESM_Press) November 30, 2015
European markets fall in early trading
European stock markets have started the week on the back foot, as the selloff in commodity prices feeds through to equities.
Here’s the damage:
In London, the FTSE 100 fell by around 0.75% in early trading, dragged down by mining stocks.
Conner Campbell of SpreadEx explains:
The FTSE fell afoul of its usual bugbear this morning, its calamitous commodity sector.
Not that the oil and mining stocks are as bad as normal, but rather that with little else on offer, and iron ore falling to a 5 month low, the UK index couldn’t manage to mitigate its 45 point drop as the day got underway.
The German DAX was hit by the news that retail sales fell by 0.4% in October.
Gold set for worst month since June 2013
November has been the cruellest month in a while for gold bugs.
It has dropped by 7.5% this month, putting it on track for its worst month in two and a half years.
The gold price fell below $1,053/ounce this morning, near to a six-year low.
It’s another casualty of the US interest rate hike speculation, as traders ditch bullion in favour of the US dollar and assets that actually pay a return (even if they don’t look as pretty).
Analysts at Maike Futures, a brokerage firm, say that iron prices are being pulled down by oversupply:
“Supply continues to rise while port inventories are starting to climb, weighing on iron ore prices.”
Iron ore hits five-month low
The iron ore price is weakening today, hit by fears over the global economy and the strengthening US dollar.
The commodities rout has sent iron ore prices down to a five-month low in China overnight.
It was triggered by concerns that Chinese steelmakers are slashing their take-up of iron, in the face of weakening demand at home and abroad.
Reuters has the details:
The most active iron ore futures May contract on the Dalian Commodity Exchange dropped to a session low of 293 yuan ($45.81) a tonne, its weakest since July 9. Prices were 3.5 percent lower at 294 yuan by 0250 GMT.
Iron ore prices have tumbled 35 percent since the beginning of the year as China’s economy cools and construction activity slows in the country.
And Bloomberg flags up that prices in Singapore have fallen below the $40 per tonne mark:
Iron ore breaches $40 https://t.co/lTLJRfIzYV via @jasminengzt #ausbiz #china pic.twitter.com/Nq9j4psHKh
— Sarah McDonald (@mcdonaldsarahj) November 30, 2015
The commodity sector are also suffering from predictions that the US Federal Reserve will raise interest rates this month. That’s because:
1) Investors are moving capital out of emerging markets and back into the US dollar, in anticipation of receiving a higher rate of return
2) A stronger US dollar pushes down the cost of metals priced in dollars.
Updated
The Agenda: IMF could embrace the yuan today
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It could be a red letter day for China. The International Monetary Fund is due to decide whether to add the yuan to its prestigious basket of currencies.
This would be a big endorsement for the Chinese currency - placing the renmimbi alongside sterling, the US dollar, the yen and the euro.
As Katie Allen explains:
China has been lobbying for the IMF to add the yuan to its basket of reserve currencies, which it uses to lend to sovereign borrowers. A vote to include the currency in the SDR basket would mark a significant milestone for Beijing, according to experts.
“The direct impact won’t be felt in the near term, not least because implementation of the new basket won’t be until Q3 2016. However the symbolic importance cannot be overlooked,” said Andrew Malcolm, Asia head of capital markets at law firm Linklaters.
There’s no excuse for not cracking on with Christmas planning (I’m reliably informed....). And today is Cyber Monday, when shops begin offering tempting offers to online customers. Retailers are hoping customers who resisted the lure of Black Friday might start spending today.
And Tom Hayes, the FX trader jailed over the Libor scandal, is due in court to appeal his 14 year-prison term.
Jailed trader Tom Hayes is returning to court in London to appeal against Libor sentence https://t.co/WawOXy60Lz pic.twitter.com/ir31CHcneF
— Bloomberg Business (@business) November 30, 2015
We’ll be tracking all the main events through the day...
Updated
