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China's Li won't allow 'rollercoaster' markets after Brexit

Chinese Premier Li Keqiang said on Tuesday he wouldn't allow the post-Brexit panic that roiled global currencies and stocks to send the country's financial markets into a tailspin, an indication authorities would intervene if needed to prevent market chaos.

"It's hard to avoid short-term volatility in China's capital markets, but we won't allow rollercoaster rides and drastic changes in the capital markets," said Li, speaking at the World Economic Forum (WEF) in the city of Tianjin.

"It's important for all of us to work together to strengthen confidence, prevent the spread of panic, and to maintain the stability of capital markets."

The assurance came as the post-Brexit turmoil that swept global markets and sent the pound sterling to a three-decade low last week abated.

China's financial markets were subject to wild downturns in 2015 and early 2016 as regulators struggled to manage speculative investment and amid wider concerns about the economy.

However, some calm has returned to stock and currency markets after heavy intervention by authorities since then.

The yuan slumped to its weakest level against the dollar since December 2010 on Monday, but recovered slightly on Tuesday and equity markets have risen this week.

China's strict capital controls have helped shield Chinese stocks from the worst of the global market turmoil, which was triggered by Thursday's the Brexit vote, although confidence remains shaky.

Premier Li's comments followed messages from China's central bank that the yuan has been basically stable against a currency basket, as are market expectations for the currency.

Policymakers have said financial and economic reforms will continue and expect the direct impact on the Chinese economy to be limited.

Lou Jiwei, China's minister of finance, on Sunday described the initial market reaction as "knee-jerk" and "excessive" while Xu Shaoshi, head of China's top economic planner, expected the economic impact to be relatively small, despite some hit to investment, trade and capital.

However, some analysts expect China to see significant impacts from events in Europe, especially in foreign exchange markets.

"The Brexit situation...creates a little bit more financial markets volatility," said Craig Chan, Nomura’s head of Asia ex-Japan FX strategy.

"I can imagine the case that China becomes much more vulnerable than the numbers would suggest because exporters would be hoarding foreign currencies. So China is pretty vulnerable when it comes to external shocks or risk of deterioration in the external environment."

The Shanghai branch of China's foreign exchange regulator on Tuesday denied media reports that individuals were being barred from making certain foreign currency purchases.

German watchdog against London HQ for Boerse-LSE

The head of German financial market regulator Bafin on Tuesday came out against London as the main base for a merged group combining London Stock Exchange (L:LSE) and Deutsche Boerse (DE:DB1Gn).

"It is hard to imagine that the most important exchange venue in the euro zone would be steered from a location outside the EU," Felix Hufeld told a press briefing on the margins of a conference on financial technology.

Bafin answers to Germany's Finance Ministry. Although it cannot veto the deal, its opinion is influential.

Asked about euro-denominated trading in London after Britain's departure from the European Union, Hufeld said such trading should move to the EU and that it could take place in Frankfurt.

"I would see this as a significant political goal to think about steps to encourage this. It cannot be politically smart for a significant amount or a majority of euro-denominated trading ... to take place outside the European Union."

Surprise Brexit vote unleashes scramble for dollars

Britain's historic vote to leave the European Union sparked traders on Friday to scramble for dollars in an effort to buy U.S. bonds and to exit dollar-based bets based on U.K. voters favoring to stay in the bloc.

The dash for greenbacks drove up the cost for Wall Street to fund its dollar-based trades to the highest in nearly three months.

The stunning outcome in Thursday's Brexit referendum increased reluctance among money market funds and other cash investors to lend as global stock markets plunged.

"The front end of the market had been illiquid," Tom Simons, money market strategist at Jefferies & Co in New York said of reduced lending with the looming end of the second quarter. "Now it's a lot worse."

The U.S. Federal Reserve and other major central banks on Friday sought to assure investors by saying they are prepared to provide dollars through existing liquidity arrangements.

The interest rate in the $3.8 trillion repurchase agreement market, where traders raise short-term cash from investors by pledging securities as collateral, was last bid at 0.80 percent, which was the highest since 0.85 percent on March 31, according to ICAP (LON:IAP).

The overnight repo rate was quoted above 1 percent earlier Friday before retreating.

On Thursday, before the surprise outcome of the U.K. referendum, the repo rate ended at 0.60 percent.

"The funding pressure today was a panic in the repo market - the perception of a lack of liquidity," Wedbush Securities managing director Scott Skrym wrote in a research note.

The scramble for traders to borrow dollars was also seen in the currency market.

The cost premium on three-month cross-currency swap contracts, measured by the three-month London interbank offered rate on dollars over the three-month rate on euros, was quoted about minus 46 basis points on Friday, ICAP data showed.

This was the steepest premium for players to exchange euro-denominated payments for dollar-pegged payments since early December.

Banks and hedge funds use these swaps for currency bets, while U.S. companies use them to hedge their non-dollar denominated bonds.

Three-month dollar Libor fell 1.65 basis points to 0.6236 percent, its lowest since March 17, while its euro counterpart slipped to minus 0.29500 percent, a record low.

Friday's spike in dollar funding costs in the aftermath of the Brexit vote raised eyebrows but was not yet alarming, analysts said.

On Friday, investors trimmed their holdings of the Fed's fixed-rate reverse repos, which have been used as a safe-haven asset in times of market turbulence.

China central bank chief sees 'dynamic' monetary policy adjustments

People's Bank of China governor Zhou Xiaochuan said on Friday a more flexible yuan currency was important for China's development and reforms, and that monetary policy would be adjusted "in a dynamic way" to meet those goals.

Zhou, in a lecture at the International Monetary Fund, said the PBOC was listening to advice from foreign finance officials, but noted that the bank is pulled in many directions with multiple objectives, creating political "tensions."

"We are paying close attention to international discussions on Chinese monetary policy and will adjust our policy in a dynamic way to meet the demand of China’s economy, reform and development," Zhou said.

China had been criticized for years for keeping its yuan artificially low against the dollar, but since devaluations last August and in January roiled markets, the PBOC has spent hundreds of billions of dollars in foreign exchange reserves to prop up the yuan's value. Zhou also has pledged to avoid devaluations to gain a trade advantage.

Amid Friday's market turmoil in response to Britain's vote to leave the European Union that sank the pound, euro and yen, China's yuan <CNY=> rose slightly against the dollar.

Earlier on Friday in Beijing, the PBOC pledged to provide ample liquidity and keep the yuan stable.

Zhou said yuan exchange rate policy should serve China's "overall development strategy," including its transition to a market economy.

He added that it was important that "the exchange rate policy is meeting the higher requirement of the market economy. Which means that the exchange rate must be more flexible, and the convenience and flow of current account, capital account money can be more free."

But Zhou said the central bank's independence was sometimes under pressure due to its multiple objectives that create "tensions" with other government agencies. These include maintaining growth and price stability, maintaining the balance of payments, reforming the banking sector and developing financial markets.

"If a central bank has multiple objectives, it may be harder to be immune from the political reality," he said. "Ultimately the transition to a market economy will by and large be completed."

Once this happens, the PBOC's objectives will be simplified and it will become more like a western central bank, he said.

Regarding the "Brexit" vote, Zhou said more study was needed to fully understand the implications of the decision. But he emphasized the need for central banks and the IMF to communicate and coordinate actions to "safeguard the financial market stability and the global economy."

Indonesia considers onshore financial center after tax amnesty

Indonesia is considering forming a special region that will serve as an onshore financial center in which domestic firms can create shell companies without having to go to tax haven countries, its finance minister said late on Wednesday.

Southeast Asia's largest economy is in the early stages of overhauling its tax system. It has announced many plans that the government hopes will get more people to pay taxes and empower the tax authority, including a proposed tax amnesty.

Currently, only 27 million people of the 250 million population are registered taxpayers and around a million people filed tax reports.

Finance Minister Bambang Brodjonegoro told reporters that after the tax amnesty program ends, the region under consideration will allow Indonesian firms investing abroad to get lower tax rates and easier rules to open a financial company that would serve them as a special purpose vehicle (SPV).

The country's tax office has found at least 2,000 SPVs set up by Indonesians and 6,000 saving accounts in many tax haven countries, Brodjonegoro had said previously.

"We want our companies with offshore business to have their headquarters here, not in tax havens in other parts of the world, like Panama or Mauritius," he said, adding that the low tax rates would not apply to firms with onshore business.

The government has proposed to parliament to offer tax amnesty starting from July until the end of the year and has projected 165 trillion rupiah ($12.44 billion) of additional income from the program.

Under the scheme, the government will offer low rates for taxpayers who declare untaxed assets at home and abroad in order to broaden the country's tax base.

Brodjonegoro said parliament was close to reaching a decision on a bill backing the amnesty plan and may vote upon the bill before it goes into recess next week.

Britain votes on EU membership after tight and bitter campaign

Britons were voting on Thursday to decide the future of their country and Europe in a referendum on European Union membership that has divided the nation and is being nervously watched by financial markets and politicians across the world.

Opinion polls taken before the vote indicated the outcome is far too close to forecast.

Prime Minister David Cameron called the vote under pressure from his ruling Conservative Party and an increasingly powerful anti-EU party, hoping to put to rest decades of debate over Britain's place in Europe and its ties with Brussels.

Most polls put the "Leave" and "Remain" camps neck-and-neck at the end of a campaign that was dominated by immigration and the economy, and shaken by the murder of a pro-EU MP, though late on Wednesday two showed a swing to "Remain".

The "Leave" campaign says Britain's economy would benefit from a Brexit, or British exit from the EU. Cameron says it would cause financial chaos.

Traders, investors and companies are preparing for volatility on financial markets whatever the outcome of a vote that both reflects, and has fueled, an anti-establishment mood also seen in the United States and elsewhere in Europe.

Finance leaders from the Group of Seven leading economies will issue a statement stressing their readiness to take all necessary steps to calm markets if Britain votes to leave, government officials with direct knowledge of the preparations said.

Britain's AAA credit rating could be swiftly downgraded by Standard and Poor’s after a vote in favor of leaving the EU, S&P chief sovereign ratings officer Moritz Kraemer told German daily newspaper Bild.

Much will depend on turnout, with younger Britons seen as more supportive of the EU than their elders but less likely to vote.

"Go out and vote remain for a bigger, better Britain inside a reformed European Union," Cameron told "Remain" campaigners on Wednesday.

His main rival, former London mayor Boris Johnson, whose decision to support "Leave" galvanized its campaign, told voters this was the "last chance to sort this out".

Sterling rose to its highest so far this year against the U.S. dollar late on Wednesday after one poll pointed to a clear lead for "Remain" and betting markets priced in an 80 percent chance Britain would not leave.

Polling stations for 382 local counting areas opened at 0600 GMT and close at 2100, with most of the results expected between around 0100 and 0300 on June 24.

On Wednesday, campaigners from both sides tried to win over the estimated 10 percent of the 46.5 million electorate who polls suggest had still not decided how to vote.

The "In" campaign took aim at their rivals by saying a Brexit would hurt the economy, security and the country's status. The "Out" campaign said high levels of immigration could not be controlled inside the EU and it was time to bring powers back from Brussels to London.

"If we don't vote to leave tomorrow we will remain locked in the back of the car, driven in an uncertain direction, frankly, to a place we don't want to go and perhaps by a driver who doesn't speak the very best of English," said Johnson, a leading candidate to replace Cameron as prime minister.

FOREIGN LEADERS

The killing of lawmaker Jo Cox last week as she prepared to offer advice to those who elected her in northern England, prompted a pause in the campaign and soul-searching about its tone. Her husband said she had been concerned about the coarsening of political dialogue.

The man charged with her murder, asked his name in a London court, responded: "My name is death to traitors, freedom for Britain".

Opinion polls have depicted a deeply divided nation, with big differences between older and younger voters, and between pro-EU London and Scotland, and eurosceptic Middle England.

That split was reflected in British newspapers' front pages. "Independence Day" was the front page headline of the Sun tabloid, Britain's biggest-selling newspaper, while the Daily Mirror warned "Don't take a leap into the dark".

The issue dominated the news far beyond Britain. In China, the Global Times, published by the ruling Communist Party's official People's Daily, warned Britain would lose its influence globally if voters backed a so-called Brexit.

Whatever the outcome of the vote, the focus on immigration to Britain, which has increased significantly in recent years, could worsen divisions in a country where the gap between rich and poor has also been widening.

If Britain chooses to leave, Scottish leader Nicola Sturgeon has suggested Scotland may call a referendum on leaving the United Kingdom.

Even with a vote to stay, Cameron could struggle to repair the rifts in his party and hold on to his job.

Foreign leaders, from U.S. President Barack Obama to Chinese leader Xi Jinping, have called on Britain to remain in the EU, a message supported by global financial organizations, many company bosses and central bankers.

International banks have warned that the value of the pound could fall dramatically if Britain votes to leave the EU and traders expect markets to be more volatile than at any time since the 2008-09 financial crisis.

The "Out" campaign says a fall in the value of the pound would boost exports and has found support among some financial specialists and small businesses. It has urged voters to ignore what it calls the "establishment" which it says has the most to lose from Brexit.

The EU has struggled with migrant and economic crisis and a Brexit vote would boost opposition to it within other member states.

"Stay with us," European Council President Donald Tusk said in Lisbon on Monday, addressing British voters.

"Without you, not only Europe, but the whole Western community will become weaker. Together, we will be able to cope with increasingly difficult challenges of the future."

5 Things to Watch on the Economic Calendar This Week

In the week ahead, market players will be turning their full attention to a highly anticipated referendum on whether Britain remains in the European Union on Thursday.

Prior to the referendum, Federal Reserve Chair Janet Yellen’s monetary policy testimony in Congress on Tuesday and Wednesday will attract the markets’ attention.

In terms of U.S. data, existing and new home sales as well as durable goods orders will be in focus as traders attempt to gauge the health of the economy.

Elsewhere, investors will be looking to Thursday’s survey data on euro zone business activity, as well as a pair of reports on German business confidence, for fresh indications on the health of the region’s economy.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. British EU referendum

The U.K. will vote on a referendum to decide if it continues to be a part of the European Union on Thursday, with polls closing at 21:00GMT. The result will likely be projected early Friday, before the official vote count is announced, based on preliminary vote counts and exit polling.

The June 23 vote could have big implications for the global economy. Analysts say if the vote is to leave, the pound could drop sharply, stocks and commodities would sell off, while safe-havens, like gold and bonds, will see increased demand. A vote to stay may have the opposite effect, causing a snap back in the pound and risk assets and a sell-off in bonds.

Voters in the U.K. appear to be evenly split on whether to support a departure by the U.K. from the European Union. While the "Remain" campaign held as much as a 70-30 lead several months ago, the "Leave," vote has surged ahead in several prominent polls last week.

2. Fed Chair Yellen testifies

Federal Reserve Chair Janet Yellen is set to deliver her semi-annual monetary policy testimony on the economy before Senate and House committees in Washington DC on Tuesday and Wednesday.

Yellen is scheduled to testify on the economy before the Senate Banking Committee at 14:00GMT, or 10:00AM ET, Tuesday. On Wednesday, Yellen will appear in front the House Financial Services Committee also at 14:00GMT, or 10:00AM ET.

Little news is expected from the Fed chair, after the U.S. central bank released updated forecasts on the economy and interest rates following last week’s policy meeting.

3. U.S. housing, durable goods data

The National Association of Realtors is to release data on existing home sales for May at 14:00GMT, or 10:00AM ET, on Wednesday, amid forecasts for a gain of 1.1% to 5.54 million, following an increase of 1.7% a month earlier.

On Wednesday, the Commerce Department is to publish a report on new home sales for May at 10:00AM ET. The data is expected to show a drop of 8.0% to 565,000, following a jump of 16.6% in April.

The U.S. is to close out the week with a report on May durable goods orders at 12:30GMT, or 8:30AM ET, Friday. The data is expected to show that orders for durable goods slumped 0.5% last month, following a gain of 3.4% in April, while core orders are forecast to inch up 0.2% after rising 0.5% a month earlier.

4. Flash euro zone PMIs for June

The euro zone is to publish preliminary data on manufacturing and service sector activity for June at 08:00GMT, or 4:00AM ET, on Thursday, amid expectations for a modest decline.

Ahead of the euro zone PMI's, France and Germany will release their own PMI reports at 07:00GMT and 07:30GMT respectively.

5. German business surveys

A pair of reports on June German business sentiment will also be in focus. The ZEW Institute will publish its German business climate index at 09:00GMT on Tuesday, while theIfo research institute will release its own report at 08:00GMT on Friday.

Brexit could lead to political instability in EU: ECB's Makuch

Britain's departure from the European Union could lead to political instability within the bloc and slow down further integration, European Central Bank Governing Council member Jozef Makuch said.

The referendum on Thursday could also lead to financial market instability but the ECB will act to reduce market volatility as it has "done many times in the past," Makuch, who is also Slovakia's central bank chief, told reporters.

Financial markets around the world are on edge ahead of the June 23 referendum.

"We see the risk of Brexit in three areas: political instability that could occur in countries with strong eurosceptic parties, which could lead to a local political instability," Makuch said, citing Spain as an example.

"There is possible instability linked to the speed of integration," he added. "There are issues that require a unanimity which would be problematic to reach in case of uncertainty."

Potential market instability was the ECB's biggest worry but it has the tools to act and tailor its response, Makuch said.

The world's biggest central banks have an unlimited swap agreement, allowing them to maintain currency convertibility even if markets fail.

Sources earlier told Reuters that the ECB would pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union.

While acknowledging the potential instability from Brexit, the ECB was already reviving both growth and inflation with its extraordinary stimulus, Makuch said, calling for patience with already approved measures.

Hoping to revive the 19-member euro economy, the ECB has cut rates deep into negative territory and buys 80 billion euros ($90 billion) worth of assets per month.

"If we conclude that these tools are not effective enough, we will consider either their recalibration or new tools," Makuch said in comments authorized for release on Monday.

"It's equally likely that we won't need to recalibrate the tools because the present tools will have a sufficient impact on the market, and GDP (gross domestic product) and inflation growth will be so satisfactory that there won't be a need to continue," he said. "It's too early to say which of these two scenarios is correct. We need to be patient."

IMF revives idea of euro zone budget to support reforms

The International Monetary Fund called on Thursday for the creation of a fund to help finance structural reforms in the euro zone, echoing ideas floated by the European Commission in 2012 but subsequently dropped in the face of German opposition.

IMF Managing Director Christine Lagarde said however, the central pool of money for the benefit of the euro zone could only be made available to countries that respect the EU's budget rules laid out in the Stability and Growth Pact (SGP).

"My idea is that in exchange for complying with the Stability and Growth Pact, for complying with commitments on structural reform, in return for that, countries would be pooling budgetary resources in a common pot which could be used for projects and certain operations," Lagarde said.

Structural reforms are key to boosting the euro zone's growth rates and making its economies more resilient to shocks, she said.

She said the common pot of money could be used in a similar way as the cash of the European Fund for Strategic Investments, which uses a relatively small amount of EU money to attract 15 times more from private funds to finance concrete investments.

The new, centrally financed initiatives could "help offset upfront net costs of structural reforms," the IMF said in a report on the economy of the 19 countries sharing the euro.

Speaking after talks with euro zone finance ministers, Lagarde told a news conference the new fund could pay for projects related to migration, refugees, security, energy and climate change.

The idea of a euro zone budget was first floated in November 2012 by the European Commission in a report on how to complete the Economic and Monetary Union.

The Commission said at the time that "a dedicated fiscal capacity for the Euro Area should rely on its own resources and provide sufficient support for important structural reforms in large economies under stress."

But the idea was dropped in later reports on the future of the euro zone, prepared by several EU institutions, because Germany and its allies believed it would be wrong to provide financial incentives to countries for reforms they had to do anyway for their own good or were obliged to by EU law.

Germany, Estonia and Luxembourg are the only EU countries that have posted budget surpluses since 2014.

Lagarde said the pooling of budgetary resources could put these surpluses to good use.

"That really calls on those that can make those surpluses available to others to actually do so," she said. "The IMF just said what it thought about how Germany could use its fiscal space which we continue to believe it has, so we gave a few ideas of our own," she said.

Asian shares face weekly losses, sterling steadies as Brexit risk seen ebbing

Asian shares rose on Friday but were set for weekly losses as investors favored safe haven assets because of fears that Britain will vote to quit the European Union, though the killing of a pro-EU politician was seen swaying sentiment toward the "Remain" camp.

European shares are also poised for a strong start, with financial spreadbetter IG expecting Britain's FTSE 100 to open 0.8 percent higher and Germany's DAX to start the day up 1.1 percent.

Campaigning for Thursday's referendum, which overshadowed this week's U.S. and Japanese central bank meetings, was temporarily halted after a British member of parliament, Jo Cox, was shot and fatally wounded on Thursday.

The recently volatile pound rose 0.4 percent to $1.4255 with analysts noting the pro-membership MP's death could generate sentiment in favor of remaining in the EU.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6 percent, but was down nearly 2.7 percent for the week.

China's CSI 300 index advanced 0.5 percent, and the Shanghai Composite added 0.4 percent. That helped them shrink losses for the week to 1.7 percent and 1.5 percent respectively.

Hong Kong's Hang Seng gained 0.5 percent, but is set for a weekly decline of 4.3 percent.

Wall Street marked gains overnight, with the benchmark S&P 500 index erasing sharp intra-day losses to snap a five-day losing streak.

"Investors are considering the risk of Brexit to have been lowered, both by reports that European hedge funds believe Brexit will not get up and, secondly, that the shooting (of Cox) has played against the Brexit vote," said Angus Gluskie, managing director of White Funds Management in Sydney.

Japan's Nikkei stock index closed up 1.1 percent, taking back some of its steep losses. But Japanese shares still shed more than 6 percent in a week in which the safe-haven yen soared after the Bank of Japan decided against delivering additional stimulus to counter waning inflation and weak global growth.

"Continued inaction by the BOJ in the face of these risks only reinforces the market's suspicions that the central bank is running out of policy options, feeding back into a stronger yen," HSBC economist Izumi Devalier said in a note.

Japanese Finance Minister Taro Aso said on Friday that he was deeply concerned about "one-sided, rapid and speculative moves" seen in the currency market and would respond if necessary to ensure stability in currencies.

The dollar clawed back some lost ground on Friday, rising 0.1 percent to 104.36 yen, but it was still down 2.4 percent for a week in which it dropped as low as 103.555. That was its deepest low since August 2014.

The dollar index, which tracks the greenback against a basket of six major peers, also slipped 0.1 percent, and is set for a weekly decline of the same magnitude.

The euro added 0.3 percent to 117.395 yen, but was still down 2.4 percent for the week. On Thursday, it plumbed a three-year low of 115.51.

The Federal Reserve also stood pat on policy on Wednesday, though it signaled it still planned to raise rates twice in 2016. But it also downgraded its economic view, and said slower growth would slow the pace of future monetary policy tightening.

Crude oil prices rose for the first time in seven days as Brexit concerns ebbed, after losses of almost 4 percent overnight.

U.S. crude rose almost 1 percent to $46.66 a barrel, and Brent crude climbed 1.4 percent to $47.85. Both recorded losses of about 10 percent over the previous six sessions. [O/R]

Gold also advanced 0.4 percent to $1,283.33 an ounce following wild swings overnight.Spot gold surged to a near-two-year high of $1,315.55, but closed down 2.8 percent from that level as markets bet on growing support for Britain to remain in the EU. It is set to rise 0.8 percent this week, its third consecutive weekly gain.