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Action Insight: Special Reports

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FOMC Signaled Rate Hike To Come 'Fairly Soon' Print E-mail
Special Reports | Written by | Feb 23 17 04:14 GMT
The FOMC minutes for the January meeting were a hawkish one. Many members expressed the view that it would be 'appropriate' to increase interest rate again 'fairly soon'. A few of them suggested removing policy accommodation in 'a timely manner'. However, there was no indication that it should arrive in as soon as March. Indeed, more clarity on the fiscal stimulus plan is needed before the members could decide on the timing of the rate hikes. While the general outlook to the economy remained upbeat (the description on the employment market was especially constructive),'a few' members were concerned about downside risks to the inflation outlook.
RBA Minutes: Cautious Over Subdued Household Consumption Print E-mail
Special Reports | Written by | Feb 21 17 07:16 GMT
RBA minutes for the February meeting contained little news. Indeed, it reinforced our view that the central bank would leave the monetary policy unchanged for the rest of the year. The market currently prices in further rate cut this year, followed by rate hike in 2018. The central bank acknowledged the -0.5% GDP contraction in 3Q16. While attributing most of the weakness to temporary factors including 'disruptions to coal supply and bad weather', policymakers also warned that 'slower growth in consumption had also been a factor'. However, they assured that such weakness should not have continued into 4Q16. On the growth outlook, the central bank suggested that 'GDP growth was expected to pick up to around +3% in year-ended terms later in 2017, and to remain above estimates of potential growth over the rest of the forecast period'
China Watch: January Money And Inflation Data Print E-mail
Special Reports | Written by | Feb 20 17 11:00 GMT
In PBOC's latest set money report, China's new renminbi loans rose to RMB 2.03 trillion in January. However, it came in below consensus of RMB 2.44 trillion and RMB 2.5 trillion the same period last year. Although it is usual for new loans to be high earlier in a year as banks front-load their loans for profit maximization, the January figure missed expectations as lending to non-bank financial institutions fell for the month. Outstanding renminbi loans growth decelerated to +12.6% y/y, from +13.5% in December. Medium and long term corporate bank lending, a barometer of corporate sector demand, increased +43.4% y/y to RMB 1.52 trillion, whilst medium- and long-term household loans, mainly mortgage loans, rose to a record high of RMB 0.63 trillion. This suggests that PBOC's recent tightening measures have yet to feed through the housing market. We believe a few months' data would be needed to see the effectiveness of these measures.
Swiss Franc To Strengthen Further Despite Negative Rates And Intervention Print E-mail
Special Reports | Written by | Feb 17 17 10:41 GMT
SNB's sight deposits added +3.81B franc, or +0.71%, to 539B franc, in the week ended February 8. This marks the biggest increase since November when the central bank intervened in the aftermath of Donald Trump's victory. The move this time was, again, to curb the strength of the franc with EURUSD breaking below the support level of 1.0676/84 in late January. There are several reasons that have triggered the recent EURCHF selloff: intensifying political risks associated with upcoming elections in the Eurozone, rising of Swiss bonds yields alongside German ones, and concerns over US' accusation of currency manipulation. We retain our forecast that EURCHF would weaken further. While SNB's intervention would continue, the central bank is likely more tolerable over modest franc appreciation given better domestic economic developments
US-Japan Summit And Yellen's Testimony Affirm Yen's Weakness Print E-mail
Special Reports | Written by | Feb 16 17 10:15 GMT
USDJPY's rally since early February indicates that the correction from the 2016-peak (118.66) made on December 15 is ended at 111.57 on February 7. We remain bullish over the currency pair (i.e. expecting Japanese yen to weaken against US dollar). As we mentioned in our January report, reflation trade, driven by US President Donald Trump's pro-growth policy, such as infrastructural spending, tax cut and deregulations, has driven USD's rally against major currencies since Trump's victory. Hopes that the measures would drive US growth and inflation have lifted speculations on Fed funds rate hikes this year, sending Treasury yields and USD higher. Meanwhile, BOJ's yield curve targeting policy, announced in September last year, would keep the 10-year JGB yields close to 0%. These would help accelerate divergence of Japanese yields from those in the US, pressuring Japanese yen. Recent developments appear to have reinforced such conviction.
Yellen Raised Hopes Of March Rate Hike Print E-mail
Special Reports | Written by | Feb 15 17 05:53 GMT
Investors viewed Fed Chair Janet Yellen's testimony before the Senate Banking Committee as modestly hawkish. As such, expectations for a March rate hike rose modestly while Treasury yields climbed higher. While reiterating that all meetings are 'live' for a rate hike, Yellen warned that waiting too long to remove accommodation would be unwise'. Meanwhile, she cautioned over the uncertainty over the economic policy under Donald Trump's administration. Yellen emphasized the Fed's monetary policy stance is not based on 'speculations' about fiscal policy. The economy's 'solid progress' is what is 'driving the policy decisions'.
China Watch - PBOC's Rate Hikes, FX Reserve Broke Below US$ 3 Trillion, Trade Surplus Print E-mail
Special Reports | Written by | Feb 10 17 14:34 GMT
PBOC's move earlier this month to increase interest rates for its standard Open Market Operations (OMO) and Standing Lending Facility (SLF) has sparked speculations of monetary tightening. On February 3, the central bank announced to raise interest rates of 7-, 14- and 28-day reverse repos by +10bps each to 2.35%, 2.5% and 2.65% respectively. At the same, the overnight SLF rate was lifted to 3.1% from 2.75% previously. It was also reported that SLF rates for those banks that fail Macro-prudential Assessment (MPA) requirements is increased by +100 bps.
RBNZ's Rate Hike Path Still Lags Market Expectations Print E-mail
Special Reports | Written by | Feb 09 17 06:50 GMT
As expected, RBNZ left the OCR unchanged at 1.75%, following three rate cuts in 2016. The policy statement has changed to a more neutral tone from an accommodative one previously. Yet, the central bank's rate hike forecasts stay at a slower pace than what the market has priced in. Policymakers acknowledged that economic growth has 'increased as expected and is steadily drawing on spare resources'. The outlook remain s positive. It also acknowledged the return of headline CPI to the target band, and judged it would gradually move to the midpoint of the band. We expect the OCR would stay unchanged for the rest of the year.
RBA Sees Contraction In 3Q16 As Temporary, Maintains Neutral Stance Print E-mail
Special Reports | Written by | Feb 07 17 05:31 GMT
As widely anticipated, RBA left its cash rate unchanged at1.5% in February, its first meeting in 2017. Policymakers acknowledged improvement in the global economic outlook. They also retained the view that the domestic economy would growth above-trend. The overall monetary stance is neutral, signaling the central bank is in no hurry to adjust the policy. The market is closely awaiting Governor Philip Lowe's speech on Thursday and RBA's Statement on Monetary Policy (SoMP) on Friday. The SoMP would reveal policymakers' updated economic forecasts. We expect downgrades of both growth and inflation outlooks.
BOE Upgrades Growth Outlook; Yet, Unemployment Slack More than Previously Expected Print E-mail
Special Reports | Written by | Feb 03 17 06:26 GMT
BOE voted unanimously (9-0) to leave the Bank rate unchanged at 0.25% and the asset purchases program at 435B pound for UK gilts and 10B pound for non-financial GBP investment-grade corporate bonds. The members revised the growth forecasts significantly higher but left the inflation outlook largely unchanged. The latter was mainly due to the judgment that the labor slack was more than previously expected. Despite stronger growth outlook, Governor Mark Carney warned of the uncertainty over Brexit, cautioning that "there will be twists and turns along the way". While he reiterated that "we can see scenarios in either direction" for policy, we expect BOE to leave the monetary policy and the QE program unchanged at least in the first half of the year.
Fed Upbeat About Employment, Next Rate Hike Data Dependent Print E-mail
Special Reports | Written by | Feb 02 17 04:30 GMT
FOMC voted unanimously to leave its policy rate within a target range of 0.50-0.75%. The outcome had been widely anticipated as the Fed just adopted rate hike of +25 bps in December. Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the federal fund rate'. The market has only priced in 2 rate hikes this year, although the December dot plot signaled there might be 3. CME’s 30-day Fed fund futures suggested a 17.7% chance of rate hike in March, down from 20.3% prior to FOMC meeting. Yet, they priced in a 38.8% chance in May, compared with 37.7% the day before the meeting.
FX 2017: CNY – Pressures From USD Strength, Capital Outflows And Growth Slowdown NOT Relieved Print E-mail
Special Reports | Written by | Jan 25 17 02:39 GMT
Chinese GDP expanded +6.7% in 2016, grabbing the mid-point of government's target of 6.5-7%. Growth is expected to decelerate further, probably reaching +6.5% this year. At the Central Economic Work Conference held last December, top leaders of the Chinese Communist Party indicated the policy would focus on controlling credit and housing risks, compared with stimulating growth in the past year. Yet, growth is still an issue concerning the government, with achieving growth targets a critical factor to ensure smooth leadership transition in late 2017. Meanwhile, renminbi should depreciate further. Besides the broadly-based strength in US dollar, concerns over further renminbi depreciation would continue to lead to huge capital outflow, a behavior that aggravate renminbi's weakness. We expect USDCNY to rise above 7 in 2Q17.
BOC Sent Dovish Message On Concerns Over Trump's Protectionist Policy Print E-mail
Special Reports | Written by | Jan 19 17 08:52 GMT
As expected, BOC left its overnight rate unchanged at 0.5% in January. Yet, it delivered a more dovish than expected message and sent CAD to a one-week low against USD. At the press conference, Governor Stephen Poloz revealed that 'Governing Council was particularly concerned about the ramifications of U.S. trade policy, because it is so fundamental to the Canadian economy'. He suggested that further rate cut cannot be ruled out of US' protectionist policy puts BOC's inflation target at risk.
FX 2017: - CHF: SNB To Tolerate Modest EURCHF Drop Print E-mail
Special Reports | Written by | Jan 18 17 07:21 GMT
We expect EURCHF to weaken modestly from current level. Elevated political uncertainty in Europe should maintain demand for Swiss franc as a safe haven, a status which accelerating buying of the franc in several occasions in 2016, including Brexit referendum and US presidential election. While FX intervention is still on, we expected SNB to be a little more tolerable to franc's appreciation than the previous years. Switzerland's economic outlook has improved over the past months with gradual recovery seen in exports and inflation. Meanwhile, strength in US dollar should also allow the franc to weather some appreciation against the euro. In our estimate, EURCHF might drop to 1.05 by end-2014, -2.8% below SNB's unofficial floor of 1.08, after the central bank's removal of the 1.2 threshold in January 2015
FX 2017: JPY – Yield Curve Control To Keep Yen Weak Print E-mail
Special Reports | Written by | Jan 16 17 02:44 GMT
Recent correction does not change our relatively positive outlook over USDJPY this year. Donald Trump's victory at the US presidential election last November triggered sharp rally in interest rates and USD, facilitated by unwinding of USD shorts and opening of USD longs. Despite a pullback after soaring to a recent high 118.66 in mid-December, reflation trades, hinging on the bets that Trump's administration would drive quicker growth and inflation, remain in play and should push USDJPY higher after consolidation. Yield curve targeting announced in September indicates that BOJ would strive to keep the 10-year JGB yields close to its target by buying sufficient amounts of bonds. This, together with the sharp rise in US yields, helps accelerate divergence of Japanese yields from those in the US, pressuring Japanese yen. We do not feel surprised if prices corrects to 110-112 in 1Q17. Rather, it offers a buying opportunity for a resumption of recent rally. Risk to USDJPY's strength is slower-than-expected and/or milder-than-expected implementation of Trump's pro-growth policy.
China Watch: Soaring Oil Prices Weighed On Trade Surplus Whilst Lifted PPI Print E-mail
Special Reports | Written by | Jan 13 17 07:15 GMT
China's trade surplus narrowed to US$40.8B in December from USD44.6B a month ago. From a year ago, exports contracted -6.1% y/y, deteriorating from a -1.6% drop in November, while imports growth decelerated to +3.1%, from November's expansion of +13%. Both contraction in exports and expansion in imports came in worse than expectations. We are concerned that rising oil prices would continue to weigh on the country's balance of payment given China's huge crude oil imports. Released last week, the country's FX reserve was reported to have dropped -US$41B, to US$3.01 trillion, in December. Similar to the past 5 months, the decline was driven by government's selling of foreign currencies to moderate renminbi depreciation
FX 2017: GBP – Brexit Uncertainty Haunting… Print E-mail
Special Reports | Written by | Jan 12 17 07:47 GMT
British pound was the most volatile G10 currency last year with the trade weighted index plunging -15% on annual basis, despite a -5% rebound from the October low. Sterling fell about -16% against both US dollar and the euro for the year. The huge volatility was mainly driven by political reasons: Brexit referendum, resignation of David Cameron, as succession of Theresa May, as Prime Minster, as well as May's announcement to trigger Article 30, followed High Court's ruling that MPs must be consulted before triggering Brexit. In 2017, political risks should continue to haunt UK's economic developments as Brexit negotiations are prone to begin. The market has recently priced in higher BOE rate expectations due to rising inflation outlook and solid dataflow. Yet, we do not believe any rate hike would be adopted. The central bank would stand on the sideline, maintaining the bank rate at 0.25%, throughout the year. We are bearish over sterling, forecasting it to depreciate against USD and be range-bounded around current levels against the euro, which has been pressured by elevated political risks
FX 2017: EUR – Political Uncertainty And ECB's Dovish Tapering Continue To Weigh Print E-mail
Special Reports | Written by | Jan 09 17 02:45 GMT
Subdued economic growth and unconventional easing measures resulted in EURUSD's third consecutive yearly decline, although the loss was greatly trimmed to about -3%, last year. EURGBP, however, jumped +16% as sterling slumped on concerns over British economic outlook after Brexit. Risk is to the downside for the single currency in 2017 as pressured by elevated political uncertainties and ECB's dovish tapering stance. Recent upside surprises on inflation data would not make ECB less dovish. Core inflation remained weak and should only improve gradually this year, not sufficient for the central bank to commit to tapering. A break below the 1.0463 low in March 2015 has paved the way for EURUSD to go further lower. We expect EURUSD to reach parity by 2Q17, probably after French election.
FX 2017: USD - Fiscal Expansion and Additional Fed Rate Hikes To Extend USD Rally Print E-mail
Special Reports | Written by | Jan 04 17 07:44 GMT
2017 is year of high uncertainty, mainly hinging on the shift of global political agendas, from the new policy direction under Trump's administration, to the beginning of negotiations between the UK and the EU on Brexit, to the leadership transition in China. On the currency outlook, we remain constructive over USD this year, anticipating Trump's pro-growth policy would drive higher economic expansion and inflation, and facilitate a tighter monetary policy stance. With the market shy of pricing in three Fed funds rate hikes (as signaled in the December dot plot) this year, there is room for USD to rally further should incoming macroeconomic data eventually convince traders that more rate hikes are possible. We are bearish on Treasuries and expect US yields to move higher, especially at the front-end. Monetary policy divergence should bold well for the greenback, especially against the euro.
Recent Yen Weakness And Rising JGB Yields Mainly Driven By FOMC Rate Hike Expectations Print E-mail
Special Reports | Written by | Dec 21 16 07:54 GMT
The recent selloff in Japanese yen and widening in US-Japan yield differentials have been driven by the FOMC rate hike and expectations of further tightening in US monetary policy. Indeed, BOJ’s action has minimal impact on the phenomena of late. BOJ on Tuesday left its interest rate targets unchanged with the short-term and -10 bps and the 10-year JGB yield at around 0%. The asset purchase program also stays at approximately 80 trillion yen of JGBs annually. The central bank also upgraded its current economic assessment and outlook.
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