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Action Insight: Special Reports

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SLF Rate Cut A Step Further In Interest Rate Liberalization Print E-mail
Special Reports | Written by | Nov 25 15 01:46 GMT
Effective November 20, PBOC's Standing Liquidity Facility (SLF) rates were lower with the overnight rates down -175 bps to 2.75% and the 7D SLF rate down -225 bps to 3.25%. The SLF was introduced in 2013 as PBOC sought to meet the short-term liquidity demand of large financial institution during of periods of tight liquidity. The operations also aim at reducing interest rate volatility and preventing liquidity risks. The move this time marks an early step for China's establishment of the interest rate corridor and the central bank's commitment in the interest rate liberalization reform. It should be noted, however, that the SLF rate cuts should not be interpreted as a replacement for benchmark interest rate cut or for RRR reduction. Indeed, further easing though RRR and interest rate reductions is highly likely for rescue for growth slowdown.
FOMC Minutes Echoed December Liftoff, Unveiled Members' Divisions Print E-mail
Special Reports | Written by | Nov 19 15 04:55 GMT
The statement for the October FOMC meeting had surprised the market with a hawkish note, heightening speculations of a rate hike in December. However, a look in the more detailed minutes suggested that policymakers remained divided on a number of issues, in particular inflation and employment. The minutes unveiled that 'several participants' judged that it would be prudent to consider additional easing if deterioration of the economic outlook undermines improvements in the employment market and impedes inflation from returning to the +2% target. The market continued to project a rate hike in December with CME futures pricing in 67.8% chance of such move after the minutes, down from 72% before the release.
Renminbi's SDR Inclusion More Symbolic and Pragmatic in Boosting Chinese Market-Oriented Reform Print E-mail
Special Reports | Written by | Nov 18 15 14:31 GMT
Last Friday, the IMF announced that its staff recommended China's renminbi (CNY) to be included in the Special Drawing Right (SDR) basket. As noted in the statement, CNY has long met the criterion of "widely used", given China's international trade status and active developments of offshore markets. A more controversial issue had been whether it meets the "freely used" criterion. IMF staff suggested that the currency meets the requirements of "being 'widely used' for international transactions and "widely traded" in the principal foreign exchange markets". The IMF board would discuss the final decision on November 30. In a highly likely event that the inclusion would be approved, the actual inclusion might take place in 4Q16.
RBA Minutes Suggested Weak Inflation Might Make The Case For Further Easing Print E-mail
Special Reports | Written by | Nov 17 15 07:44 GMT
RBA minutes for the November meeting unveiled that signs of improvement in economic activity in recent months indicated that 'leaving the cash rate unchanged at this meeting was appropriate'. However, they remained concerned about the weakness in inflation and noted that 'the inflation outlook may afford some scope for further easing of monetary policy, should that be appropriate to lend support to demand'. Policymakers also suggested that the slowdown in emerging market came in faster than expected. Yet, the moderation would likely continue for some time. The RBA suggested that slowdown in China and other emerging economies would 'likely to be more persistent than expected'. Growth in Australia's trading partners would be 'slightly below its decade average over the period ahead'. We retain the view that the RBA would keep its cash rate unchanged at 2% for the rest of the year and likely for the first half of 2016.
Exaggerated Report Does Not Derail Australia's Employment Growth Trend Print E-mail
Special Reports | Written by | Nov 13 15 04:44 GMT
Australia recorded the largest payroll increase since early 2012 in October. Employment added +58.6K in October, beating expectations of +15K and a -1K decline in September. The unemployment rate surprisingly dropped to 5.9% from 6.2% a month ago, marking the lowest level since May 2014. The participation rate picked up to 65% from 64.9% in the prior month. Aussie jumped to a 4-day high of 0.7153 following the report. Prices have remained firm since then. Yet, caution has to be taken when interpreting the report as Australian Bureau of Statistics has noted, in recent years, problems with compiling the data and the accuracy of the October report is questionable
October Data Indicate China's GDP Growth To Falter Below +7% in Fourth Quarter Print E-mail
Special Reports | Written by | Nov 11 15 08:44 GMT
China published a mixed set of macroeconomic data for October. Industrial production (IP) expanded +5.6% y/y, down from +5.7% in September and consensus of an improvement to +5.8%. Sector-wise, production in motor vehicle recovered with a +4.9% gain from a year ago. However, other sectors remained fatigue with cement and electricity contracting -3.5% and -3.2% respectively. Urban fixed asset investment (FAI) grew +10.2% y/y in the first 10 months this year, largely in line with expectations but weaker than September's +5.7% increase. Continuous deceleration in IP and FAI growth suggested that China's economy remained in a slowdown. Oversupply remains in many sectors of the Chinese economy, making growth to continue to falter below +7% in 4Q15. On a positive note, retail sales beat expectations, rising +11% y/y in October, compared with +5.9% in September and market forecast. Despite the improvement, we doubt if consumption would be strong enough to drive the economy's rebound. Indeed, persistent weakness in IP and investment would prove detrimental to wages, eventually constraining consumption.
SNB Pledges To Keep CHF Weak, Deeper Negative Rates And FX Intervention Expected Print E-mail
Special Reports | Written by | Nov 10 15 10:41 GMT
SNB kept its powder in September but revised lower the inflation outlook. The decision likely did not take into consideration of ECB's dovish comments in October. ECB President Mario Draghi suggested December is the timing for discussion for QE expansion, suggesting that "the degree of monetary policy accommodation will need to be re-examined at our December policy meeting when the new projections will be available”. We believe this matters in Swiss franc. SNB should stand ready to act if ECB announces to ease further in December, as the central bank judged Swiss franc (CHF) as overvalued and should depreciate for healthy developments of the economy. The tools that SNB would employ are confined to further reduction in interest rates and currency intervention
Super Thursday: BOE Surprises to Downside with Lower Growth and CPI Forecasts, Push Back in Tightening Print E-mail
Special Reports | Written by | Nov 05 15 14:25 GMT
The BOE voted 8-1 to keep the Bank rate unchanged at 0.5% with Ian McCafferty the sole dissenter proposing a rate hike. Yet, the message sent this month turned out to be more dovish than anticipated. The central bank now expects the first rate would begin later than previously suggested as UK's growth outlook might be somehow affected by slowdown in emerging market economies whilst inflation expectations in the short-terms are softened due to weakness in commodity prices. Also released today, BOE's Quarterly Inflation Report unveiled that the growth forecasts for 2015 and 2016 were revised, while inflation is not expected to reach its 2% inflation target for another 2 years with forecasts downgraded from this year through 2017.
Dated BOJ Minutes Unveiled Concerns Over China's Slowdown Print E-mail
Special Reports | Written by | Nov 05 15 05:00 GMT
The minutes for BOJ's meeting in early October unveiled that domestic demand remained firm despite stagnant growth in exports and the economy in general. Policymakers agreed that the underlying trend in inflation would continue to improve and they pledged to continue implementation of QQE until the target inflation rate of 2% is stable. On global economic developments, the central bank, however, noted concerns over slowdown in China and other emerging market would eventually affect Japan's exports and economic activities. The members again voted 8-1 to continue the asset purchase program aiming to increase the monetary base at an annual pace of about 80 trillion yen.
RBA: Improved Outlook Warranted Unchanged Policy, Soft Inflation Leaves Room For Cut Print E-mail
Special Reports | Written by | Nov 03 15 06:34 GMT
Despite strength in Aussie and tighter mortgage credit, the RBA left the cash rate unchanged at 2% in November. The central bank appeared less concerned over the global developments. As noted in the accompanying statement, the global economy 'is expanding at a moderate pace' and 'volatility in financial markets has abated somewhat for the moment'. It also remained aware of the Fed's potential tightening of monetary policy sometime in the future. Domestically, policymakers acknowledged 'moderate expansion' continued and business surveys suggested a 'gradual improvement in conditions over the past year'. Inflation was still low and should 'remain so, with the economy likely to have a degree of spare capacity for some time yet'. Policymakers forecast that inflation should 'be consistent with the target over the next one to two years, but a little lower than earlier expected'.
RBNZ Hints Further Easing, Warns of Kiwi Strength Print E-mail
Special Reports | Written by | Oct 29 15 06:33 GMT
RBNZ left the OCR unchanged at 2.75%, following 3 consecutive rate cuts in previous meetings. Policymakers remained cautious over global economic outlook as growth was 'below average' while inflation remained 'low despite highly stimulatory monetary policy'. Policymakers acknowledged the rebound in dairy prices but it's yet to tell whether the strength would sustain. The central bank also noted that strong house prices in Auckland remained a risk to financial stability. It suggested that increased home building would take 'some time' to correct the supply shortfall, despite implementation of the new tax measures and tougher macro-prudential policies.
Hawkish Fed Raised Hopes Of December Rate Hike Print E-mail
Special Reports | Written by | Oct 29 15 04:24 GMT
The October FOMC meeting turned out to be more hawkish than expected. In the accompany statement, the paragraph about concerns over global economic slowdown was removed, signaling the central bank is less worried about global developments. Although a number of Fed presidents have suggested a December rate hike remained on the table, the market expectations appeared to have shifted to a rate hike in 2016. We see the Fed intended to send a more hawkish message in October, so as to influencing market pricing of rate hike in December. The data over the coming 2 months would be critical for determining whether the Fed would begin tightening in December or in first quarter next year.
China's Rate Cuts Do Little To Boost Growth. Ceiling Removal A Gesture For SDR Inclusion Print E-mail
Special Reports | Written by | Oct 26 15 10:13 GMT
Effective October 24, PBOC cut the one-year lending rate -25 bps to 4.6% and the one-year deposit rate, also by -25 bps, to 1.75%. The RRR is trimmed by -50 bps to 17%, with an extra 50 basis point reduction for some institutions. A disappointing set of macroeconomic data for 3Q15, including further slowdown in GDP growth, moderation of CPI inflation and prolonged PPI deflation, as well as elected borrowing cost were the key reasons triggering further monetary easing. The central bank also removed the upper floating bound for the deposit rate which was set at 1.5x of the benchmark rate. This is likely an attempt to increase internationalization of renminbi.
ECB's Draghi Signaled to Discuss Further QE in December Print E-mail
Special Reports | Written by | Oct 22 15 14:13 GMT
As expected, ECB left the main refinancing rate unchanged at 0.05%. The marginal lending rate also stayed unchanged at 0.3% and the deposit rate at -0.2%. At the press conference, President Mario Draghi acknowledged that the QE program has been "proceeding smoothly" and would "continue to have a favorable impact". Yet, he indicated that the decline in commodity prices and concerns about slowdown in emerging markets would prolong deflation. As such, the central bank would re-examine its bond buying program in December. This is interpreted as a dovish message and EURUSD fell below 1.12 for the first time since early October after Draghi's comment. The market is quickly pricing in further easing in coming months.
BOC Trimmed Economic Outlook, As Decline In Commodity Prices Deteriorates Growth Print E-mail
Special Reports | Written by | Oct 22 15 03:48 GMT
The BOC meeting turned out to be more dovish than expected. While leaving the overnight rate at 0.5%, the central bank trimmed its growth forecast for 2016 and 2017, and pushed backward the timing of the economy’s expected return to full capacity to mid-2017. Domestically, the BOC acknowledged that the economy has rebounded as projected in July. However, weakened dynamics in global growth should affect the country’s economic expansion which highly reliant on exports. Canadian dollar plunged more than -1% against US dollar. The loonie had strengthened against greenback over the past 3 weeks.
China Watch: Growth Slowed Further in Third Quarter, Government Prone To Downgrade Outlook Print E-mail
Special Reports | Written by | Oct 20 15 09:58 GMT
China's latest set of economic data drove equities higher. Let alone the suspicion in the accuracy of its dataflow, we do not feel the headline figures were encouraging. China's GDP growth fell below +7% for the first time since 2009. Manufacturing activities and fixed asset investment growths missed expectations. The only positive ingredient was the improvement in retail sales. While the set of data might not send an urgent signal for acceleration in easing measures, this should not hinder the government from revising the GDP growth target to 6.5% in the 13th 5-year plan meeting which would begin next week.
Members More Upbeat Over Domestic Growth And Employment Outlook, RBA Minutes Suggested Print E-mail
Special Reports | Written by | Oct 20 15 04:59 GMT
The RBA minutes for the October meeting indicated that policymakers turned more upbeat over the domestic economic developments, although the rally in property market prices remained a concern. The appeared confident that low interest rates and low exchange rate were stimulating growth. Meanwhile, the central bank judged that growth slowdown in China and Fed’s rate hike schedule are still the major uncertainties in the global economic outlook. We retain the view that the RBA would maintain the cash rate unchanged at 2% for the rest of the year.
ECB Saw More Downside Risks To Growth And Inflation Print E-mail
Special Reports | Written by | Oct 09 15 05:34 GMT
Similar to the Fed's, the ECB minutes for the September meeting showed that the policymakers were concerned about the global economic outlook, especially slowdown in China and other emerging markets. The Governing Council generally agreed that downside risks to Eurozone's recovery and inflation have increased, as a result of lower commodity prices, a stronger euro and a lower growth prospect. The central bank reiterated that the monthly asset purchases of 60B euro would be fully implemented until the end of September 2016, and beyond if necessary. The minutes stressed that 'a substantial degree of accommodation was still in the pipeline'.
Concerns Over Global Economic Slowdown Refrained Fed From Raising Rates Print E-mail
Special Reports | Written by | Oct 09 15 03:31 GMT
The FOMC minutes for the September meeting unveiled that concerns over the global economic outlook had made policymakers decide to keep rates unchanged. They believed it was 'prudent to wait' for more information to confirm that the economic outlook had 'not deteriorated' and that inflation would gradually return to +2% over the medium term. Some Fed members suggested after the meeting that a rate hike decision was a close call. However, we do not get such feeling after reading the minutes. We saw some participants were considering raising the policy rate by the end of this year, rather than in September. In order to emphasize the worry over the global economic outlook, the minutes even added a risk statement that 'recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term'.
BOE Kept Bank Rate Unchanged, Forecast Inflation to Pick Up More Gradually Print E-mail
Special Reports | Written by | Oct 08 15 12:36 GMT
Same as August and September, the BOE voted 8-1 to keep the Bank rate unchanged at 0.5% and decided unanimously to leave the asset purchase program at 375B pound. Ian McCafferty remained the only member favoring a rate hike of +25 bps is warranted. He suggested that "the likely prospective increase in domestic costs was sufficient to justify an immediate increase in Bank Rate". While acknowledging the slowdown in emerging market economies, the members refrained from over-worrying about the situation in China. Domestically, growth might ease in the third quarter. The BOE now expects inflation to rise more gradually than it stated in the August Inflation report. This is probably an indication that interest rates would stay low for longer.
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