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Action Insight: Special Reports

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Fed Unveiled Rate Hike In June Unlikely Print E-mail
Special Reports | Written by | May 21 15 03:42 GMT
The FOMC minutes for the April meeting contained little news. Yet, the indication that a rate hike in June is unlikely supported sentiment, lifting Wall Street temporarily. Members generally judged that the slowdown in growth in the first half of the year was temporary. They have 'revised up modestly' the medium-term projection for real GDP growth, whilst the forecast for inflation in the near term was 'revised up a little', due to 'the slightly higher-than-expected recent monthly data on core consumer prices and a path for crude oil prices that was a bit higher than in the previous projection. The risks to the forecast for real GDP and inflation were 'tilted to the downside'. The minutes do not alter our forecast that the first hike of the Fed funds rate would likely be adopted in September.
BOE Minutes Warned Of Upside Risks In Housing Market Print E-mail
Special Reports | Written by | May 20 15 11:12 GMT
Delivering little surprise, the BOE minutes for the May showed that policymakers voted unanimously to leave the Bank rate at 0.5% and the asset purchase program at 375B pound. Martin Weale and Ian McCafferty continued to judge that it's finely balanced between keeping rates on hold and raising them. They voted for rate hikes in late 2014 but have been voting for maintaining the status quo since January as inflation softened. While anticipating that inflation would remain close to zero in the very near term, the members warned of the upside risks in house prices in the second half of the year.
RBA Stays Open For Further Easing Print E-mail
Special Reports | Written by | May 19 15 06:37 GMT
RBA minutes for the May meeting unveiled that policymakers had consider reducing interest rates in June. Yet, the cut was implemented in May as information had shown that growth would take longer to strengthen and it coincided with the release of the Statement on Monetary Policy. While noting the slowdown in China, weak CAPEX plans and concerns about the employment condition were the key reasons for adopting a rate cut in May, the RBA remains opens for further easing in June. The central bank also noted that it did not see the lack of forward guidance 'as limiting the Board's scope for any action that might be appropriate at future meetings'.
RBNZ Paves Way for Rate Cut Print E-mail
Special Reports | Written by | May 15 15 07:15 GMT
We believe the chance of a RBNZ rate cut in June has increased. In the Financial Stability Report released Wednesday, the central bank indicated that the financial system has continued to face 3 key areas of risk: the rise in Auckland house prices, the dairy sector, which is experiencing a sharp fall in incomes in the current season, and the extremely loose global financial conditions. Regarding the first risk, the RBNZ has proposed new loan-to-value ratio (LVR) restrictions, subject to consultation and will be implemented in October 2015. We believe that the new measures would allow the RBNZ to deliver a rate cut in June taking the OCR lower by -25 bps to 3.25%.
BOE Downgraded Growth Outlook in Latest Inflation Report Print E-mail
Special Reports | Written by | May 13 15 14:16 GMT
The quarterly inflation report shows that the BOE has been less optimistic over UK's growth outlook. The members revised lower GDP growth to +2.5% this year, from +2.9% projected previously. They also trimmed the forecast to 2.6% (previous: +2.9%) and +2.4% (previous: +2.7%) for 2016 and 2017 respectively. The BOE left the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound in May. The inflation report suggested that policymakers now expected the first rate hike to take place in 2Q16, compared with consensus of 1Q16. GBP, whilst staying at the highest level since 2015, pared some of its gains against USD following the report.
April Data Evidenced Further Slowdown In Chinese Growth Outlook, Further Easing Imminent Print E-mail
Special Reports | Written by | May 13 15 10:21 GMT
China's economic growth continued to deteriorate in April. Indeed, we had anticipated a soft set of economic data in April following PBOC's surprising rate cut over the weekend. We also expect further easing is needed for the government boost the economy and achieve its target of +7% GDP growth for this year.
PBOC Cut Policy Rates By -25 Bps Print E-mail
Special Reports | Written by | May 11 15 07:31 GMT
PBOC reduced both the 1-year benchmark deposit rate and the lending rate by -25 bps to 2.5% and 5.1% respectively. This is the 3rd consecutive interest rate cut in the current easing cycle, after the 2 cuts in March 2015 and November 2014. As we mentioned previously, the Chinese government has stepped monetary easing in order rescue the deceleration of economic growth. As the government aims at lowering the funding, we expect further cuts are likely given the relatively high rate despite the cut. The PBOC also lifted the ceiling of deposit rate to 1.5x of benchmark rate from 1.3x, signaling the government’s intention to liberalize interest rates.
UK Election Outcome: United Kingdom Got Divided Print E-mail
Special Reports | Written by | May 08 15 09:13 GMT
As Prime Minister David Cameron noted after winning his own seat in Oxfordshire, it’s very strong night for the Conservative Party. With 633 of the 650 seats in the House of Commons announced, Conservatives have won 318 seats and would remain the biggest Party. Exit polls suggested that Conservatives would get 316 seats, but it’s obvious that the Party has outperformed. Labour Party is expected to get around 239 seats, down from 256 seats in 2010. Whilst remaining the major opposition party, it would be Labours worst election in almost 3 decades as the Party is facing wipe-out in Scotland by Scottish National Party (SNP) which would probably win 58 of Scotland's 59 seats. The Party got 6 seats in the previous election. Led by Deputy Prime Minister Nick Clegg, the centrist Liberal Democrats would probably get only 10 seats (compared with its current 57 seats) across the UK. Currently trading at 1.5485, GBPUSD has soared +1.6% from Thursday’s close of 1.5243. Further gains would be seen if Conservatives’ seats exceed expectations and become the majority government. However, the strength should be short-lived as a conservative–led government would mean tougher fiscal tightening. SNP’s dominance in Scotland would make the United Kingdom more divided with Scottish referendum remaining a hot political issue. The EU referendum about UK’s membership might create instability in the medium-term though more and more British people prefer to stay in the Union.
UK General Election – Most Divided Ever Print E-mail
Special Reports | Written by | May 06 15 05:36 GMT
UK's general election this year would be the most uncertain one ever. With only 2 days to go before polling stations open, it remains unclear which party would win the most seats, let alone becoming the majority. The latest YouGov poll shows that the Conservatives and Labour are neck and neck on 33%, with UKIP on 12%, and the Lib Dems on 10%. With no party likely would win the majority of seats, a coalition government should be formed. It is believed that a Conservative-led government would be more fiscally responsible but would trigger a referendum over Britain's exit of the EU, whilst a Labour-Lib Dems government would result in relatively-slower deficit reduction more intervene in markets. Yet, the latter would endorse a friendlier environment with the EU. A Labour-led government supported by the SNP would lead to loosened fiscal policy and more market intervention.
RBA Cut Rate To 2%, Fuelling Of Housing Prices Inevitable Print E-mail
Special Reports | Written by | May 05 15 07:45 GMT
RBA cut the cash rate by -25 bps to 2% in May, after pausing over the past 2 months. Although household demand has improved while growth in employment has strengthened, softness in both mining and non-mining investment would continue to drag on private demand. Public spending has also remained subdued. The RBA 'judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand'. The central bank also noted that 'inflation is forecast to remain consistent with the target over the next 1-2 years, even with a lower exchange rate'. Aussie fell immediately after the announcement before rebound.
RBA To Cut In May Print E-mail
Special Reports | Written by | May 04 15 02:30 GMT
Following the previous cut in February, we expect the RBA would trim the cash rate by 25 bps again to 2% in May. The move has been hinted in last month's statement and by Governor Glenn Stevens in New York. In both March and April, it's noted in the policy statements that the cash rate would stay where it was 'for the time being'. Whilst noting that housing price in Sydney is 'rather exuberant', Stevens suggested that 'interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table'. He added that 'the board has clearly signaled a willingness to lower it even further, should that be helpful in securing sustainable economic growth'. Meanwhile, the May Statement on Monetary Policy (SMP) due next Friday should contain downward revisions in GDP and inflation forecasts.
RBNZ Signaled Easing Bias Print E-mail
Special Reports | Written by | Apr 30 15 03:49 GMT
Kiwi plunged, erasing the gains made over the past 2 days after release of RBNZ April statement. While the OCR stayed unchanged at 3.5% as widely expected, the statement was interpreted to be more dovish than the previous one. Indeed, Assistant Governor McDermott last week's comment has already indicated the RBNZ's easing bias and this meeting statement aimed at formalizing his idea. We expect, assuming the absence of exceptionally weak economic data, the central bank would leave the monetary policy unchanged.
FOMC Statement Signals June A 'Live' Meeting Print E-mail
Special Reports | Written by | Apr 30 15 02:21 GMT
Notably, the reference that 'an increase in the target federal funds rate remains unlikely' disappeared without being replaced by other languages. This change signaled that a rate hike in June cannot be ruled out. However, we retain the view that September would be a better timing although some hawk, such as Richmond Fed President Jeffrey Lacker, a voting member in 2015, would probably argue for tightening in the next meeting. The Fed acknowledged the softness of recent economic data and attributed it to 'transitory factors'. Yet, the central bank appeared confident that consumer spending would rebound in the coming months as 'households’ real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high'.
PBOC Plans To Buy Local Government Bonds? Print E-mail
Special Reports | Written by | Apr 28 15 06:57 GMT
Renminbi fell to the lowest level 13 months amidst news that PBOC would begin purchasing of local governments’ debts. As Reuters reported, China would soon initiate a round of “Chinese Quantitative Easing (QE)” with the PBOC directly purchasing assets from commercial banks so as to support the upcoming RMB 1 trillion “local government debt swap program”. If this materializes, it would further indicate that China has adopted a monetary easing policy stance. Unlike other central banks, such Fed, BOJ and ECB, which implemented QE when interest rates have fallen to zero or below, China’s benchmark one-year lending rate has stayed at 5.35% in March following to -25 bps cut.
China's Manufacturing Sector Contracted Further In April Print E-mail
Special Reports | Written by | Apr 24 15 06:30 GMT
Flash China Manufacturing PMI by HSBC fell to a 12-month low of 49.2 in April from 49.6 in March. The 'output' index slipped -0.9 point to 50.4, the lowest level in 3 months whilst 'new orders' dropped to a one-year low of 49.2 from March's 49.8. 'Output prices' and 'input prices' also accelerated the decline and increased the concerns over deflation. The report raised the downside risks to Chiba's growth and suggested more easing measures are warranted.
SNB Added More Accounts To Negative Rates Print E-mail
Special Reports | Written by | Apr 23 15 05:44 GMT
The SNB announced that it would eliminate some groups of sight deposit account holders from the exemption from negative interest, i .e. more accounts would be subject to negative interest rates. As noted in the statement negative interest will now also apply to the sight deposit accounts held at the SNB by enterprises associated with the Confederation, including PUBLICA, the pension fund of the Confederation. The affected account holders will be accorded the minimum exemption threshold of CHF 10M, to which negative interest does not apply. The only sight deposit accounts to be exempt from negative interest will be those of the central Federal Administration and the compensation funds for old age and survivors' insurance, disability insurance and the fund for loss of earned income (AHV/AVS; IV/AI; EO/APG). We believed the move signals that SNB is not satisfied with existing monetary policy in driving capital away from Swiss franc. CHF depreciated against EUR and the USD after the announcement.
BOE Sounded More Hawkish in April Print E-mail
Special Reports | Written by | Apr 22 15 11:31 GMT
British pound rose against US dollar and euro, after the BOE minutes unveiled that policymakers voted unanimously in April to keep the Bank rate unchanged at 0.5% and the asset-purchase program at 375b pound. The minutes also suggested that all members agreed that it was appropriate to leave the monetary policy unchanged at the meeting, although 2 members regarded the decision as 'finely balanced'. Besides suggesting the rate path expected by the market was too flat, the BOE also noted that inflation expectations had shown signs of stabilization after recent weakening and judged that the low rate of inflation would not lead to delays in households spending. Overall, the tone of the minutes was viewed as rather hawkish.
Dovish RBA Signaled Further Rate Cut, Concerned About Housing Price And Leverage Print E-mail
Special Reports | Written by | Apr 21 15 10:45 GMT
The RBA minutes for the April meeting delivered a rather dovish tone as policymakers discussed about further rate cut although they are awaiting more data to confirm such a need. Regarding the decision to keep the cash rate at 2.25%, the central bank noted that, 'taking all these factors into account, the Board judged that it was appropriate to hold interest rates steady for the time being'. The RBA remained concerned about the housing market and high household leverage. Despite depreciation in the Australian dollar, the central bank expected further decline in the currency. We expect another rate cut of +25 bps in May.
BOC Less Dovish About Inflation Print E-mail
Special Reports | Written by | Apr 16 15 05:54 GMT
The BOC left its target for the overnight rate unchanged at 0.75% for the 3rd consecutive month. Correspondingly, the Bank Rate stayed at 1% and the deposit rate at 0.5%. Yet, it sent a less dovish message this month by revising higher the inflation forecasts, despite downward revisions of 1Q15 and FY 2015 growth forecasts. On net, the central bank noted that risks to inflation are 'roughly balanced'. We retain the view that the monetary policy would stay unchanged for the rest of the year.
ECB: QE Remains in Progress until Sustained Adjustment of Inflation Seen Print E-mail
Special Reports | Written by | Apr 16 15 05:53 GMT
The ECB left the policy rates unchanged in April and reaffirmed that the asset purchase program would continue through September 2016 and at least until "we see a sustained adjustment of the path of inflation consistent" with the 2% ECB medium-term target. While acknowledging improvement in the financial conditions following implementation of the QE program, President Mario Draghi stressed that risks are skewed to the downside despite gradual rebalancing. Against this backdrop, any speculation about earlier tapering is 'premature'. Draghi also confirmed that the deposit rate would not be cut further below the current -20 bps. At the press conference, the president also indicated that concerns about bond scarcity are exaggerated and answered questions related to Greece's bailout.
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