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Action Insight: Special Reports

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Upbeat Chinese PMI Reflects Feed-Through Of Stimulus, More In 2H14 Print E-mail
Special Reports | Written by | Jul 25 14 02:42 GMT
Chinese economic growth has shown signs of gathering momentum again, thanks to the government's stimulus measures. Following the better-than-expected 2Q14 GDP growth, the preliminary manufacturing PMI by HSBC/Markit showed a rise to 52, the highest level in 18 months, in July from 50.7 a month ago. This suggested that the impact of the 'mini-stimulus measures' implemented earlier in the year filtering through. We expect the government to continue to add more stimuli to the market so as to boost growth for achieving this year's GDP growth target at around +7.5%.
RBNZ Announced Last Rate Hike Before Pause To Assess Impacts Print E-mail
Special Reports | Written by | Jul 24 14 06:01 GMT
The RBNZ raised the OCR for a 4th consecutive time, by +25 bps to 3.5%, in July. The central bank also signaled to pause in coming months so as to assess the impact of the first 100 bps of policy normalization. Yet, the outlook of the monetary policy continues to be tightening. On the economic outlook, the central bank remained about the economy, expecting growth of +3.7% across 2014. Concerning slower growth in New Zealand’s trading partners in early 2014, the RBNZ noted it was driven by temporary factors. Policymakers also noted a more moderate inflation outlook. Kiwi, the level of which was judged as “unjustified and unsustainable', dropped modestly after the announcement although the decision came in line with expectations. We forecast the RBNZ to tightening in December.
BOE Minutes Toned Down Rate Hike Speculations Print E-mail
Special Reports | Written by | Jul 23 14 10:13 GMT
Despite rising growth momentum, BOE policymakers remained divided on whether when to start tightening. As shown in the minutes for the July meeting, the members unanimously voted to leave the Bank rate unchanged at 0.5% and the size of the asset purchase program at 375B pound. There were discussions about an early rate hike but no consensus had been reached. While some believed risks that a rate hike would undermine the recovery were decreasing, others did not think a rate hike is imminent as there were few signs of rising inflationary pressures. The pound fell against the euro as the minutes turned out be less hawkish than previously anticipated.
RBNZ To Tighten Again In July, Might Pause Afterwards Print E-mail
Special Reports | Written by | Jul 22 14 04:14 GMT
Despite recent weak economic data, the RBNZ is expected to raise the OCR by another +25 bps to 3.5% in the July meeting. With second quarter inflation weaker than expected while dairy prices continued to fall, the central bank's decision in July would be more difficult. Yet, the current level of policy rate has remained stimulatory in the central bank's perspective and it would not want to hurt its credibility by announcing to pause this month. However, the accompanying statement might be less hawkish and indicate a pause of tightening until December 2014 or January 2015.
BOC More Dovish Than Expected, Warned Of Sluggish Growth Print E-mail
Special Reports | Written by | Jul 17 14 03:19 GMT
The BOC left the policy rate unchanged at 1% in July and maintained a neutral tone on the monetary policy outlook. Despite the recent pickup in inflation, the central bank attributed it to temporary factors such as 'higher energy prices, exchange rate pass-through and other sector specific shocks'. , rather than to any change in the domestic economic fundamentals'. That said, they removed the reference that there remained 'downside risks' on inflation. Policymakers were concerned about the economic growth, seeing 'substantial slack' in the economy and expecting a delay in closing of the output gap than previously anticipated. At the Monetary Policy Review (MPR) released, the BOC revised higher inflation outlook for this year but lower for 2015. GDP growth was revised lower for this year.
Chinese Growth Beat Expectations In 2Q14, Thanks To Stimulus Print E-mail
Special Reports | Written by | Jul 16 14 11:29 GMT
China's GDP grew +7.5% y/y in 2Q14, accelerating from +7.4% in the prior quarter. The National Statistics Bureau also reported that the sequential GDP growth soared to +8.2% q/q, saar in the second quarter, compared with +6.1% in the priod quarter.. On quarterly basis, growth accelerated to +2% q/q from an upwardly revised +1.5% in 1Q14. China's GDP grew more than expected in 2Q14, thanks to the government's fiscal and monetary stimulus. Meanwhile, economic data in June suggested that growth fixed asset investment and industrial production accelerated, indicating the stimulus began to take effect during the period. While the government probably feels less imminent to adopt further easing given the encouraging second quarter result, more stimuli are still needed as downside risks to growth remained, evidenced by slowing electricity production growth and a drop in the government's VAT revenue.
Yellen Assured Rates To Stay Low For Some Time While Hinted Early Tightening Should Employment Improve Further Print E-mail
Special Reports | Written by | Jul 16 14 05:50 GMT
In the semi-annual testimony before the Senate Banking Committee, Fed Chairman Janet Yellen reiterated that 'a high degree of monetary policy accommodation remains appropriate'. While acknowledging the 'notable improvements' in the job market, Yellen warned that 'significant slack remains'. Meanwhile, the chairman noted that the economy 'continues to improve' but warned that 'the recovery is not yet complete'. It appears that Yellen attempted to downplay speculations of an earlier than expected rate hike upon recent improvement in the US economic data. Market reaction was volatile, in particular when Yellen commented that rate hike would come sooner if the 'the labor market continues to improve more quickly than anticipated'.
RBA Finds It Hard To Judge The Effect Of Decline In Mining Investment And Budget Tightening Print E-mail
Special Reports | Written by | Jul 15 14 05:29 GMT
The RBA minutes for the July meeting contained little new information. However, it revealed that policymakers remained uncertain about the economic outlook. While monetary easing has been working to boost demand, it is hard to gauge the impacts of the decline in mining investment and planned fiscal consolidation on the economy. Despite improvement in the employment condition, the forward-looking indicators have been mixed. The RBA reiterated that Australian dollar has been strong and warned of the negative impacts on the economy.
Fed To End Tapering In October, No Hints On First Rate Hike Print E-mail
Special Reports | Written by | Jul 10 14 02:14 GMT
The FOMC minutes for the June meeting was non-eventful with policymakers giving little guidance on the expected timing of any rate hike cycle. It was revealed in the minutes that the Fed would make a US$15B final reduction at its October meeting. Yet, the conclusion of the program has nothing to do with the timing of the first rate hike. The Fed reiterated that the policy rate would remain near zero for a "considerable time". The general economic outlook of the Committee was more or less the same as that in March. Despite the downward revision to 2014 growth outlook, most members did that to reflect the weak GDP report in 1Q14. They mainly kept the remainder of their forward-looking estimates unchanged.
Benign Inflation Presents No Constraint For PBOC's Easing Print E-mail
Special Reports | Written by | Jul 09 14 09:19 GMT
Headline CPI in China moderated to +2.3% y/y in June from +2.5% a month ago. This was compared with market expectations of a milder ease to +2.4%. The disappointment was mainly driven by food price inflation which decelerated to +3.7% y/y in June from +4.1% in May. Non-food inflation stayed flat at +1.7% y/y. Underlying inflation pressure in China should remain benign and is overall CPI inflation is expected to stay well-below the +3.5% target set by the government. Meanwhile, soft inflation pressure should not constrain PBOC's monetary easing and policymaker should implement stimulus in the form of rate cut or RRR cut to lower the funding cost and bolster growth
Benign Inflation Dragging The Feet Of BOE Print E-mail
Special Reports | Written by | Jul 07 14 11:15 GMT
While it is widely anticipated that the BOE would leave the Bank rate unchanged at 0.5% in July, the economic backdrop has become more encouraging for a rate hike. Strong PMI in June signaled that GDP growth in 2Q14 might have reached +1%, up from +0.8% in the prior quarter. Meanwhile, the employment market has remained upbeat with the headline ILO-harmonized unemployment rate falling to 6.6% in the 3 months through April from 6.8% previously. The Claimant unemployment rate also dropped to 3.2% in May, the lowest since October 2008. Yet, after going through the stubbornly-high inflation period, UK's inflation outlook has remained benign in the near-term. Indeed, subdued producer price pressures, weakness in food prices, strong currency, and restrained earnings growth are expected to constrain inflation to below the BOE's target this year and next. This has complicated the central bank monetary policy stance. While low inflation pressure has allowed policymakers more rooms to not tightening immediately, stronger-than-expected economic recovery has raised expectations for rate hike. We expect the BOE to begin tightening before the end of the year.
ECB Clarified On TLTRO, Loose Conditions Should Raise Sentiment Print E-mail
Special Reports | Written by | Jul 04 14 03:26 GMT
In the July meeting, the ECB mainly focused on the technical details of the easing measures it announced in the previous month. What the market concerned the most was the constraints that the central bank would impose on banks as they attempt to recycle the proceeds of the TLTRO. President Draghi indicated that there wouldn’t be any constraint of this nature. Draghi also suggested that the aim of lowering the deposit rate into negative territory was to keep the corridor at 25 bps and to avoid any negative repercussions on interbank market volume that could follow any further narrowing. On the preparatory work related to outright purchases of ABS, he noted that a precondition for the ECB to launch such program is a reduction in regulatory capital requirements for financial institutions’ ABS holdings. Moreover, the ECB announced that it would reduce the frequency of its meetings to once every 6 weeks from January 2015 onward and it would publish regular accounts of the policy meetings.
ECB To Stand On Sideline While Risks To Growth Intensifying Print E-mail
Special Reports | Written by | Jul 02 14 06:00 GMT
It is widely expected that the ECB would stand on the sideline in July. Policymakers would take more time to assess the impacts of the stimulus package announced last month. President Draghi would mainly focus on providing more details on the design and expected impact of the measures announced in the June meeting and probably the preparatory work on small scale asset purchases (ABS). However, with the Eurozone's inflation staying at recession level, policymakers are obliged to take more actions going forward.
RBA On Hold Until 1Q15‏ Print E-mail
Special Reports | Written by | Jul 01 14 05:53 GMT
The RBA left the cash unchanged a 2.5% for a 10th month in June. Against the backdrop of a decline in consumer confidence since the release of the Federal Budget and sluggishness of the retail sector, Governor Glenn Steven indicated that it would be prudent to leave the monetary policy as it is for an extended period of time. We expect the central bank to stand on the sideline for the rest of the year and in 1Q15.
BOJ Unlikely Moved By Inflation Data Print E-mail
Special Reports | Written by | Jun 30 14 11:12 GMT
The nationwide inflation CPI rose to +3.7% y/y in May, up from +3.4% in April. Core CPI (excl. fresh food) rose to +3.4% from +3.2% in April while core-core CPI (excl. food and energy) gained +2.2% after April’s +2.3% Adjusted for the effect of April’s consumption tax hike, the core and core-core readings probably rose +1.4% (April: +1.5%), and +0.5% (April: +0.8%) respectively. While both nationwide headline and core inflation accelerated in May, core-core inflation actually peaked. Meanwhile, the month-over-month nationwide headline CPI was mainly driven by petroleum products, public utilities fees and public services, rather than durable goods and general services (excl. public services). The core Tokyo CPI, leading indicator of nationwide inflation, rose a 14th month to +2.8% in June, after the same increase in May. Excluding April VAT hike, the core reading rose +0.9% y/y.
RBNZ To Hike OCR For Third Consecutive Month Print E-mail
Special Reports | Written by | Jun 10 14 11:12 GMT
A further hike of +25 bps in the OCR to 3.25% by the RBNZ in June is largely priced in. While recent economic indicators have shown some resistance to New Zealand's growth, others suggested that the country's recovery remained on track. We expect the central bank would largely maintain the stance made at the March MPS, i.e. that the outlook for the economy and inflation pressures indicates that further normalization of monetary policy is needed over time. While we expect the chance another rate hike in July is 50/50, we believe further tightening would seen in November and December.
Chinese Monetary Easing to Continue Despite Upside Surprise in Inflation Print E-mail
Special Reports | Written by | Jun 10 14 10:41 GMT
The People's Bank of China announced a targeted 50bp RRR cut, effective on June 16, for qualified banks so as to supporting micro and rural loans. New rural-related loans accounting for no less than 50% of total new loans issued in 2013, and rural-related loan balance as a percentage of total loan balance exceeding 30% as of end-2013 OR banks' MSE exposure meeting the same specific ratios, i.e. 50% of new loans and 30% of total loan balance, can enjoy this preferential treatment. The central bank suggested that around 2/3 of city commercial banks, 80% of non-county rural commercial banks and 90% of non-county rural cooperative banks. The PBOC also reduced the RRR for finance companies, financial leasing companies and auto finance companies by -50 bps. These measures follow the -200 bp RRR cut for county-level rural commercial banks and -50 bp cut for rural cooperatives announced on April 22.
ECB Announced A Huge Package Of Easing, Focusing Of Reducing Funding Cost Print E-mail
Special Reports | Written by | Jun 06 14 04:02 GMT
The ECB announced a package of easing measures at the June meeting. Through rate cuts, targeted long-term refinancing operations (TLTRO) and extensions of for the main refinancing operations (MRO), the central bank intended to boost growth in the real economy through lowering banks' funding costs. At the press conference, President Mario Draghi hinted that further rate cuts are less likely while opening the door to the so-called 'private QE' as he talked about the 'preparatory work on ABS purchases'. The euro rebounded after an initial selloff as policymakers signaled that they would take quite some time to assess the impacts of these measures, meaning that no further easing in the near future.
BOC Acknowledged Faster-Than-Expected Pickup In Inflation, But Warned Of Downside Risks Print E-mail
Special Reports | Written by | Jun 05 14 03:16 GMT
The BOC left the policy rate unchanged at 1% in June but acknowledged that headline inflation has risen back to target 'sooner than anticipated' while core 'has drifted up slightly'. Yet, it also warned of the downside risks stemming from slowdown in global economic growth. Specifically, the central bank indicated that growth in the US, its largest trading partner, may not be as strong as expected. On the monetary policy outlook, policymakers reiterated that 'the timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks'.
RBA Left Cash Rate At 2.5%, But Warned Of Strong Aussie Despite Drop In Commodity Prices Print E-mail
Special Reports | Written by | Jun 03 14 08:39 GMT
The RBA without surprise left the cash rate unchanged at 2.5% and maintained a neutral bias in the monetary statement. Policymakers were modestly more optimistic over the economic developments and anticipated improvement in the outlook for non-mining capex. A notable change was seen in the reference to the exchange rate. While continuing to warn against the strong AUD, the central bank highlighted the decline in commodity prices relative to stability in exchange rate. The RBA would maintain interest rates at the current levels for the rest of the year.
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