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Action Insight: Special Reports

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BOC Revised Growth And Inflation Outlook Higher In October Print E-mail
Special Reports | Written by | Oct 23 14 05:31 GMT
The BOC left the overnight rate unchanged at 1% in October. Accordingly, the Bank rate stayed at 1.25% and the deposit rate at 0.75%. The tone in the accompanying statement was, however, modestly hawkish. Policymakers expected the global economy to pick up speed in 2015 and 2016 with accelerating US growth benefiting Canadian exports. The BOC also raised its growth estimates for this year and core inflation for 2015. As the central bank remained generally optimistic over the economic outlook, we continue to expect tightening to begin in the second quarter of 2015.
British Pound Declined after Dovish BOE Minutes Print E-mail
Special Reports | Written by | Oct 22 14 13:08 GMT
The British pound slipped after the release of the BOE minutes for the October meeting though it contains little news. As expected, policymakers voted 7-2 to leave the Bank rate unchanged at 0.5% and unanimously to leave the size of asset purchases at 375 pound. Weale and McCafferty remained the dissenters and favored raising the policy rate by +25 bps for a third consecutive meeting. The tone of the minutes was more dovish than the previous one as some members saw signs that UK growth is losing momentum. Most members judged that inflationary pressures from both the labor market and underlying CPI data were rather muted.
Decelerated Chinese Growth Calls For More Easing Print E-mail
Special Reports | Written by | Oct 21 14 09:06 GMT
China's GDP growth exceeded market expectations in 3Q14 but the dataflow for September depicted a mixed picture. GDP grew +7.3% in 3Q14, easing from +7.5% in the second quarter but exceeded market expectations of +7.2%. Growth was driven by a strong rebound in IP growth to +8.0% in September, up from +6.9% in August but was partly offset by the +16.1% in fixed asset investment growth in the first9 months of the year (FAI growth in the first 8 months of 2014 was +16.5%). Real estate investment eased +12.5% in September, down from +13.2% in August, whilst retail sales moderated to +11.6% from +11.9% in August. The set of data might lead the Chinese Communist Party to revise lower its growth target for 2015 and it has become more necessary for the government to implement further 'targeted easing' measures to bolster growth.
RBA Reiterated A Period Of Stable Interest Rates Print E-mail
Special Reports | Written by | Oct 21 14 07:33 GMT
The RBA minutes for the October sent little surprise and the message was largely the same as the September one. Policymakers reiterated the forward guidance for interest rate stability. Policymakers remained concerned about the rising home prices and had discussions about the macro prudential policy for home loans. However, no details were disclosed. On exchange rate, the central bank appeared to be less strict as it acknowledged the depreciation of Australian dollar
Fed's Beige Book Described US Growth As 'Modest to Moderate' Print E-mail
Special Reports | Written by | Oct 16 14 05:38 GMT
The Beige Book prepared by the Minneapolis Fed, covering the period before October 6 and does not incorporate volatile financial market conditions over the past week, indicates that the US economy continued to grow at modest-to-moderate' pace. Growth in employment remained steady while inflation stayed subdued. The report suggested that 'several Districts' were 'generally optimistic about future activity' and 'most Districts' showed slight to moderate growth in consumer spending. Employment was seen to have 'continued to expand at about the same pace as that reported in the previous Beige Book' but most Districts reported little to no change in price levels'.
Weakness In Inflation Should Prompt PBOC To Add Stimulus Print E-mail
Special Reports | Written by | Oct 15 14 07:43 GMT
Headline CPI in China decelerated to +1.6% y/y in September from +2% in the prior month. Food inflation moderated to +2.3% from +3% in August, leading non-food prices to ease to +1.3% from +1.5% previously. From a month ago, the reading rose +0.5% after a +0.2% increase in August. Increased food supplies trimmed food inflation while the austerity program hurt alcohol and tobacco sales. The property market continued to cool although many local governments reversed restrictions on the market. The recent trend suggested that inflation would remain soft and stay significantly below the government's target of +3.5%. The PPI deflation widened to -1.8% y/y in September from -1.2% previously, mainly driven by the sharp fall of commodity prices.
September Minutes: Members Argued About 'Considerable Time' Reference Print E-mail
Special Reports | Written by | Oct 09 14 03:34 GMT
The FOMC minutes for the September meeting unveiled little news about the central bank's monetary outlook. Policymakers, while acknowledging improving economic prospects, decided to keep the 'considerable time' language amidst concerns that the removal of which would lead to unexpected tightening financial conditions. Yet, the central bank emphasized that the 'considerable time' language would be changed if economic data are deemed favorable by policymakers. Immediate market reaction suggested that the minutes were interpreted as dovish. The US dollar declined while the euro and gold climbed higher.
BOJ Maintained Asset Purchase Program While Tweaking Output Assessment Print E-mail
Special Reports | Written by | Oct 07 14 08:44 GMT
The Bank of Japan maintained the asset purchase program unchanged, keeping the pace of increasing base money at 60-70 trillion yen per year through purchases of government bonds and risky assets, in October. While retaining the view that the central bank's 2% inflation target would be achieved next year without further monetary easing, policymakers acknowledged that weak consumer spending has hurting output and business sentiment. The BOJ admitted that the effect of the sale tax hike on the economy was 'prolonged'. A member dissented the description on inflation expectations and suggested the inflation expectations have been on an uptrend from a somewhat longer-term perspective.
RBA Left Cash Rate Unchanged For A Year, Maintaining Neutral Stance Print E-mail
Special Reports | Written by | Oct 07 14 06:58 GMT
The RBA left the cash rate unchanged at 2.5% and maintained the neutral stance in October. Despite signs of improvement in the domestic economy, the central bank retained the forward guidance that 'on present indications, the most prudent course is likely to be a period of stability in interest rates'. The RBA appeared to have toned down the stance on strong Australian dollar following the recent decline. Yet, it continued to warn that, at the current level, the Australian dollar has offered'less assistance than would normally be expected in achieving balanced growth in the economy'.
ECB Downplayed Target Of Balance Sheet Expansion Print E-mail
Special Reports | Written by | Oct 03 14 05:42 GMT
The ECB disappointed the market by sounding less dovish in the October meeting. President Mario Draghi appeared to have de-emphasized balance sheet expansion. While reiterating that ABS and covered bond purchases, together with the TLTROs, would have a sizeable impact on ECB's balance sheet, the statement did not mention the target for the balance sheet expansion. Indeed, Draghi only stated in the press conference that the size of purchases would depend on the macroeconomic data flow, especially inflation and inflation expectations. On the economic assessment, Draghi continued to warn of the weakening of growth momentum and recalled that business surveys for September continue to disappoint. The policy statement again noted that risks were skewed to the downside and added that a close monitoring of the situation was needed. After the press conference, the ECB published further detailed on its ABSPP program under which it plans to purchase ABS from 4Q14 onwards, focusing on the secondary and primary market. Market reaction was negative with European bank equities (especially Italian and Spanish banks) falling and periphery bonds spreads widening.
The Week Ahead: Details about ECB's ABS Purchases Expected Print E-mail
Special Reports | Written by | Sep 29 14 13:49 GMT
The focus of this week is ECB meeting due Thursday and US' employment report due Friday. For the former, investors await more details about the ABS purchase scheme announced in September while the latter would probably show further improvement in the job market. Investors would also pay close attention to China's official PMI, following upside surprise from the preliminary HSBC PMI released last week, and UK's 2Q14 GDP growth report. Earlier on Monday, RBNZ confirmed currency intervention by selling a net NZD521M, the largest amount since July 2007. Kiwi slumped.
Japanese Yen May Weaken Further Should BOJ Extend Monetary Base Print E-mail
Special Reports | Written by | Sep 25 14 12:16 GMT
Japanese yen resumed weakness after a briefly rebound against the US dollar after Prime Minister Shinzo Abe voiced concerns over the pace of yen's depreciation. He warned of the impact of the weaker yen on small businesses and regional economies. His comments were echoed by Akira Amari, minister for economic revitalization, that “sharp fluctuations” JPY is “not good” for the economy. While he refrained from saying which level is appropriate, he indicated that “the current pace is not desirable”. USDJPY reached 109.49, the highest level in 2008, last Friday. The pair had been trading within a range of 101-103 since the beginning of the year before breaching the upper bound in mid-August. We believe the rally has been driven by a series of factors including the buildup long position by speculations, buying of the greenback by Japanese institutional investors as well as the exit from short position with the stop loss level triggered.
China To Continue To Add Stimulus Despite Finance Minister's Hawkish Comments Print E-mail
Special Reports | Written by | Sep 23 14 09:30 GMT
Comments that Chinese Finance Minister Lou Jiwei made at the G20 meeting damped market sentiment. Despite signs of slowdown, Lou indicated that "China will not make major policy adjustments due to changes in any one economic indicator'. Investors were concerned that the restraint from adding stimulus to the market would add further downside surprise to the growth outlook of the world's second largest economy. That said, we continue to expect the government to lower interest rates and inject liquidity to the market to stimulate growth.
The Aftermath of Scottish Referendum Print E-mail
Special Reports | Written by | Sep 20 14 03:08 GMT
The dust is settled in the Scottish referendum with 55% voted "No" to independence while 45% voted "Yes". Yet, the story does not end here. Westminster has made promises of further devolution for Scotland with new powers over tax, spending and welfare to be agreed by November, and draft legislation published by January. There would be considerable changes in constitutions and thus the "no" vote is not equivalent to "no change" in the UK. The focus now is returned to the economic and monetary outlook. We expect to see a mixed picture in GBPUSD whilst EURGBP would meet further selling pressure.
SNB Strengthened Stance To Interfere EURCHF If Inflation Deteriorates Further Print E-mail
Special Reports | Written by | Sep 18 14 11:24 GMT
The SNB intensified the stance that it would use all possible means to combat deflation, as the central bank revised lower the growth and inflation outlook in the September meeting. Policymakers announced to defend the 1.2 floor of EURCHF, noting that 'given a worsening of the environment, the key remains the minimum exchange rate'. In the meantime, the central bank also left the target range for the three-month Libor unchanged at 0.0–0.25%.However, EURCHF weakened after the statement as the market had anticipated that the central bank would accelerate easing measures and there had been rumors that the SNB would adopt negative rates.
FOMC Left 'Considerable Time' Language But Generally Viewed As More Hawkish Print E-mail
Special Reports | Written by | Sep 18 14 02:54 GMT
Market reactions suggested that investors viewed the September FOMC meeting as a hawkish one although the Fed retained the language that 'it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends'. Treasury yields and the US dollar climbed higher as fed funds 'dot plot' moved higher. Meanwhile, the Fed continued QE tapering and announced a further US$10B reduction in asset purchases. On the accompanying statement, it is stated clearly that the asset purchase program would end at its next meeting.
BOE Minutes Show Another Month Of 7-2 Split Of Monetary Decision Print E-mail
Special Reports | Written by | Sep 17 14 09:49 GMT
The BOE minutes for the September meeting showed a 7-2 vote to keep the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. Same as the August meeting, Martin Weale and Ian McCafferty dissented the policy decision and voted for a +25-bps hike to 0.75%. The staff revised higher their forecast for 3Q14 growth to +0.9%, whilst noting downside risks in 4Q14. The central bank only touched the September 18 Scottish referendum briefly, noting the uncertainty of the outcome has raised the volatility in the foreign exchange market.
FOMC Meeting And Scottish Referendum Key Market Movers Print E-mail
Special Reports | Written by | Sep 15 14 07:58 GMT
We have a busy week ahead with the focus clearly on the FOMC meeting and Scottish referendum. While the Fed's move in September is widely expected, the monetary policy outlook is what investors mostly concerned about. A more hawkish statement would intensify speculations that the first rate hike would come earlier than expected. The Scottish referendum would be a highly uncertain event as various polls have shown that it would be very tight race. During the week, the RBA minutes for the September meeting would be released on Tuesday. On Wednesday, the BOE minutes would be released with investors focusing on whether there were more members dissenting on maintaining the status quo.
RBNZ Paused In Rate Hike, Probably Until Next Year Print E-mail
Special Reports | Written by | Sep 11 14 03:39 GMT
The RBNZ delayed the rate hike schedule in September amidst lower inflation forecasts. The central bank left the OCR unchanged at 3.5%, following rate hikes over the past 4 consecutive meetings. Governor Graeme Wheeler indicated that 'it is prudent to undertake a period of monitoring and assessment before considering further policy adjustment'. The RBNZ appeared deliberatively vague in communicate the timing of the next rate hike, noting that it expects 'some further policy tightening will be necessary to keep future average inflation near the 2% target mid-point and ensure that the economic expansion can be sustained'. Overall, the policy statement appears more dovish than expected on reduced inflationary pressure.
Pound Got Pounded - Scottish Independence Referendum Creates Huge Uncertainty In UK's Prospect Print E-mail
Special Reports | Written by | Sep 09 14 04:26 GMT
The major event in the UK this month is undoubtedly Scotland's independence referendum on September 18. The latest polling result from YouGov shows that, excluding undecided voters, 'Yes' vote (51%) surpassed 'No' vote (49%) for the first time on September 6 on the question 'Should Scotland be an independent country?'. GBPUSD slumped more than -1.5% to 1.607 (as of September 9), the lowest level since November 2013, following the -1.6% selloff last week. The uncertain outlook, economic, fiscal, monetary, political, etc, in the continuing UK (rest of UK, rUK) after Scotland goes independent has been unnerving investors. Worse still, it appears that the British government has not prepared any contingency plan for the case of a breakup, although the BOE indicated that it has plans to provide emergency lending to Scottish banks in the case of deposit flight. The Scottish Government proposes that the Independence Day will be on March 24, 2016. That will ensure that the Scottish parliament elections would take place on May 5 2016 and there would be sufficient time for negotiation of various issues after the September 18 referendum. We believe the issues concerning investors the most are the currency and debt allocation/fiscal issues in rUK. These are the areas that this article would focus on.
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