World leading currencies out of sync

Leading global currencies are rarely on different paths. Yet Japan's yen and China's yuan are slumping against the US dollar, while in Europe the euro is outperforming and sterling is on a tear, says a Reuters report.

"We've got a one in a 100 years pandemic and once in 75 years war and a once in 25 years energy crisis all thrown into the mix together," said SocGen's Juckes. "You’ve got to be 120 years old to have any understanding of this."

With economic and monetary policy outlooks varying, currency moves are increasingly out of sync with each other. This is making the US$7.5 trillion a day global FX market - operating in the aftermath of COVID-19 and the face of war in Ukraine and an energy crisis - more volatile and more unpredictable.

"It used to be the case that if you got the direction of euro/dollar right, you had a good chance of getting everything else right, but now it's a bit harder," said Nomura's G10 FX strategist Jordan Rochester.

The differences between currencies are widening.

Last year alone, the euro fell to a 20-year low versus the US dollar, sterling hit its lowest on record and the yen its weakest in 32 years, as the greenback soared broadly on sharp increases in US interest rates to curb inflation that other major central banks lagged.

The Bank of Japan has dashed expectations that a change to its ultra-dovish monetary policy would come early in 2023, sending the Japanese yen down 9% so far this year, on top of a 12% decline in 2022. That has raised the chance of intervention to stem weakness.

More pain is also anticipated for the yuan, trading near seven-month lows, as well as smaller Asian currencies.

Meanwhile the euro is up 2.5% this month against the US dollar and expected to rise further given a hawkish European Central Bank - and sterling has meanwhile risen over 5% so far in 2023, leaving it set for its biggest annual gain since 2017.

Rochester said Nomura forecast the euro moving to US$1.12 over coming months, implying a further 2% gain from US$1.095 now, and expected the yuan to weaken to 7.30 per dollar versus 7.2 now.

The yuan has slid almost 5% so far this year, hurt by a weak economy and a wide interest-rate gap with the United States.

This week Chinese authorities set a stronger than expected trading band for the currency, a sign that Beijing is increasingly uncomfortable with its quickening slide.

Lee Hardman, senior FX strategist at MUFG, said the dollar's rebound against Asian currencies reflected a reversal of the trades put in place late last year with the post lockdown reopening of China's economy, as pessimism about the growth outlook there grew.

Elsewhere the dollar is not performing as well. It's continuing to weaken against some European currencies and also Latin American currencies.

Hardman said that, as market volatility slows compared to recent years, investors were focusing more on carry trades, exploiting the variances in interest rates and monetary cycles between different central banks.

Kit Juckes, head of FX strategy at Societe Generale, said the focus on monetary policy differences was also a result of uncertainties elsewhere.

"What strikes me at the moment about FX markets is they are more short-term interest rate sensitive than I can remember them being.

"Because we are so uncertain about so many things in this most unusual of economic cycles, we're just going to focus on what the next central bank policy move is."

This is not good news for the yen, near seven-month lows against the US dollar and 15-year lows versus the euro, as the Bank of Japan holds fast to its ultra-loose monetary policy.

Of course given what the world has endured in the past few years, it is maybe not surprising that currency markets have gone a little strange.

 

West Bank rockets from lone wolf, not Hamas

The rockets fired by a Palestinian in the Jenin area of the West Bank on Monday and which failed to fly beyond the launch area were launched by a lone wolf and not by Hamas, The Jerusalem Post has reported.

This confirmed finding comes despite Hamas' claims that it was linked to the incident and despite the fact that the IDF has not yet revealed who launched the rocket.

Further, the Post understands that the IDF does not regard the launching of the two rockets (both which lacked any explosive materials and flew less than 100 meters from the launch site) as a major new threat of its own. 

Rather, the IDF believes its past and ongoing actions to eliminate Palestinian Islamic Jihad officials who were trying to build more sustained and systematic rocket firing capabilities on Israel have been and will continue to be successful.

West Bank rocket launches were a TikTok incident, not a serious threat

In addition, the IDF views the incident as being primarily a TikTok incident, or an exercise in public relations not all that different from the dummy rocket that the IDF recently found.

The IDF is even disappointed in the media depiction of the rocket launches as a serious threat, as this depiction may have achieved other terror groups' broad goals of creating fear and instability among the general population.

In contrast, the IDF is extremely concerned by the recent succession of Hamas and other terror organizations shooting attacks in places like Eli, Hermesh and against the Dee family.

The IDF absolutely views these incidents as a dangerous escalation which could get out of hand.

After all of these IDF perspectives, the fact is that in 2005 terror groups succeeded in firing multiple rockets from the West Bank and Shin Bet (Israel Security Agency) director Ronen Bar warned of the threat as a serious one in recent months.

 

Muslims urged to hold fast to unity

Eminent Saudi Scholar and Member of the Council of Senior Scholars Sheikh Youssef Bin Muhammad Bin Saeed urged the faithful not to be carried away by malicious campaigns and rumors.

Delivering the Arafat sermon at the Namirah Mosque here on Tuesday, Sheikh Bin Saeed said that the Islamic Shariah forbade Muslims from following rumors and disinformation that aim to divide their ranks.

“The believers are warned against malicious campaigns in all their forms and manifestations, aimed at dividing their ranks and inciting one group against another,” he said in the sermon.

Sheikh Bin Saeed called on the pilgrims to hold fast to unity and eschew discord.

He emphasized that the difference in languages, colors and ethnicities does not justify falling into discords and divisions. Rather, it is a sign from the signs of God in this universe.

Sheikh Bin Saeed noted that the Islamic texts reaffirm the command for unity, love, harmony, and prohibit disputes, divisions, and differences.

“The Prophet (peace be upon him) has commanded his followers to be united and cooperative, and prohibited them from discords and conflicts. Thus, through him, Allah has united his followers' hearts,” he said.

Sheikh Bin Saeed warned, “When unity is broken, personal whims and animosities prevail, and intentions become conflicting, resulting in the shedding of forbidden blood.”

Underscoring the significance of holding fast to unity and closing ranks, the preacher said that the Hand of Allah is with the collective body of Muslims (Jamaa’h) while Satan is with those who separate themselves from the Jamaa’h.

The significance of unity becomes apparent through the negative consequences of division and differences, affecting individuals, families, and societies, he emphasized.

“From this standpoint, Islam has implemented appropriate preventative measures and robust defensive strategies to halt the influence of destructive intentions and acts of sabotage that aim to tear apart communities.

“It does that by erecting a resilient barrier that inhibits the disintegration of its structure and the destabilization of its pillars, at the individual, familial, societal, national, and even global levels,” he said while reminding that God has commanded the Muslims, in times of dispute, to return back to the Holy Qur'an and the Sunnah (Tradition of the Prophet).

God has commanded them to maintain good conduct, interact with one another in an exemplary manner, and demonstrate compassion and mercy towards one another.

“In order to achieve the objective of unifying our word, Islam has emphasized the importance of strengthening social, familial, and spiritual bonds.

“It commanded us to uphold ties of kinship, and clarified the rights of spouses, parents, children, and daughters. Likewise, it commanded us to show kindness and goodness to relatives, neighbors, and the needy,” he said.

He also pointed out that Islam came to remind those who are in conflict with their brothers to reconcile and encourage them towards rectification in times of disputes.

Underscoring the need to stand united, Sheikh Bin Saeed made the pilgrims aware of the fact that God has prescribed several collective acts of obedience, such as the pilgrims’ gathering today on the plains of Arafat and their congregational prayers on Fridays.

“One of the means to foster unity is the social solidarity mandated by Islam, which includes the payment of Zakat and other charitable contributions, establishment of trusts, and giving of voluntary alms,” he said.

Sheikh Bin Saeed’s sermon focused on the universal message of Islam, underlined by the Prophet in his farewell Hajj.

He quoted the following Tradition of the Prophet in this regard, “O people! Indeed, your Lord is One. Your father (Adam) is one. No Arab has superiority over a non-Arab, nor does a non-Arab have superiority over an Arab. Similarly, no white person is superior to a black person, nor is a black person superior to a white person, except by piety. I have certainly conveyed the message. Indeed, God has made inviolable between yourselves your blood, your wealth, your honor just as He has made this day of yours inviolable, in this inviolable land of yours and in this inviolable month of yours.”

OPEC Plus oil quota reform increases dominance of gulf producers

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman earlier this month outlined one of the biggest reforms at OPEC in recent years and presented it as a reward for countries that invest in their oil industry.

The change clears the way for giving larger production quotas to OPEC Gulf members such as Saudi Arabia, the United Arab Emirates and Kuwait at the expense of African nations such as Nigeria and Angola.

Production quotas and baselines, from which production cuts are calculated, have been a sensitive subject within OPEC for decades as most producers want a higher quota so they can earn more from oil exports.

The shake-up is likely to become more extreme in the next few years as Middle Eastern state oil majors ramp up investments while production falls in African nations that have struggled to attract foreign investment.

Gulf producers, the holders of the little spare capacity in the global oil market, have long dominated OPEC.

Their power and influence has already increased in the last 15 years with their rising capacity, while African production has fallen as foreign investments have shrunk.

Unlike Gulf producers, African producers rely heavily on investment from international oil companies. Those companies have shunned Africa in recent years in favour of investment in the US shale patch and in prolific giant oilfields elsewhere such as offshore Brazil and Guyana.

In May, Saudi Arabia, the UAE and Kuwait's share of total OPEC production was over 10% higher than it was 15 years ago at 55%, according to OPEC production figures. Nigeria and Angola's total share over the same period has shrunk by over 3% to below 9%.

For Nigeria, capacity continues to be restricted by operational and security issues, combined with low investment levels, leading to decline, analysts at consultancy Wood Mackenzie said.

New field developments and recent discoveries in Angola will not be enough to stem long term capacity declines, they added.

In contrast, Saudi Arabia and the United Arab Emirates have plans in place to significantly boost their production capacity to 13 million bpd and 5 million bpd, respectively, by 2027 from current levels of about 12 and 4 million.

Fellow Gulf producer Kuwait on June 18 said it would boost its production capacity by 200,000 bpd by 2025 to reach 3 million bpd.

Capacity additions from the three Gulf countries over the 2020-25 period total a combined 1.2 million bpd, double the capacity that Nigeria and Angola are projected to lose over the same period, Reuters calculations find.

The two West African countries have lost nearly a quarter of their production capacity since 2019 as a result of underinvestment and security issues.

At its June 04 meeting, the Organization of the Petroleum Exporting Countries and allies, led by Russia, (OPEC+) overhauled production quotas for the majority of its members.

"In the final analysis what this agreement will achieve for all of us is that those who invest, not this year, but the years to come, 2024 and 2025 and moving forward, there will be a recognition for their investment," Prince Abdulaziz said.

While the majority of members of OPEC Plus got a lower production target, the UAE's was higher.

Richard Bronze, Head of Geopolitics at Energy Aspects, said one of the reasons behind the change was to address OPEC's previous credibility issues when policy changes were not necessarily reflected on oil markets.

"It meant that the actual supply increase or decrease resulting for a quota change would be far smaller than the announced figure, fuelling doubts in the market about the ability of the group to manage market fundamentals," he said.

 

 

Three scenarios surrounding Wagner mutiny

While the western analysts are offering all sorts of rationales, our readers are suggested to also consider three likely scenarios about the rebellion of Wagner's forces against the Russian army.

1- A possible deception plan by the Russian intelligence apparatus with the aim of diverting and draining the power and energy of enemy intelligence organizations as well as rival countries. In this case, the difference in the media narrative will deepen, some local operational tension will intensify, but from a functional point of view, the tension will not elevate to a strategic level.

2- Loyalty is what separates the Wagner unit and the Minister of Defense and the Chief of General Staff of the Russian Army. The former may be fake, the latter close to realty. In this case, based on the Russian approach and security-defense strategy, Prigozhin and his loyalists will be dealt with gradually but decisively.

3- A NATO-backed intelligence operation with the aim of disintegrating and weakening Russian forces. Prigozhin has coordinated with a foreign party. In this context, Wagner’s declared dispute is about greater loyalty to Russia, the effectiveness and efficiency of existing Russian defense and security approaches.

Any relationship with a Russian adversary will not flourish because it will highlight betrayal to Russia in alliance with an enemy.

This will lead to the collapse among the ranks of Wagner's forces. Part of NATO's goal will be achieved, but at the end of the day, it will consolidate Russia's defense and security superiority.

The important point is that Wagner, which is strongly dependent on the Russian defense sector, at least in the field of ammunition and logistics in the battlefield, will not be able to resist the Russia's powerful military.

 

Xi Jinping to fully support Vladimir Putin

China has voiced support for Russia after a short-lived insurrection posed the gravest challenge to the 23-year rule of Vladimir Putin, a close partner of Chinese leader Xi Jinping in his push for a new world order and strategic alignment against the United States.

A day after Wagner mercenary fighters turned back from their march toward Moscow, ending a brief and chaotic uprising by warlord Yevgeny Prigozhin, Beijing released its first comment on what Putin had called an armed rebellion.

“This is Russia’s internal affair,” a Chinese Foreign Ministry spokesperson said in a terse statement posted online late on Sunday night.

“As Russia’s friendly neighbor and comprehensive strategic partner of coordination for the new era, China supports Russia in maintaining national stability and achieving development and prosperity,” it said.

Beijing’s carefully crafted public comment came well after the brief mutiny had dissipated, with Prigozhin agreeing on Saturday to pull back his fighters in a deal with the Kremlin that would reportedly see him enter into exile in Belarus.

It also came after Russian Deputy Foreign Minister Andrey Rudenko flew to Beijing to meet with Chinese officials on Sunday, where the two sides reaffirmed their close partnership and political trust.

China’s Foreign Minister Qin Gang and Rudenko exchanged views on “Sino-Russian relations and international and regional issues of common concern,” the Chinese Foreign Ministry said in a one-line statement posted on its website, with a photo showing the pair walking side by side while smiling.

“The Chinese side expressed support for the efforts of the leadership of the Russian Federation to stabilize the situation in the country in connection with the events of June 24, and reaffirmed its interest in strengthening the unity and further prosperity of Russia,” the Russian ministry said in a statement.

According to the Chinese readout, Ma told Rudenko that under the leadership of Xi and Putin, the mutual political trust and cooperation between China and Russia had grown continuously.

“Under the complex and grim international situation, it is necessary to follow the important consensus reached by the two leaders, communicate in a timely manner, ensure the stable and long-term relationship between the two countries, and safeguard the common interests of both sides,” Ma was quoted as saying.

Xi, China’s most powerful leader in decades, has developed a close personal rapport with Putin over their shared ambition to challenge the US-led global order. The two autocratic leaders declared a friendship with “no limits” in February 2022, shortly before Putin launched his war on Ukraine.

Despite its claims of neutrality, China has refused to condemn the invasion and instead provided much-needed diplomatic and economic support for Russia, a position that has alarmed Western nations, especially in Europe.

In March, Xi and Putin made a sweeping affirmation of their alignment across a host of issues – and shared mistrust of the United States – during the Chinese leader’s first visit to Russia since the invasion.

“Right now there are changes – the likes of which we haven’t seen for 100 years – and we are the ones driving these changes together,” Xi told Putin as they bid farewell at the door of the Kremlin.

Three months on, the co-driving force for Xi’s vision has seen his grip on power severely challenged by an extraordinary show of defiance, shattering the veneer of total control the Russian leader has struggled to maintain.

“Although Russia’s nightmare came to an end temporarily yesterday, this incident will definitely hurt Russia and Putin’s image,” Jin Canrong, an international relations professor at Renmin University in Beijing, wrote Sunday on Weibo, where the Wagner insurrection was a top trending topic over the weekend.

Commenting on Twitter Saturday before Prigozhin aborted his insurrection, Hu Xijin, the former editor of the nationalist Global Times, said the “armed rebellion has made the Russian political situation cross the tipping point.”

“Regardless of his outcome, Russia cannot return to the country it was before the rebellion anymore,” he said in the Tweet, which was later deleted. 

 

Modi visit fuels concerns Biden putting human rights on back burner

Indian Prime Minister Narendra Modi’ state visit is fueling concerns from activist groups in the United States that the Biden administration has put human rights on the back burner.

During the visit, President Biden held back from public criticism of Modi’s handling of human rights and democratic values — issues that led a handful of progressive lawmakers to boycott his speech to a joint address to Congress.

The president, instead, rolled out the red carpet for Modi with a celebratory welcome and hug, a 21-gun salute and a state dinner with notable White House guests, a charm offensive underscoring India’s economic and foreign policy importance to the United States.

Biden had previously come under criticism last July for a fist bump with Saudi Crown Prince Mohammed bin Salman during a visit to Jeddah that advocates argue effectively ignored the Saudi government’s human rights abuses.

White House officials contend that tough conversations with allies behind closed doors — including Modi — are more productive than grandstanding and scolding in public. 

“The prime minister and I had a good discussion about democratic values. … We’re straightforward with each other, and — and we respect each other,” Biden said during a press conference alongside Modi at the White House on Thursday. 

But critics say that puts little pressure on governments and leaders like Modi to actually deliver on reforms.

The Indian leader in particular is criticized for failing to counter anti-Muslim hate and is cracking down on civil liberties and press freedoms — issues that strike at the core of respect for democratic governments. 

“I would argue that the administration needs to be more explicit about backsliding allies, practically recommitting themselves to fundamental freedoms and the respect for human rights as the basis for an evolving global order,” said Tess McEnery, who previously served as Biden’s director for democracy and human rights at the National Security Council.

During his campaign, Biden put human rights at the center of his foreign policy messaging and identified strengthening democracy — at home and abroad — as key to pushing back against autocratic governments such as Russia and China.

Yet in pushing back on Russia and China, the US also needs allies. And that has complicated efforts with human rights.

The White House sees India as an indispensable partner in its strategy with China; its population of 1.4 billion people is the only market that can compete with Beijing’s.

India represents a needed partner in the administration’s efforts to diversify supply chains away from China for critical materials such as semiconductors and rare earth minerals that are the building blocks of those technologies.  

Modi recognized the power that India holds during his address to Congress on Thursday.

“When defense and aerospace in India grow, industries in the states of Washington, Arizona, Georgia, Alabama, South Carolina, and Pennsylvania thrive. … When Indians fly more, a single order for aircrafts creates more than a million jobs in 44 states in America,” he said. “When an American phone maker invests in India, it creates an entire ecosystem of jobs and opportunities in both countries.”

The most robust applause from Congress came when Modi said the US was one of India’s most important defense partners — an important statement given American efforts to turn New Delhi away from its reliance on Russia’s defense industry and have it serve a bulwark against China’s growing military.

The US is home to a more than an Indian-American community of more than 4.5 million people — a key voting bloc that the president hopes to hold onto ahead of what is likely to be a fraught 2024 presidential election. 

“I think that President Biden is eager not to cede any of the, kind of, Indian-American community vote to the Republican Party,” said Daniel Markey, senior adviser on South Asia at the United States Institute of Peace (USIP).

Republicans and Democrats in Congress are largely united in supporting a robust US and Indian partnership. A bipartisan and bicameral grouping introduced legislation Thursday to fast-track weapons sales to India in recognition of Modi’s visit.

And while more than 70 House and Senate lawmakers raised concerns over Modi’s human rights record in a letter to Biden ahead of the visit, only a little more than a handful of progressive Democratic lawmakers boycotted the prime minister’s speech. 

“We are told that we must now turn a blind eye to the repression because of foreign policy concerns, even though human rights are supposed to be at the center of our foreign policy,”Ilhan Omar said during a policy briefing she hosted with human rights advocates after Modi’s address, which she boycotted. 

Among the most pressing criticisms against Modi’s rule is the criminal conviction against Indian opposition leader Rahul Gandhi, who was sentenced to two years in prison for negatively using Modi’s surname during a political rally in 2019.

 

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Advocates have also warned about freedom of speech and press freedoms in India in the wake of a tax raid on the offices of the BBC in India in March, and cases of journalists being jailed.

Freedom House, a nongovernmental organization that tracks democratic freedoms globally, rated India as partly free in its Freedom in the World report for 2023. The group claimed Modi’s government and his Hindu nationalist Bharatiya Janata Party has presided over discriminatory policies and a rise in persecution affecting the Muslim population.

“The constitution guarantees civil liberties including freedom of expression and freedom of religion, but harassment of journalists, nongovernmental organizations, and other government critics has increased significantly under Modi,” the group wrote. 

Jim McGovern, co-chairman of the Tom Lantos Human Rights Commission, argued that a balance can be met between calling out human rights concerns while also supporting the US-Indian relationship. 

“It’s because we value our friendship with the Indian people that we also have to speak the truth about human rights abuses in India that are ongoing, well-documented by credible observers and deeply troubling,” he said at the policy briefing hosted by Omar.  

“We don’t raise these issues to discredit India,” he continued. “We raise them because we know from our own experience that if human rights problems are not confronted and resolved, they will fester and deepen and undermine a country’s promise.” 

Markey, of the USIP, said the Biden administration prepared for blowback over the decision to keep criticisms against Modi in private, but added that its excessive references to sharing appreciation for democratic governance did itself no favors.

“I think they went even farther than maybe they needed to do, for Indian consumption,” he said. 

“They leaned into the shared-democracy issue, rather than pulling back from it,” Markey added. “They gave a lot of ammunition to those who would suggest that this is just pure hypocrisy at this point, rather than kind of edging around it.”

McEnery, who is now the executive director of the Project on Middle East Democracy, said the Biden administration needs to elevate defending democracy and human rights to an “interest” more than a value.

That would mean doing trade and economic deals centered on good governance principles, she said, or reforming arms and security relationships based on human rights. 

“I saw this firsthand a lot, where many good, hard-working people inside every arm of the US government, including the National Security Council, tried to make the case for democracy and human rights as a vital national security interest,” she said. “And I would see that shot down time and again by others throughout the government.”